Jefferies Group Issues Update on its $300 Million FXCM Loan

The financial services giant still has a large risk exposure to the loan it provided 4 years ago

Jefferies Group has provided a small update on its ongoing deal with FXCM. The financial services giant released a report this Wednesday, covering its business operations for the first half of 2018, and discussed its loan to FXCM.

For those not in the know, the relationship between FXCM, a retail broker, and Jefferies Group stretches back to 2015. In January of that year, the Swiss National Bank (SNB) ceased to peg the Swiss franc to the Euro.

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As a result of this sudden move, FXCM suddenly found itself in $275.1 million worth of debt. The only way the company could survive was via a loan of $300 million, with stiff conditions, from Jefferies.

This included an interest rate of 10% per annum, increasing by 1.5 percent per annum each quarter. Fortunately for FXCM, the rate is capped at 20.5 percent per annum. The retail broker also had to accept three Jefferies employees on its six-member board.

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FXCM loan – is it too risky?

Today’s report indicates that FXCM has managed to pay back $343.4 million of the loan. As of June 30, 2018, the retail broker still has another $70.4 million to pay back.

Jefferies may have recouped all of the money they invested into FXCM, but some risks still remain. In today’s report, the firm noted that it still views two areas that have the potential to cause its investment to fall flat.

Firstly, the firm stated that the carrying value of the term loan was equal to $76.1 million. Alongside this, the firm noted that its investment in FXCM, which totaled $143.8 million, was also subject to risk.

This means that the firm’s risk exposure is equal to approximately $219.9 million. This wouldn’t wipe out all of the money it has made from FXCM, but it would be a sizeable chunk of it.

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