IG Group downgraded by Canaccord after Swiss exchange rate shock

16th Jan 2015 09:29

Canaccord Genuity has downgraded IG Group (IGG) from 'buy' to 'hold' after the spread betting and CFD provider admitted that the shock removal of a currency ceiling in Switzerland on Thursday cost it £30m.The Swiss National Bank (SNB) took global financial markets by surprise after scrapping its currency peg against the euro, bringing a three-year policy to an end and sending the franc soaring and the single currency crashing against the dollar.IGG released a statement immediately to the market about the negative financial impact, as client trade positions were closed out to the detriment of the company.As a result, Canaccord said that it doesn't expect IGG to reach consensus forecasts for the year ending May 2015."Although the £30m is a one-off charge and unlikely to impact the company's longer-term earnings potential, it highlights the potential risk of extreme volatility to IGG's risk management system," said Canaccord in a research report."IGG does not take proprietary positions but this instance nonetheless highlights the potential risk for a spread betting operator. We expect management to clarify further (at the first-half results) the actions taken to mitigate such losses in future."The broker said it still remains positive on IGG's long-term growth potential but said that sentiment was likely to drag on the shares in the near term.It has lowered its target price from 700p to 650p for the stock, which was down a further 0.7% at 704.5p on Friday morning after a heavy fall the previous session.