UK, Goldman Sachs writes down stake in CMC Markets

December 7, 2010Andy No Comments »

Investment bank Goldman Sachs has reportedly written down its £140 million stake in financial trading firm CMC Markets PLC only three years after making the landmark investment, The Telegraph reported, without citing sources.

The newspaper said the bank reached the decision to reduce the value of the holding on its books in order to reflect the ‘passive’ nature of its investment and its view of the present liquid value of the company.

The shift somewhat raises questions over the value of derivatives provider CMC Markets, one of the market leaders in CFDs and spread betting – at the time of the Goldman Sachs deal CMC was valued as much as £1.4bn – which Mr Cruddas, once known as ‘the City’s richest man’, still expects to float on the stock exchange within the next 12 months.

Towards this end, it is understood that CMC has recruited David Bennett, the former CEO of Alliance & Leicester, as a non-executive director to strengthen its board which brings the number of non-executives to three. Mr Bennett’s appointment comes just after the setting up of various board committees, including ones focused on auditing and remuneration.

Goldman still doesn’t have a seat on the CMC board but is hasn’t requested one either – and is not believed to be aware of any strategic plans Mr Cruddas might have.

A source close to Goldman Sachs noted that the investment bank’s holding in CMC represented a passive investment, however Mr Cruddas was quick to comment that this Goldman’s discounting of CMC’s valuation said more about the bank that it did about CMC Markets’ business.

Goldman originally acquired the 10% stake in CMC Markets in November 2007, when the markets were roaring and before the credit crisis had started to bite. At that time, it was thought that CMC Markets and Goldman would work together in various projects and joint ventures although this doesn’t seem to have materialised.

Another analyst referred to the fact that Goldman may have been cautious on the value of its CMC holding simply as a form of conservative book-keeping, to benefit from the uplift should CMC Markets list on the LSE.

However CMC Markets has already tried twice to float but was held back by difficult market conditions – both ended in it remaining a private company, 82% of CMC Markets which is still owned by Mr Cruddas and his family.

CMC Markets is believe to be operating profitably, although somewhat behind previous record years, with a profit of between £15m-£20m booked in the first six months of the year. The company is also believed to have in excess of £80m in cash in the bank and currently has a record number of clients and client money – but is not thought to be completing a record number of trades.

CMC provides online trading systems for banks, as well as offering private traders the ability to trade in CFDs – a type of derivatives contract known as a CFD – across a wide range of shares, forex currency pairs, commodities and government bond markets.

CMC Markets’ New CFD Platform

Meanwhile, separately it has been reported that CMC Markets is planning to launch a new CFD platform within the next quarter which will be based on the look and feel of its spread betting trading platform. The new CFD platform will include revamped charting tools and a ‘major piece of new functionality’ – quoting Craig Inglis, CMC Markets’ project manager. He refused to provide further details.

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