Jefferies estimates maximum loss exposure due to FXCM involvement at $133.4M
Investment bank and financial services firm Jefferies Financial Group Inc (NYSE:JEF) has earlier today filed its 10-K report for the year to November 30, 2020, with the Securities and Exchange Commission (SEC).
The document offers details on Jefferies’ involvement with FXCM Group, LLC.
Jefferies has determined that it is not the primary beneficiary of FXCM because Jefferies does not have the power to direct the activities that most significantly impact FXCM’s performance. Therefore, Jefferies does not consolidate FXCM and accounts for its equity interest under the equity method as an investment in an associated company.
FXCM reported total assets of $414.4 million in its latest financial statements. Jefferies’ maximum exposure to loss as a result of its involvement with FXCM is limited to the carrying value of the term loan ($59.5 million) and the investment in associated company ($73.9 million), which totaled $133.4 million at November 30, 2020. This compares with a maximum loss exposure of $136.8 million at the end of August 2020.
At November 30, 2020, Jefferies had an approximately $133.4 million investment in FXCM. Many factors, most of which are outside of Jefferies’ control, can affect FXCM’s business, including the state of international market and economic conditions which impact trading volume and currency volatility, changes in regulatory requirements and other factors that directly or indirectly affect the results of operations, including the sales and profitability of FXCM, and consequently may adversely affect Jefferies’ results of operations or financial condition.
As at November 30, 2020, Jefferies Financial Group has a 50% voting interest in FXCM and a senior secured term loan to FXCM due February 15, 2022. Net revenues from Jefferies’ FXCM term loan include gains (losses) of $0.3 million and $(8.1) million during 2020 and 2019, respectively.
Jefferies Group entered into a foreign exchange prime brokerage agreement with FXCM in 2017. In connection with the foreign exchange contracts entered into under this agreement, Jefferies Group had $2.7 million and $9.9 million at November 30, 2020 and 2019, respectively.