Citi Analyst: FXCM Financing Terms Reveal a Lifeline for April Sale as Stock Plummets

As expected, shares of FXCM are getting pummeled this morning. Trading in the stock got halted in the pre-market last Friday as the broker was to announce $300 million in financing to negotiate its future. Having traded in the pre-market at around $2.50 on Friday, shares are exchanging hands today at $1.62, nearly 90% below Thursday’s close (before a $225 million loss from last week’s Swiss franc volatility).

Hurting the stock are terms, which were released late Sunday night, in what was revealed to be $279 million in financing from Luecadia National Corporation. According to a statement from FXCM, the firm is receiving $279 million in financing rather than an initially announced $300 million, with a two-year duration. The most surprising aspect is that the 10% annual rate of interest first revealed by FXCM is only for the first three months of the loan, with yields rising by 1.5% every quarter to a maximum of 17%.

Reacting to the revelations of the terms, in a note to clients, Citigroup equity analyst slashed his price target on FXCM stock to $0.75, as he estimated pro forma market value of $50-$68 million, down from $1.3 billion before the SNB removed its price floor in the EUR/CHF exchange rate. He added that, based on the terms of the loan, he believes FXCM will attempt to find a buyer by April 2015 as interest rates on its financing increase. However, Katz was unsure whether such a deal would provide any value to shareholders: “Given the events of the past few days, we doubt FXCM would be able to achieve its prior market cap, even assuming possible sale to a strategic buyer. Here, we believe growth, margins, litigation, and regulatory concerns will weigh on the shares.”

GCAP, IG and Plus500 Rebound

Contrasting with FXCM’s poor day are shares of other online forex and CFD brokers, which have rebounded from their CHF volatility lows. While trading mixed today, shares of GAIN Capital, IG Group and Plus500 are 7.73%, 6.6% and 3.7% above lows sustained last Friday. Among the brokers, GAIN Capital was also the recipient of positive commentary from equity analysts. On Friday, an analyst with Keefe, Bruyette & Woods stated that GAIN Capital maintains its “Market Perform” rating, and believes their performance during the Swiss franc crisis could lead to long term expansion of the price multiples.

(Photo: FXCM)

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