Citigroup downgrades IG Group on FCA proposals

7th Dec 2016 11:59

(ShareCast News) - Citigroup downgraded IG Group to 'neutral' from 'buy' and chopped the price target to 470p from 950p after the Financial Conduct Authority announced plans on Tuesday to tighten the rules around contract for difference products."We see the move by the FCA as having put the introduction of leverage limits on the regulatory table. We do not believe this was something being considered by other regulators: rather, we have seen other EU regulators use their powers to ban specific firms where they deem appropriate, rather than make sweeping changes to the whole industry."Citi said the 38 % drop in the IG share price on the back of the news was justified as it noted that key proposals include leverage limits, restrictions on financial promotions and enhanced disclosure requirements.The bank pointed out that spreadbetting and contracts for difference accounted for 51% of group revenue in FY16. It cut its full-year 2018 earnings per share estimate to 37p from 55.5p to reflect a drop of around 30% in UK revenue year-on-year from FY17 to FY18.Citi said the introduction of leverage limits will lead to reduced trading activity, at least in the short term."We think it unlikely that clients will seek to place more margin in order to still gain the same nominal exposure, but will rather accept a lower exposure for the same amount of margin placed," it said.At 1230 GMT, the shares were up 3.1% to 500p.