Investment banking company Jefferies Financial Group has published its quarterly report ending May 31, 2020, showing 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 with the figures shared by the company for the previous quarter.
“Our maximum exposure to loss as a result of our involvement with FXCM is limited to the carrying value of the term loan ($53.8 million) and the investment in associated company ($76.2 million), which totaled $130.0 million at May 31, 2020,” the filing noted.
The investment bank also detailed that the forex broker is considered a variable interest entity (VIE), which is an entity where the investor holds a controlling interest that is not based on the majority of voting rights.
“We have determined that we are not the primary beneficiary of FXCM because we do not have the power to direct the activities that most significantly impact FXCM’s performance,” SEC filing added. “Therefore, we do not consolidate FXCM and we account for our equity interest under the equity method as an investment in an associated company.”
Jeffries also detailed that its investment in FXCM and associated companies consist of a senior secured term loan due February 15, 2021 ($71.6 million principal outstanding on May 31, 2020). It has a 50 percent voting interest in FXCM and rights to a majority of all distributions in respect of the equity of FXCM.
The filing also detailed that Jeffries’s losses on Level 3 (illiquid and hardest to value) assets were $93 million while net gains on similar liabilities stood at $124.3 million.
“Net losses on Level 3 assets were primarily due to decreased market values across CDOs and CLOs, investments at a fair value, corporate equity securities, and the FXCM term loan,” Jefferies added.