Jefferies Estimates Its Maximum FXCM-Related Loss At $94.8M

Jefferies Financial Group Inc (NYSE: JEF) has released its annual report for the fiscal year ending November 30, 2022, which includes information on Jefferies' engagement with FXCM Group, LLC.

At the end of November 2022, Jefferies' maximum exposure to loss as a consequence of its engagement with FXCM was $94.8 million. This is greater than the previous quarter but lower than a year ago.

Jefferies holds an equity method investment in FXCM and is entitled to a majority of FXCM dividends. Jefferies has a triggering event in the fourth quarter of 2022 to assess the impairment of its investment in FXCM.

The fair value of the company's equity investment in FXCM was assessed largely using a discounted cash flow valuation methodology. The discounted cash flow valuation model took into account management's predictions of future FXCM cash flows as well as a discount rate of 23.0%.

As of the date of the impairment examination, the estimated fair value of Jefferies' equity stake in FXCM was $61.7 million, $25.3 million less than the previous carrying value. Jefferies determined that the fall in fair value was not transitory and took a $25.3 million impairment charge as a consequence.

Jefferies holds a $59.7 million equity stake in FXCM, which includes a 50% voting stake and the entitlement to a majority of FXCM's equity payouts. 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 on November 30, 2022, and $50.5 million on November 30, 2021.

FXCM's assets include principally brokerage receivables and other financial instruments, as well as operational assets related to the company's foreign currency trading operations.

About Jefferies

Jefferies is a multinational investment bank and financial services firm that provides customers worldwide with investment banking, asset management, wealth management, and capital markets products and services. It was established in 1962 and is based in New York City. Jefferies operates in the Americas, Europe, and Asia, with a concentration on middle-market customers.

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