Leucadia puts maximum exposure to loss due to FXCM at $500.8m

Maria Nikolova

“We do not have the power to direct the activities that most significantly impact FXCM’s performance therefore its management may make decisions that are not in our best interest”, says Leucadia.

Leucadia National Corp. (NYSE:LUK) has just reported its financial results for 2016, with the Forex world pinning its attention to what FXCM’s savior has to say about the impact of the recent events around the US broker on Leucadia’s financials and reputation.

In what may be seen as one of the saddest reports, Leucadia noted that:

“We do not have the power to direct the activities that most significantly impact FXCM’s performance therefore its management may make decisions that are not in our best interest.”

Moreover, Leucadia voiced its concerns regarding the future consequences of what happened to FXCM in the United States, hinting at further regulatory action against the broker outside of the United States:

“It is difficult to anticipate all of the ramifications of the recent regulatory settlement between the NFA, the CFTC, FXCM Holdings, FXCM U.S., and certain of its principals, including the impact to its relationships with customers, regulators outside of the U.S., and other entities with which the subsidiaries of FXCM transact, any of which could materially impact the value of our investment in FXCM.”

Let’s look at the numbers now:

Leucadia puts its maximum exposure to loss as a result of its involvement with FXCM at the sum of the carrying value of the term loan ($164.5 million) and the investment in associated company ($336.3 million), which totaled $500.8 million at December 31, 2016.

As of December 31, 2016, Leucadia has a 49.9% membership interest in FXCM and up to 65% of all distributions.

Leucadia notes it does not hold any interest in FXCM Inc., the publicly traded company, which is about to change its name. FXCM Inc. holds an economic interest of 68% in FXCM Holdings, LLC, which in turn holds 50.1% of FXCM Group, LLC. Leucadia owns the remaining 49.9% of FXCM Group, LLC, and its senior secured term loan is also with FXCM Group, LLC, which is a holding company for all of FXCM Group, LLC’s affiliated operating subsidiaries.

What did Leucadia say to its shareholders?

Of course, it had to strike an upbeat note. Basically, the most upbeat thing in the “Letter to shareholders”, after admitting that $155 million of the loan extended to FXCM remains outstanding, is:

“While we are disappointed that these events from a number of years ago (prior to our investment) could not be resolved in a more favorable manner, we believe that, with its new leadership, the cost savings that will be realized when FXCM withdraws from serving customers in the U.S. and the vigor of FXCM’s global businesses, FXCM remains well positioned to continue to recover from past events, to grow its platform, to raise profits and margins and to increase all stakeholders’ value.”

This reflects FXCM’s stance from recent press releases, seeking to calm down clients of FXCM non-US businesses. Let’s see whether this approach will work with Leucadia’s shareholders.

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