Jefferies puts maximum exposure to loss due to involvement with FXCM at $136.8m
Investment bank and financial services firm Jefferies Financial Group Inc (NYSE:JEF) has posted its 10-Q filing for the quarter to end-August 2020 with the Securities and Exchange Commission (SEC). The document reveals Jefferies’ assessment of the impact of its involvement with provider of online Forex trading services FXCM Group, LLC.
Jefferies’ investment in FXCM and associated companies consists of a senior secured term loan due February 15, 2021 ($71.6 million principal outstanding at August 31, 2020), a 50% voting interest in FXCM and rights to a majority of all distributions in respect of the equity of FXCM.
Let’s note that 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 it accounts for its equity interest under the equity method as an investment in an associated company.
Jefferies estimates that its maximum exposure to loss as a result of its involvement with FXCM is limited to the carrying value of the term loan ($56.5 million) and the investment in associated company ($80.3 million), which totaled $136.8 million at August 31, 2020.
Let’s recall that, in the preceding quarter, the maximum exposure to loss as a result of Jefferies’ involvement with FXCM comprised the carrying value of the term loan ($53.8 million) and the investment in associated company ($76.2 million), which totaled $130 million at May 31, 2020.
Notably, 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 August 31, 2020 and November 30, 2019, respectively, included in Payables, expense accruals and other liabilities in the Consolidated Statements of Financial Condition.
In terms of financial metrics, let’s mention that for the three months ended August 31, 2020, Jefferies Group LLC registered record quarterly net revenues of $1,383 million, record pre-tax income of $363 million, record net earnings of $268 million and return on tangible equity of 23.2%.
Merchant Banking recorded pre-tax income of $71 million, reflecting record quarterly results from Idaho Timber and mark-to-market increases in the value of several of Jefferies’ investments in public companies, partially offset by a decrease in the fair value of Vitesse’s hedges, as oil prices appreciated during the quarter.
Net income attributable to Jefferies Financial Group common shareholders was $304 million, or $1.07 per diluted share.
As FX News Group has reported, the previous quarter was also strong for Jefferies.