The change in the effective capital structure at FXCM Inc (NYSE:FXCM) following the $300 million lifeline it received last month from Leucadia National Corp (NYSE:LUK) has left the investment community somewhat unsure as to how to value FXCM going forward.
That, as well as how the events of January 15 have affected FXCM’s business prospects.
Immediately following the resumption of trading in FXCM shares after the Leucadia deal was announced in mid January, there was understandable volatility in the stock, with FXCM quickly dropping from the low teens (pre January 15) to below $1.50, but then climbing back up to above $3 before settling into a more reasonable range of $2.30-$2.40 by the beginning of February.
But it has been a slow drift downhill since then.
FXCM share price, past two weeks. Source: Google Finance.
And yesterday, FXCM shares dropped a further 6% to $1.99, closing at below $2 for the first time since that immediate aftermath of January 15.
It seems as though some of FXCM’s large institutional holders are selling – basically deciding that there is little upside for common shareholders, even if the company can turn things around and perform well. Much of that upside, and control over FXCM’s fate, essentially resides now with Leucadia.
While FXCM (along with much of the industry) did report healthy January volumes, it still remains to be seen what the ‘business effect’ of FXCM’s brush with insolvency really is. And, whether or not FXCM can recapture any significant portion of the $225 million of negative client balances generated as a result of the January 15 Swiss Franc spike.
We also recently reported that some of FXCM’s problems may have begun before January 15. December saw a 12% drop in US retail client assets at FXCM.
But the ultimate issue, we believe, is the perception that even if things do go well (which they certainly might) that most of the financial benefit will accrue to Leucadia.