Leucadia paints rosy picture of FXCM prospects

Investment holding group Leucadia National Corp (NYSE:LUK) has recently been quite vocal when it comes to FXCM Inc (NYSE:FXCM), to which it extended a $300 million loan following the sharp Swiss franc spike on January 15, 2015.

In its annual report for 2015, Leucadia confirmed it was in discussions with the Forex broker over restructuring the loan agreement. It also said the broker had $192.7 million left to repay at the end of 2015.

And just a couple of days after the publication of the 10-K report, Leucadia published its Annual Letter to Shareholders. And the letter is… full of praise for FXCM.

Leucadia’s Letter starts by outlining the pure financial benefits of its investment in the broker: Leucadia recognized $491.3 million of unrealized and realized gains from its FXCM investment during 2015. The total amount of Leucadia’s investment in FXCM at December 31, 2015 is $625.7 million. The $300 million loan has generated $166 million of principal, interest and fees to Leucadia.

The comments regarding FXCM go on to restate that the two companies are in negotiations to restructure the deal.

There is more to it.

Leucadia confirms that its investment in FXCM was amid the few bright spots last year. Leucadia calls it “an exceptional opportunity and investment”.

The Letter states:

Drew Niv and the FXCM management team have done an excellent job stabilizing and even strengthening the business, all while selling off non-core assets in order to pay off our loan. FXCM has come a long way from the extraordinary event that led to our involvement, and it is well on its way to regain and hopefully exceed its historic position in the global foreign exchange market.

Why would Leucadia praise FXCM so much?

  • FXCM has staged some recovery indeed. We do not have FXCM’s financial results for the final quarter and full year 2015, as they are yet to be published, but the third-quarter report showed stable revenues. And the company has been sticking to its plan to sell non-core assets. So, Leucadia is simply stating a fact based on numbers.
  • An alternative perspective is to consider another fact (also based on numbers): Leucadia gets the bulk of the upside in FXCM. FXCM being strong is good for Leucadia. Especially after a year which saw “a tsunami of market volatility struck land and damaged the results of Jefferies’ Fixed Income businesses and, more recently, Jefferies’ Equities and Investment Banking efforts, as well as Leucadia Asset Management platform.” Leucadia needs this bright spot.

So the moment could be ripe for FXCM to make use of this situation and push for that renegotiation. Of course, as both companies have said, there is no certainty that an agreement will be reached.

You can view the full letter by clicking here.

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