Jefferies puts maximum loss exposure due to involvement with FXCM at $130m

Maria Nikolova

Jefferies’ maximum exposure to loss as a result of its involvement with FXCM comprises the carrying value of the term loan ($61.6 million) and the investment in associated company ($68.4 million).

Jefferies Financial Group Inc (NYSE:JEF), formerly known as Leucadia National Corporation, has filed its 10-Q report for the quarter to end-February 2020 with the Securities and Exchange Commission (SEC). The document shows Jefferies’ estimates regarding its involvement with FXCM.

Jefferies’ investment in FXCM and associated companies consist of a senior secured term loan due February 15, 2021, ($71.6 million principal outstanding at February 29, 2020); a 50% voting interest in FXCM and rights to a majority of all distributions in respect of the equity of FXCM.

Net revenues from Jefferies’ FXCM term loan include gains of $2.5 million and $0.5 million during the first quarter of 2020 and 2019, respectively.

FXCM is considered a VIE and Jefferies’ term loan and equity ownership are variable interests. Jefferies has determined that it is not the primary beneficiary of FXCM because it does not have the power to direct the activities that most significantly impact FXCM’s performance. Therefore, Jefferies does not consolidate FXCM and Jefferies accounts for its equity interest under the equity method as an investment in an associated company.

Jefferies’ maximum exposure to loss as a result of its involvement with FXCM is limited to the carrying value of the term loan ($61.6 million) and the investment in associated company ($68.4 million), which totaled $130 million at February 29, 2020. This compares to $129.3 million at November 30, 2019.

During February 2017, Global Brokerage Holdings and FXCM’s U.S. subsidiary, Forex Capital Markets LLC (FXCM U.S.) settled complaints filed by the National Futures Association and the Commodity Futures Trading Commission (“CFTC”) against FXCM U.S. and certain of its principals relating to matters that occurred between 2010 and 2014. As part of the settlements, FXCM U.S. withdrew from business and sold FXCM U.S.’s customer accounts. Based on the above actions, Leucadia evaluated in the first quarter of 2017 whether its equity method investment was fully recoverable. The Group engaged an independent valuation firm to assist management in estimating the fair value of FXCM. The estimate of fair value was based on a discounted cash flow and comparable public company analysis. The result of the analysis indicated that the estimated fair value of Leucadia’s equity interest in FXCM was lower than the carrying value by $130.2 million.

The Group concluded based on the regulatory actions, FXCM’s restructuring plan, investor perception and declines in the trading price of Global Brokerage’s common shares and convertible debt, that the decline in fair value of its equity interest was other than temporary. As such, the Group impaired its equity investment in FXCM in the first quarter of 2017 by $130.2 million, which was recorded in Income (loss) related to associated companies.

During the fourth quarter of 2018, the Group recorded an additional impairment charge of $62.1 million related to the equity component of its investment in FXCM, which is based on updated expectations that had been impacted by the then revised regulations of the European Securities Market Authority (ESMA) and dampened operating results. Based on the updated projections, the Group evaluated in the fourth quarter of 2018 whether its equity method investment was fully recoverable. The result of the analysis indicated that the estimated fair value of the equity interest in FXCM was lower than the carrying value by $62.1 million. The Group concluded that based on the decline in projections and the adverse effects of the European regulations, that the decline in fair value of its equity interest was other than temporary. As a result, it impaired its equity investment in FXCM in the fourth quarter of 2018 by $62.1 million, which was recorded in Income (loss) related to associated companies.

Read this next

Digital Assets

Embarking on a Digital Currency Journey

Imagine you’ve stumbled upon a treasure map, leading you to untold riches hidden in the vastness of the internet. Instead of gold coins and jewel-encrusted goblets, this treasure comes in the form of digital currencies, the modern-day loot coveted by many.

Reviews

Traders Union Experts Share The Trading Analyst Review For 2024

Navigating options trading in rapidly shifting markets poses a considerable challenge. This is where options trading alert services become invaluable. They aid traders in keeping abreast of evolving opportunities and market trends. In this assessment, Traders Union experts scrutinize The Trading Analyst alert service to ascertain its efficacy. 

Digital Assets

BlockDAG’s Presale Achieves $9.9M: Aiming For A 5000-Fold ROI As Cardano’s Price Rises And Fantom Launches Sonic

Explore Cardano’s surge, Sonic’s efficiency, and why BlockDAG’s growth makes it the top crypto choice. A deep dive into the future of blockchain investments.

Digital Assets

US, UK probe $20 billion Tether transfers tied to Russian exchange.

U.S. and UK authorities are investigating the movement of $20 billion in the USD-pegged stablecoin tether (USDT) through Moscow-based exchange Garantex.

Digital Assets

BlockDAG Presale Raises $9.9M as Batch 5 Nears Sell-Out Amid Bonk’s Fluctuating Trading Volume & Spell’s Bullish Price

Explore BONK’s trading volume, SPELL’s market shifts, and why BlockDAG’s 10,000 ROI makes it an ideal crypto for savvy investors in 2024.

Digital Assets

Bybit expands into Europe amid regulatory scrutiny

Dubai-based cryptocurrency exchange Bybit is expanding its operations in Europe after encountering regulatory challenges in Hong Kong.

Digital Assets

Cathie Wood’s sponsored Bitcoin ETF sees historic $200 million inflows

The ARK 21Shares Bitcoin ETF (ARKB), co-sponsored by Cathie Wood’s ARK Invest, registered historic inflows exceeding $200 million on Wednesday, signaling a robust appetite among investors for Bitcoin-centric investments.

Digital Assets

Sam Bankman-Fried might see his 25-year sentence halved

Sam Bankman-Fried, the founder of the failed cryptocurrency exchange FTX, was sentenced to 25 years in federal prison by a Manhattan court on Thursday. This comes after he was convicted of defrauding customers and investors, with Judge Lewis Kaplan highlighting the potential future risks posed by Bankman-Fried.

Technical Analysis

EURJPY Technical Analysis Report 28 March, 2024

EURJPY currency pair under the bearish pressure after the pair reversed down from the major resistance level 164.25, which also stopped the sharp weekly uptrend at the end of last year,

<