Jefferies estimates max loss exposure due to FXCM involvement at $109.5M

Investment bank and financial services firm Jefferies Financial Group Inc (NYSE:JEF) has estimated that its maximum exposure to loss as a result of its involvement with FXCM Group, LLC is limited to $109.5 million. This becomes clear from the report for the quarter to end-August 2021 Jefferies filed with the Securities and Exchange Commission (SEC) on October 8, 2021.

Jefferies notes that FXCM reported total assets of $394.7 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 ($58.5 million) and the investment in associated company ($51.0 million), which totaled $109.5 million at August 31, 2021. This estimate is much lower than the $123.3 million estimate reported at May 31, 2021.

Jefferies Group entered into a Forex prime brokerage agreement with FXCM in 2017. In connection with the foreign exchange contracts entered into under this agreement, Jefferies Group had $0.9 million and $2.7 million at August 31, 2021 and November 30, 2020, respectively, included in Payables, expense accruals and other liabilities in the Consolidated Statements of Financial Condition.

Jefferies’ investment in FXCM and associated companies consists of a senior secured term loan due February 15, 2022 ($71.6 million principal outstanding at August 31, 2021), a 50% voting interest in FXCM and rights to a majority of all distributions in respect of the equity in FXCM.

FXCM is a provider of online foreign exchange trading, contract for difference trading, spread betting and related services.

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.

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