Interactive Brokers puts maximum loss due to margin loans incident at $51m

Maria Nikolova

The company is currently considering pursuing the collection of the debts.

Online trading major Interactive Brokers Group, Inc. (IEX:IBKR) has published its 10-Q report for the first quarter of 2019, with the SEC filing including details about a margin loans “incident”.

Over an extended period in 2018, a small number of Interactive Brokers’ brokerage customers had taken relatively large positions in a security listed on a major US exchange. The company extended margin loans against the security at a conservatively high collateral requirement. In December 2018, within a very short timeframe, this security lost a substantial amount of its value. During the quarter ended March 31, 2019, subsequent price declines in the stock have caused these accounts to fall into deficits, in the face of the company’s efforts to liquidate the customers’ positions.

For the quarter ended March 31, 2019, as previously guided, Interactive Brokers has recognized an aggregate loss of approximately $42 million. In its 10-Q report, Interactive Brokers explains that the maximum aggregate loss, which would occur if the security’s price fell to zero and none of the debts were collected, would be approximately $51 million.

The company is currently considering pursuing the collection of the debts, although debt collection efforts are inherently difficult and uncertain. The ultimate effect of this “incident” on the company’s results will depend upon market conditions and the outcome of the debt collection efforts.

As of March 31, 2019 and December 31, 2018, approximately $25.9 billion and $27.0 billion, respectively, of customer margin loans were outstanding.

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