Jefferies cuts investment value in FXCM to $82 million
Jefferies Financial Group Inc. (NYSE: JEF) has reported its latest financials for the fiscal quarter ending February 28, 2023. Formerly known as Leucadia National Corporation, the parent company of FXCM, the group has seen mixed performance across its revenues and key segments.
Taken as a whole, Jefferies reported total revenues of $1.78 billion in 2018, down -7 percent from $1.91 billion a year ago. One of the biggest contributors to this figure was the drop in the investment banking segment, which nearly halved to $503 million worth of revenues compared to $945 million in 2022.
Looking at its net income, Jefferies completely failed to match what had been a record profit in the year prior, registering a figure of $133 million in the quarter compared to $327 million in 2022. But excluding charges related to the tax cuts, which amounted to $29 million, Jefferies would have reported net earnings of $158 million.
Details on FXCM investment
Jefferies’ latest filing with the SEC has also shed some light on the developments around its investment in foreign exchange broker FXCM. The company concluded that it has lowered the fair value of its equity interest in FXCM to $82 million. That compares to a $94 million valuation as of November 2022.
Jefferies further explained that it has a 50.0% voting interest in FXCM, which enables it to “significantly influence FXCM” through its seats on the board of directors. During the three months ended February 28, the company contributed additional capital of $5.0 million and has a senior secured term loan to FXCM, which had a fair value of $36.1 million.
For its part, the oil-to-beef conglomerate recovered the full amount of cash it had originally invested into FXCM back in 2015, following the FX industry convulsion triggered by the Swiss National Bank’s sudden move to scrap its cap on the EURCHF Exchange rate. More specifically, the company generated a cumulative $350 million in principal, interest, and fees from its initial $279 million investment in FXCM.
The statement further reads:
“We have equity interests in FXCM of $46.7 million and $59.7 million at February 28, 2023 and November 30, 2022, respectively, consisting of a 50% voting interest in FXCM and rights to a majority of all distributions in respect of the equity of FXCM, which is accounted for under the equity method of accounting and reported within Investments in and loans to related parties in the Consolidated Statements of Financial Condition. We also have a senior secured term loan to FXCM due May 6, 2023, which is accounted for at a fair value of $36.1 million and $35.1 million, at February 28, 2023 and November 30, 2022, respectively, and is reported within Financial instruments owned, at fair value in our Consolidated Statements of Financial Condition. FXCM is considered a VIE and our term loan and equity interest are variable interests. The assets of FXCM primarily consist of brokerage receivables and other financial instruments and operating assets as part of FXCM’s foreign exchange trading business.”
