FXCM Inc Conference Call Review: Huge Business Shakeup Coming
The company’s CEO Drew Niv highlighted in the conference call after the FXCM Inc earnings report yesterday that the firm
After FXCM Inc (NYSE:FXCM) reported its earnings and trading volumes figures yesterday, the company’s CEO Drew Niv and CFO Robert Lande have taken to the earnings call. FXCM’s senior management revealed crucial details about the company’s future plans after the dramatic events of the 15th of January.
The main takeaway from the earnings call is that as expected, there will be a major restructuring of FXCM Inc’s (NYSE:FXCM) business in the coming months. The company’s CEO Drew Niv outlined that aside from selling its institutional businesses, which was already clearly communicated by the firm, it intends to part with its FXCM Japan and FXCM Hong Kong subsidiaries.
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In the aftermath of the Swiss National Bank’s decision to scrap the floor under the EUR/CHF, FXCM Inc (NYSE:FXCM) was forced to shore up its balance sheet. The company was forced to recapitalize, signing a $300 million loan agreement with Leucadia National with a starting interest rate of 10%, growing by 1.5% each quarter.
Revision of Losses from January 15th and Sale of FXCM Japan and Hong Kong
Estimated losses from the Swiss National Bank’s induced volatility on the currency markets have increased to $276 million from the initially reported $225 million. This figure matches the net proceeds which FXCM Inc (NYSE:FXCM) got from the Leucadia National loan agreement.
The company’s CEO, Drew Niv, highlighted during the earnings call that the firm intends to make significant reductions in its obligations to Leucadia National through the sale of non-core assets. The main surprise from this statement is in the details, as the CEO of FXCM Inc (NYSE:FXCM) stated that the firm decided to exit its business in Japan and Hong Kong.
Speaking during the earnings call, Mr. Niv said, “We have decided to exit the Japanese and Hong Kong retail markets selling our locally regulated subsidiary in each country. The sales will not only generate meaningful proceeds, but will also liberate over $50 million of cash which currently resides in these two entities.”
“We have multiple bids for each subsidiary and are seeing significant competition for these properties. We are in active discussions to select the best bid and move towards closing in the near future,” he explained.
From the $50 million which Mr. Niv mentioned, $22 million in cash lie on the balance sheet of FXCM Japan, while the remaining $28 million are in the Hong Kong subsidiary of FXCM Inc.
The company’s CEO Drew Niv stated, “We believe that the sale proceeds plus cash freed from the balance sheet of these entities could exceed $250 million, which would go a long way towards repaying if not fully repaying the Leucadia loan.”
The total EBITDA from the Japanese business of the company in 2014 was $6 million on a non-GAAP basis. Back in 2011, FXCM Inc (NYSE:FXCM) paid $5 million for GCI, which had 17,000 accounts and $110 million in equity. Later that year, the firm took over Foreland paying $17 million for the aquisition.
Considering the lucrative Japanese market and the expansion appetite of many companies to acquire businesses in the region, the sale of this unit could net FXCM somewhere between $40 and $50 million.
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The Hong Kong unit of the firm generated about $2.5 million in non-GAAP adjusted EBITDA in 2014. The jurisdiction and the lack of wide media coverage of the Swiss National Bank conundrum which FXCM faced, likely saved the value of the brand and clients continued to hold their accounts with the brokerage.
The main proceeds from potential sales will come from the non-core business of FXCM Inc (NYSE:FXCM). Back in 2012, FXCM acquired Lucid Markets for $176 million, with the estimated total costs of the investment totaling $192 million.
Considering the pressure under which FXCM is to sell its institutional business, and the outflow of institutional clients from FXCM, the company is not likely to recover its investment in this business.
The other big institutional business of FXCM, FastMatch, has experienced dwindling volumes in the aftermath of the Swiss National Bank debacle leading to decreased volumes.
FXCM owns 35% of FastMatch and the stake is on the sale list of the company alongside its high-frequency trading investment in V3. The company paid around $16 million for a 50.1 percent stake in V3, with the rest of the unit owned by Lucid Markets.
Retail Revenue per Million Drops to $69, Clients to Choose Dealing Desk or Not
The retail revenues per million (RPM) which FXCM reported for the fourth quarter of 2014 totaled $69. This is $1 below the estimate which the company made in its previous earnings report.
In order to optimize its RPM, FXCM Inc (NYSE:FXCM) has announced that it will be returning the dealing desk model for clients with equity below $20,000.
The company’s CEO Drew Niv said during the earnings call, “To accelerate growth in our core business we will launch a hybrid desk model for small retail FX accounts. These are accounts with less than $20,000 of deposits. While these accounts maybe large in number, they still represent much less than half of our trading volume.”
FXCM Inc aims to balance between dealing desk and agency model execution in order to maximize its RPM. The brokerage will present a choice for clients between higher leverage options with dealing desk execution and agency execution with lower leverage.
Following the announcement, shares of FXCM Inc (NYSE:FXCM) traded up 15% in pre-market trading on the New York Stock Exchange at $2.48.
FXCM Q4 2014 Earnings Presentation
Why would someone bail them out now given the cashflow pressure they have and not wait until they officially announce bankruptcy by the end of the year to buy these assets at a much discounted price?
One man’s misery is another man’s opportunity.
Talking of business, I think they will soon be gone totally busted as it appears that they will not be able to repay back their earnings.
I indeed agree with Marius that probably by the end of the year they will be bankrupt, hence these assets will be available out there for much lower discounted rate.
Marius, because the market forces of supply and demand have not yet been suspended. If you see a bargain at a slightly reduced price on the clearance shelf, you might think “I’ll just wait until next week or the week after when the price has been reduced even more!” Other people look at he same item and think “I better buy it now, because if I wait for a better price, there may be none left.” The article points out that the Japanese market is very lucrative and that there are many companies wanting to expand there. Any company that… Read more »
“..has announced that it will be returning the dealing desk model for clients with equity below $20,000.”
Sounds like the good old FXCM is comeing back. They worked so hard to get rid of their bad reputation, and it finally payed off, and now its back to business as usual..
Th dealing desk “gangsters” of FXCM have already started their assault on retail clients. Spreads in GBP/NZD widen before NY settlement to 75 pips!!!!!!! 75 pips, guys! That´s they way how you screw your investors PROFESSIONALLY and STOP THEM OUT PROFESSIONALLY.
About time to report this to NFA/CFTC!
Close this bucket shop finally! They will try to screw everybody and anybody to pay their loan back!
Resorting to leveraged bucketshop as a revenue stream in 2015 is just pathetic. This is just getting sad. The US retail market desperately needs a Dukascopy or LMAX to become NFA regulated and just buy up all the retail accounts that remain with this old bucketshop.
Steve should be Jason Rogers representative.
Start looking for a job…
Steve is somewhat correct. FXCM will not have a problem selling its Asian units. The problem will be the revenues that it will lose. Losing Japan and Hong Kong is a massive loss of volume and market share; how can that be considered a ‘non-core’ asset? I don’t see FXCM recovering from that for several years. The dealing desk will be ok, AS LONG AS clear rules are established for execution times. If they use market execution vs instant execution with no re-quotes, avg fills <300ms, and real [symmetric] slippage, then I welcome the choice. Also, will the dealing desk… Read more »
Jon，
IMHO， fxcm.hk is nothing but a call center, major asia volume has been trading at fxcm uk .
Come on guys, Drew has returned to bucketshopping before the whole thing goes upside down……Fastmatch, Lucid etc are worth zero…..stalling tactics, no bids for them out there…..Credit Suisse desperate to shift Fastmatch too……..tick tock…..
Wow, so much venom! You know, if you don’t like FXCM, it is pretty simple – don’t trade with them. And you know, only a very small minority is capable of trading FOREX successfully. If it doesn’t suite you, don’t waste your time and money. There are many other ways to enjoy life and be happy and successful. Jon: Thanks. I am glad someone understood what I was trying to say. You also make many good points with your interesting commentary. Jimmy Feng: As I am sure you know, GBPNZD is a very active and volatile pair with an average… Read more »
Steve,
A friendly advise to you mate – start looking for a job.
Greetings Michael!
Thanks, but why would I do that when I already have a full-time job?
Steve,
Can you give me FXCM audit form link please?
@Steve
Will give you a hint because being busy faking comments in forums has distracted you from reality.
BECAUSE YOUR JOB AT FXCM HAS EXPIRY DATE!!!
1. FXCM UK Announces $16.9 Million Settlement with FCA for Asymmetric Slippage – See more at: http://forexmagnates.com/?s=fxcm+fine#sthash.eDm7xvsC.dpuf
2. Breaking: FXCM Faces $200,000 Fine for NFA Breaches – See more at: http://forexmagnates.com/?s=fxcm+fine#sthash.eDm7xvsC.dpuf
3. NFA fines FXCM $2 million for slippage malpractices, FXCM will credit clients back – See more at: http://forexmagnates.com/?s=fxcm+fine#sthash.eDm7xvsC.dpuf
4. CFTC fines FXCM UK $140,000 for acting as a counterparty to US retail forex clients – See more at: http://forexmagnates.com/?s=fxcm+fine#sthash.eDm7xvsC.dpuf
5. http://forexmagnates.com/?s=fxcm+fine
Mike, you can go find it on FXCM’s website.
Michael, You don’t like what I wrote, so you accuse me of being an FXCM employee posting fake comments (rather than try to refute anything I said, because you can’t). Apparently, anyone who says anything positive or even neutral about FXCM must be an FXCM employee. With flawed reasoning like that, I bet you’re an unprofitable trader (read loser) too. Tell me. How much have you lost trading with FXCM, to hate the company as you apparently do, or was it with another FX firm? Let me give you some friendly advice. You should probably just give up trading before… Read more »
@Steve
Apparently i didn’t lose enough to secure your job.
Hate to disappoint you Michael, but I don’t work for FXCM (and never have).
Sales proceeds plus cash freed from the balance sheet could exceed $250m? So $62m for Japan – do they really think they will get $150m+ for their HK business?
Lucid and Fastmatch are worth very little Victor, Lucid pulled the liquidity plug on FXCM over SNB fiasco abd Credit Suisse is also trying to offload Fastmatch….