London Capital Group (LCG) spent a lot of 2014 in the headlines as the struggling broker that went through a complete organizational makeover, highlighted by £17.5M in financing from GLIO Holding which was headed by Charles-Henri Sabet. The shareholder and regulatory approval of the financing led Sabet to be appointed Executive Chairman, the licensing of an Algoweb trading technology to power LCG’s liquidity management, as well as a larger turnover of upper management.
Today, LCG issued its 2014 financial report, non-surprisingly revealing year-over-year declines in revenues due to changes taking place at the broker, but forecasting improved results for the future. In addition, LCG named changes to its Board of Directors as well as naming Sabet its CEO. In the news, LCG shares (LCG.L) are higher by about 5% today to 22.5p, but remain well below their 52-week of 43.5p which was set in January prior to the Swiss National Bank’s removal of the EUR/CHF which shook the forex markets.
As part of today’s news, LCG and Sabet also released a strategy report which highlights many of the firm’s goals for the short and medium term. Gaining better understanding of the strategy, Forex Magnates spoke with Charles-Henri Sabet about the present and future of LCG.
Staff overhaul: By LCG’s estimates, 75% of their staff has been replaced, which equates to 50 new employees. While such a change can slow down a firm as it requires a training period for new hires to get up to speed on how the firm is run, Sabet expressed that it was a bit different for LCG. Specifically, he explained that the previous management team wasn’t a fit for the corporate change that LCG was aiming to achieve, which led to a “completely new management team being hired.” The result is that the new hires are less tied to acclimating themselves with how business had been operated in the past but can focus on achieving LCG’s new goals.
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International growth: Among the short-term strategy goals was a desire to grow internationally, with Europe specifically being mentioned in LCG’s report today. Sabet explained that they were taking a pragmatic approach to growing internationally, with an initial focus on Europe and the Middle East. But, although Sabet explained that LCG has a desire to “be very near to our clients and give better service,” they aren’t going to be quick to open regional offices, but first “market to the world and see where clients are coming from.” Based on where they experience customer demand, LCG plans to open regional offices beginning in 2016.
Algoweb: One of last year’s announcements was the multi-year licensing of the Algoweb trading infrastructure. Adding the product is part of today’s announcement that part of LCG’s strategy is “facilitating better access to financial markets” and “providing best-in-class technology.” In terms of Algoweb, Sabet explained that it is an algorithm- based liquidity management software. Already put in place, the product now handles LCG’s liquidity aggregation, with Sabet stating “it’s our core tool of handling liquidity.”
B2B Business: One part of LCG’s focus is that at least for the short-term there appears to be less of a focus in its B2B institutional business. Going forward, Sabet explained that they were focusing on the client trader facing business. As part of this, customers who were part of the institutional unit, but who don’t have credit relationships, are being reclassified as retail customers. While the changes aren’t expected to effect LCG’s institutional customers or their bottom line, the institutional unit is expected to be deemphasized. Sabet explained that LCG was also reviewing their White Label partnerships, and would focus on only retaining relationships that were drawing meaningful business as they streamline their operations.
A-Book, B-Book, Hybrid?: Last week, we asked Sabet about his opinion on forex dealing models. While having been viewed as less profitable, but safer, risks in the STP model were made apparent after January’s Swiss franc Black Thursday event that was felt more adversely by agency model brokers than market makers. Sabet answered that “the question is whether you want to take a credit risk (STP) or market risk (market-making). If you decide to take a credit risk you need a very large balance sheet against potential losses.”
Overall, Sabet explained that regardless of which model a broker chose, they needed to match the correct risk management staff with the expected risks, someone who could understand what the largest potential losses that could take place were. In that regard, he noted several larger brokers who had absorbed massive losses, but were able to continue as ‘business as usual’ following Black Thursday due to having held large cash balances to handle negative customer balances.