Investment bank and financial services firm Jefferies Financial Group Inc (NYSE:JEF) has posted its annual report for the year to end-November 2022, with the document revealing details about Jefferies’ involvement with FXCM Group, LLC.
Jefferies’ maximum exposure to loss as a result of its involvement with FXCM stood at $94.8 million at the end of November 2022. This is higher than in the preceding quarter but lower than a year earlier.
Jefferies has an equity method interest in FXCM with rights to a majority of all distributions in respect of FXCM. In the fourth quarter of 2022, Jefferies had a triggering event to test its investment in FXCM for impairment.
The company estimated the fair value of its equity interest in FXCM based primarily on a discounted cash flow valuation model. The discounted cash flow valuation model used inputs including management’s projections of future FXCM cash flows and a discount rate of 23.0%.
The estimated fair value of Jefferies’ equity investment in FXCM was $61.7 million as of the date of the impairment evaluation, which was $25.3 million lower than the prior carrying value. Jefferies concluded that the decline in fair value was other than temporary and as result incurred a $25.3 million impairment charge.
Jefferies has equity interests in FXCM of $59.7 million consisting of a 50% voting interest in FXCM and rights to a majority of all distributions in respect of the equity of FXCM. Jefferies also has a senior secured term loan to FXCM due May 6, 2023, which is accounted for at a fair value of $35.1 million and $50.5 million, at November 30, 2022 and 2021, respectively.
The assets of FXCM consist primarily of brokerage receivables and other financial instruments and operating assets as part of FXCM’s foreign exchange trading business.
