Why running a spreadbetting giant is just the ticket for this maths buff
The boss of IG tells Katie Hope how volatile financial markets are boosting his industry
Question: what do mathematicians and spread-betters have in common? Answer: quite a lot, it turns out, as exemplified by the man at the very top of the UK’s largest spread betting and contracts for difference firm IG Index.
Tim Howkins, the firm’s chief executive for the past two years and – unusually for the City – the recipient of a first class degree in maths and computer science, explains it nicely.
While the “bet” in spread betting is often thought to mean by those with limited experience in the discipline that it is little removed from a Saturday punt on the horses at the bookies, Howkins points out that all the concepts are in fact maths based. “When you go short you basically own a negative number,” he says.
And while sport is the first likely connection that comes to mind with spread betting, at IG financial bets make up 94 per cent of total bets, and sport just 6 per cent, when a decade ago they were the same size. “We very rarely talk about the two in the same breath,” says Howkins who is not a big sports fan.
Trading Floor
It was the mathematical connection that lured him into the trade. Half way through working on an audit for IG, which was always the client he found “most fascinating”, IG made him an offer he couldn’t refuse and overnight he went from asking “silly questions” to answering them in his new role as finance director.
We meet in Howkins’ glass walled office, slap bang in the middle of IG’s busy trading floor. I am intrigued to find out what’s in the mini-fridge of spread betting’s top man: champagne, beer? But the options are limited to fizzy or still – water, that is.
The good news is that Howkins is as far removed as it is possible to be from the tired stereotype of what a top spreadbetting executive is supposed to look like. In his spare time he’s not to be found in nightclubs living it up, but is out in his garden, where he’s currently in the midst of hand pollinating his green house tomatoes with a little artists’ brush. In winter, he indulges in a spot of star gazing and is now building his own observatory.
Gray haired and a bit soft around the edges, the 46 year old has the manner of a kind, but stern, bank manager. And he is adamant that spread betting’s image of young wheeler dealers gambling away their excessive wage packets is inaccurate.
“It’s not a City client base. Those working for investment banks and fund managers have been completely complianced out. Typically people who spread bet work at a managerial or professional level, run their own businesses and are used to taking their own decisions.”
Increasingly that includes women. Female clients now make up 11 per cent of its client base, over double of the 4 per cent in 2002. Overall, across its spread betting and CFD businesses in the year to the end of May, IG opened 41,000 accounts compared to 22,500 the previous year, an 82 per cent increase. In the UK alone, IG has seen more than 2,000 new spread betting accounts in each of the last six months.
Volatility
The statistics do not include Howkins, who limits himself to the occasional dabble on competitor platforms. He sticks to short term bets on indices such as the FTSE 100 and oil and is coy on whether he comes out on the winning side, saying his bets are purely for research purposes to see what the competition is up to.
A big part of what is driving people towards financial spread betting is the current market volatility.
As share prices appear to be going in one direction only – down – IG is seeing higher volumes of customers aiming to profit from the sharp price swings in financial markets. “Volatility and falling share prices are good for us. When shares go down, we’re the only game in town,” says Howkins.
Immune
Howkins says there are no signs yet that clients are spending less in response to the deteriorating outlook. “If we have a deep recession then no business is immune. But our client base is pretty well financially cushioned, we had a record month in June and have seen zero impact from the economic downturn,” he says.
IG’s focus overseas, with 30 per cent of revenue now coming from outside the UK, also means its fortunes are diversified. All its overseas offices are now growing faster than its British operations. In the year to the end of May, revenues in Asia Pacific increased 115 per cent to £27.4m.The company is now looking at Japan as the next most promising area to expand into.
On the day we meet, Howkins has been up since 5am, a couple of hours earlier than his normal wake up call, to deliver the company’s full year results. In spite of the early start he’s decidedly perky, describing the 40 per cent rise in full year profit to £96.99m for the year to the end of May as “extraordinarily good”.
Well, he would say that, but it’s tough to find a City analyst who disagrees. Bad debts have increased: last year they represented 2.2 per cent of turnover compared to 1.2 per cent the previous year, but analysts are unconcerned. Citigroup analyst Richard Taylor says the absolute value of the bad debts is “small” with higher debts “inevitable” in the current climate. Daniel Havercroft of Investec says IG’s current valuation reflects these risks and undervalues the long-term growth prospects.
And what do his accountant peers think of him now? They are envious, he implies: “It’s the sort of business a lot of people with a head for numbers find interesting.”