Leucadia says decline in fair value of its equity interest in FXCM is other than temporary

Maria Nikolova

Leucadia’ maximum loss exposure as a result of its involvement with FXCM is $231.7 million at December 31, 2017.

fxcm

Further to the publication of its key metrics for the final quarter of 2017, Leucadia National Corp. (NYSE:LUK) has earlier today filed its detailed report with the United States Securities and Exchange Commission (SEC). The document does not elaborate on why FXCM has changed its logo to include Leucadia’s name but sheds some light on how the developments around FXCM over the past year have affected Leucadia’s financials.

In brief, Leucadia puts its maximum exposure to loss as a result of its involvement with FXCM at $231.7 million at December 31, 2017. This exposure is limited to the carrying value of the term loan ($72.8 million) and the investment in associated company ($158.9 million).

Through December 31, 2017, Leucadia has received cumulatively $331.6 million of principal, interest and fees from its initial $279.0 million investment in FXCM. The $279 million figure reflects a combination of a term loan of $300 million and rights to certain future distributions. At December 31, 2017, the remaining principal due under the term loan was $69.9 million and the interest rate is 20.5%.

At the end 2017, Leucadia’s equity method investment is recorded at $158.9 million, and the total amount of both its term loan and equity method investment is $231.7 million.

Interestingly, Leucadia confirms that it also recorded income (losses), before impairment charges, related to its equity method investment in FXCM of $(47.4) million and $1.9 million during 2017 and 2016, respectively.

Based on the February 2017 regulatory actions against FXCM’s US operations, Leucadia evaluated in the first quarter of 2017 whether its equity method investment was fully recoverable. It 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 its carrying value by $130.2 million. That is why, Leucadia concluded based on the above regulatory actions, FXCM’s restructuring plan, investor perception and declines in the trading price of Global Brokerage, Inc.’s common shares and convertible debt, that the decline in fair value of its equity interest was other than temporary.

As such, Leucadia impaired its equity investment in FXCM in the first quarter of 2017 by $130.2 million.

Let’s note that the SEC filing makes no mention of the legal action concerning Leucadia’s deal with FXCM from January 2015. In a Memorandum Opinion issued on September 29, 2017, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery, said entire fairness review is appropriate with regard to the Leucadia deal.

The Court is examining a case brought by a stockholder of FXCM Inc, which is now known as Global Brokerage Inc (OTCMKTS:GLBR). The questions before the Court include whether the Leucadia loan represented a waste of assets and whether the terms of the transaction were unfair to the broker. The Court said that the plaintiff played down the urgency with which the FXCM Board had to act when having to decide on the potential deal, but the Court supported a review of the Leucadia transaction.

Read this next

Digital Assets

Binance executives sue Nigerian authorities over rights violation

Two senior executives from Binance have filed a lawsuit against against Nigeria’s national security adviser’s office and its anti-corruption agency, alleging violations of their fundamental rights.

Retail FX

Banxso announces 8.7% interest rate on deposits in South Africa

“With Banxso, they can enjoy the benefits of both worlds – earning competitive interest and having the freedom to trade, all within the same platform.”

Industry News

FINRA to publish transaction details in U.S. Treasury securities

“Consistent with our longstanding practice, FINRA is introducing greater transparency in a calibrated and careful manner, benefiting liquidity and resilience in this critical market while also mitigating potential information leakage concerns.”

Institutional FX

OpenYield launches “cheap and easy” fixed income trading for brokers

“We’re on a mission to make bonds cheap and easy to trade, and are excited about the opportunity to build generational capital markets infrastructure.”

Digital Assets

Sumsub and Mercuryo publish a guide for VASPs: “Mastering Travel Rule Compliance”

“At Sumsub, we’ve concentrated our efforts on filling the gap in understanding the complexity of Travel Rule regulation and helping organizations find the best solution to stay safe and compliant while minimizing costs and avoiding potential risks of non-compliance. This guide we created with Mercuryo, our trusted partner, is the ultimate navigation tool all VASPs can consult.”

Digital Assets

Bitget Wallet Leads with Record Swap Volume & New Crypto Innovations

This week, Bitget Wallet achieved a milestone by surpassing Metamask with a record 388,757 Swap order transactions, securing the global lead. The significant 7-day trading volume, almost 68,000 more than its rival, underscores its liquidity and user trust. This robust activity signals Bitget Wallet’s prominent role and reliability in the dynamic crypto market.

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.

<