LeapRate Exclusive… Continuing our exclusive coverage of all the fallout from the Swiss Franc spike on January 15, LeapRate has had a chance to view the Confidential Information Memorandum on Alpari UK, prepared as a marketing document by KPMG to help attract a buyer for some or all of the insolvent forex broker.
And we’re pleased to share some of the key highlights with our readers.
From the document, it seems as though KPMG is hoping to sell the company (fairly) intact, looking for a potential acquirer to put in £20-25 million (USD $30-38 million), to cover Alpari UK’s current capital shortfall of £15 million (or $23 million, more on that below), and to provide a reasonable cushion to continue operating as an FCA regulated entity.
That seems to be KPMG’s aim – to sell Alpari UK as a going concern.
The problem of course, in our view, is that no sane acquirer would part with $30 million+ to buy $99 million of retail deposits (plus another $15 million of ‘professional’ deposits), especially when it is possible (actually likely) that the moment their accounts are released Alpari UK clients will head for the hills and ask for their money back.
But before we get to the deal itself, we’ll review some of the information provided about Alpari UK. It seems that the company was having some problems before January 15 hit. Alpari UK’s average monthly volumes dropped about 5% from 2013 to 2014 – from $96.8 billion to $91.9 billion in 2014. Nothing earth shattering, but still not a good sign given that the second half of 2014 saw record volumes in the retail forex sector.
Some other interesting figures about Alpari UK, leading up to January 15:
- Alpari UK is/was a predominantly retail broker, with 116,000 clients of which 27,000 were active in the last 12 months, 22,000 active within the last six months and 12,000 active within the last month, with clients holding in total $98.5 million in deposits…
- … although Alpari UK also served 20 ‘professional’ clients holding $15 million of client deposits – roughly half of whom were from Lebanon.
- Regulatory licences held in the UK, Japan and Germany.
- Offices in London, Shenzhen, Shanghai, Frankfurt, Riyadh and Dubai.
- Alpari Japan, Alapri UK’s regulated Japanese subsidiary, has client equity of $30 million, with monthly trading volumes in the $10-12 billion per month range and about 2,000 active clients.
- Alpari has more than 240 employees – 170 employees at its London office, 42 employees at its official partner Alpari ME DMCC in Dubai, and 19 employees in Japan.
- Alpari UK was profitable in 2014 – KPMG doesn’t say how much they made, but they did turn a profit of $690,000 during the first two weeks of January, before the Swiss Franc spike occurred on Jan 15.
- Alpari UK holds 18 licenses for MT4 servers via its Alpari Technologies sister company, plus one MT5 license.
- The company’s largest retail markets are the UK, followed by China, Germany and Spain, as follows:
And now to the events of January 15.
Alpari UK lost £24 million ($36 million) on Black Thursday from the Swiss Franc spike, and currently sits on $31 million of client’s negative account balances. About half of those $31 million of negative balances are attributable to just 9 customers. (As we’ve written before, we believe it will be very difficult for brokers generally to collect on negative client balances. Very few clients, if any, will voluntarily just send in a check, and if it ever gets to a courtroom are likely to argue that the implied agreement with the broker is that client losses are limited to amounts deposited).
Ignoring its ‘asset’ of $31 million that it is owed by its clients, Alpari UK’s current financial situation can be summed up as follows:
- $12.6 million in ‘own cash’.
- Its three largest creditors are owed more than $25 million, including Citibank (Alpari UK’s prime broker) which is owed $8.8 million, FXCM is owed $2.5 million, and Alpari UK’s ‘professional’ clients are owed $14.3 million – unlike retail clients whose funds are segregated and held separately, professional client funds are allowed to be moved and used at the broker’s discretion. Apparently Citi has indicated flexibility around the amount and timing of repayment of their $8.8 million.
- From a regulatory standpoint, with its current level of client deposits Alpari UK has a capital requirement of about £17 million ($26 million). Before January 15 Alpari UK had excess capital of more than £8 million ($12 million), but its £24 million loss on January 15 leaves it with a more than £15 million ($23 million) regulatory hole. To continue operating as a going concern, a purchaser would have to put in that plus a reasonable capital buffer – at least £20 million ($30 million) in total.
Also of note is what KPMG left OUT of the info memo:
- No mention of litigation of any sort.
- No mention of an asset sale, or willingness to sell Alpari UK’s parts, other than admitting that Alpari Japan could be resold by an acquirer as a going concern. We believe that the most likely deal, if any, is a sale of Alpari UK’s assets/client base in an effort to raise as much money as possible to satisfy creditor claims on the company.
Stay tuned to LeapRate as we continue to bring our readers unparalleled coverage of the Swiss Franc spike and what has followed.