Jefferies Reports $130M Loss Exposure
Investment banking company, Jefferies Financial Group, has published its quarterly report ending on May 31, 2020. It shows a maximum loss exposure of $130 million due to its involvement with FXCM.
Per the 10-Q report filed with the US Securities and Exchange Commission (SEC), the loss exposure remains unchanged. That is according to the figures the company shared for the previous quarter.
The filing noted that their maximum exposure to loss as a result of their involvement with FXCM is limited. That is limited to the carrying value of the term loan ($53.8 million). This includes the investment in the associated company ($76.2 million), which totalled $130.0 million as of May 31, 2020.
The investment bank also detailed that the forex broker is considered a variable interest entity (VIE). It’s an entity where the investor holds a controlling interest that is not based on the majority of voting rights.
Jefferies Level 3 Net Losses: Due to Decreased Market Values
They have determined that they are not the primary beneficiary of FXCM. That’s because they don’t have the power to direct the activities that most significantly impact FXCM’s performance, the SEC filing added.
Therefore, they do not consolidate FXCM and they account for their equity interest under the equity method. This method would be as an investment in an associated company.
Jefferies also detailed that its investment in FXCM and associated companies consist of a senior secured term loan. It is due on February 15, 2021 ($71.6 million principal outstanding on May 31, 2020).
It has 50% of the voting interest in FXCM and the rights to majority of distributions in respect to the the equity of FXCM.
The filing also detailed that Jeffries’s losses on Level 3 (illiquid and hardest to value) assets were $93 million. Net gains on similar liabilities stood at $124.3 million.
Jefferies added that net losses on Level 3 assets were primarily due to decreased market values. That’s across CDOs and CLOs, investments at a fair value, corporate equity securities, and the FXCM term loan.
Last week, reports said that the forex broker reported record numbers for the second quarter of 2020.
