CompaniesSep 24 2013

Broker needs £1.1m to avoid collapse as losses mount: report

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A London-based broker and small-cap equity dealer could be set to trigger a number of compensation claims after a report forecast sizable losses and stated the firm requires a substantial capital injection to avoid breaching capital adequacy thresholds, FTAdviser understands.

City Equities, which is still listed on Companies House as ‘active’, declined to comment on claims it has entered administration. The firm also failed to respond to repeated requests for comment in writing, over the telephone and in person.

City Equities remains authorised according to the FCA register, however its permissions were varied on 17 September to state that it must not “without the prior consent of the FCA, in any way dispose of, deal with or diminish the value of any of its assets”.

This requirement does not prohibit the company from dealing with or disposing of any of its assets “in the ordinary and proper course of business”, the FCA said.

An earlier variation of the firm’s permissions on 29 August 2013 means that City Equities is now also only able to transact execution-only business.

This follows on from the regulator ordering the firm to carry out a skilled persons review, otherwise known as a ‘section 166’ request.

The report, produced by Resources Global Professionals, is believed to warn that although total potential losses have not yet been determined, there are potentially “significant sums at stake”.

The report is thought to forecast that the firm will lose £93,000 per month for the foreseeable future, it will have insufficient capital within two months, and that it requires an immediate capital injection of more than £860,000 to avoid breaching capital adequacy requirements within the next 12 months.

It goes on to estimate a capital injection of about £1.1m will be needed to enable the firm to meet capital requirements for more than 12 months based on current projected losses, FTAdviser understands.

In its 2012 accounts, seen by FTAdviser, City Equities posted a loss of £1.48m for the year ending 30 November, compared to a loss of £542,728 in the previous year.

The report is also believed to state the firm has no “competence framework” or up-to-date job descriptions against which to assess new directors, senior managers or key roles it may seek to recruit, and nor does it have a competent CF11.

FTAdviser also understands that the firm’s directors have been looking for buyers. Marcus Cumberland, director of Ikon Capital Ltd, confirmed to FTAdviser that he understood City Equities may go into administration. He added that he was approached to buy the firm, but the deal fell through.

He said: “I was interested in the clear infrastructure of the business and it would have aligned well with our business model here, but we could not get the indemnities we were looking for so ultimately we could not complete a deal.”