The stocks of the leading US forex broker Forex Capital Markets, aka FXCM (NYSE:FXCM) fell 22.5% upon the opening of the New York Stock Exchange (NYSE) on March 11.
The decrease was expected after the broker announced an extension by one year (to January 2018) of its credit agreement with Leucadia National Corporation (NYSE:LUK) and the introduction of a bonus system for the broker’s senior management. According to it, they would be getting between 10 and 14% of all distributions or sales proceeds from FXCM Group, which eats into the profits of the investors. The extension of the agreement also means Leucadia has the right to force a sale of FXCM in 2018.
The news was announced on March 10 after the markets closed and did not sit well with investors, in spite the overall positive February results of the broker. The result was an almost 24% plunge of FXCM’s stock prices to around $11 in after hours trading. On Thursday the markets closed at $14.46 per FXCM share, evaluating the company at a little over $76 million.
Back in January 2015 Leucadia provided $300 million loan with two-year maturity to FXCM in order to allow the US headquartered broker to meet its regulatory-capital requirements and continue normal operations after the unprecedented loss of $225 million due to Swiss National Bank decision to abandon EUR/CHF minimum exchange rate.
The loan is with 10% interest rate that rises 1.5 percentage points each quarter, but not exceeding 17%. FXCM, however, expressed confidence it would be able to repay it as early as 2016.
To finance the loan FXCM already sold its Japanese and Hong Kong subsidiaries to Rakuten Securities, one of the largest forex brokers in Japan.