Jefferies puts maximum loss exposure due to FXCM involvement at $130.9M
Investment bank and financial services firm Jefferies Financial Group Inc (NYSE:JEF) has filed its quarterly report for the three months to end-February 2021 with the Securities and Exchange Commission (SEC), providing an update on its involvement with provider of online Forex trading services FXCM Group, LLC.
Jefferies says its investment in FXCM and associated companies consists of a senior secured term loan due February 15, 2022 ($71.6 million principal outstanding at February 28, 2021), a 50% voting interest in FXCM and rights to a majority of all distributions in respect of the equity of FXCM.
FXCM is considered a VIE and Jefferies’ term loan and equity ownership are variable interests. 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.
FXCM reported total assets of $411.9 million in its latest financial statements.
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 ($62.1 million) and the investment in associated company ($68.8 million), which totalled $130.9 million at February 28, 2021. This compares with loss exposure of $133.4 million at November 30, 2020.
Net revenues from Jefferies’ FXCM term loan include gains of $2.7 million and $2.5 million during the first quarter of 2021 and 2020, respectively.
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.