Life moves quickly in the daredevil world of financial spread betting, where paper profits can turn into real losses in no time at all. Just ask Plus500, one company catering for retail punters’ appetite for making leveraged bets on the short-term price movements of shares, commodities, currencies and even cryptocurrencies.
Back in December, Plus500 said it had “performed well” even after regulators had imposed a few industry-wide restrictions on risk-taking to protect amateur traders from their own bullishness. And now? It thinks revenues will be hit this year and profits will be “materially lower” than City forecasts. Cue a 31% fall in the share price.
Don’t weep for Plus500, which enjoyed a storming 2018 – net profits rose 90% to $379m (£295m) – but applaud instead an overdue intervention by the European Securities and Markets Authority.
It always seemed extraordinary that unwary punters could be offered the chance to transform relatively small flutters into much bigger gambles with the use of gearing. The industry’s grubby marketing tactics were another complaint, but leverage was always the biggest problem.
On some products, ratios of 100:1 were possible, which is partly why most punters lose money – a small underlying move can mean wipeout. The Financial Conduct Authority showed that 80% of retail customers lose money on contracts for difference, the main product, with £2,200 being typical.
The regulatory reform imposed caps on leverage – 2:1 on cryptocurrencies, 5:1 on equities, 30:1 on major currency pairs and so on – with the aim of slowing things down while still respecting the right of fools to be parted from their money. The subsequent drop-off in trading volumes lies behind Plus500’s warning. It also suggests regulators are on the right track – and not before time.
O’Leary’s €99m payday not so unlikely
Ryanair, one assumes, wants its shareholders to think the chief executive, Michael O’Leary, will have to perform miracles to collect the €99m performance-related bonus he has just been offered. Profits, expected to be €1.05bn-ish this year, have to reach €2bn in the next five years, according to one trigger. Alternatively, the share price has to improve from €11.12 to €21 in the same period.
But is the latter condition really so demanding? The shares stood at €19 in 2017 before Ryanair’s calamity with cancelled flights, strikes and quarrels with unions. So one could say O’Leary merely has to undo the damage of the last 18 months and then ride some inflationary breezes to hit his jackpot.
Indeed, from his point of view, the terms look even better. The wording of Ryanair’s announcement last Friday did not suggest this is an all-or-nothing scheme. A €21 share price would see him qualify for “all” of his options over 10m shares, implying he would still get some if Ryanair falls short.
O’Leary is a wealthy man but this generous carrot may explain why, against previous hints, he was happy to sign on for another five-year stint in the cockpit. But it is hard to understand how the board can justify its largesse. Or perhaps it is not so difficult. All 11 non-executive directors will get their own mini-schemes, worth €500,000 a head on the same basis. This may have helped to assuage doubts.
Debenhams delays the inevitable
And, in one bound, Debenhams was free? Sadly not. An extra £40m borrowing facility is merely a financial bandage – an expensive one, too – before the department store group attempts full surgery in the form of a “comprehensive refinancing”.
It is (slightly) encouraging that bankers are not panicking and have provided the means for Debs to get over a borrowing hump at the beginning of April. Landlords may be mildly pleased too: if the group is planning to demand lower rents, the request looks likely come after the next quarterly rent day. But the crunch refinancing cannot be delayed for much longer, as the board will realise.
The current timeframe imagines a conclusion by the end of the second quarter of this year, but the structure of any deal is anybody’s guess at this point. The challenge is to find an equitable distribution of pain between lenders, who may have to take a slice of equity to replace their loans, and landlords. The last in the list are the shareholders, who should read nothing into a one-quarter jump in the share price on Tuesday. At 4p, rather than 3.2p, the price still screams crisis.