The quarterly financial reports of retail forex broker FXCM Inc (NYSE:FXCM) have been increasingly difficult to decipher.
On paper, FXCM just reported a $60.5 million net profit for Q2 on revenues of $70.6 million. Which looks great. However a number of accounting charges mask what is really going on.
The highlights from our standpoint are:
Revenues – FXCM took in $70.6 million in Revenues during Q2, down 1% from Q1. Nothing drastic, but if FXCM is going to dig its way out of the debt hole it is in, it is going to have to do better at some point on the Revenue line.
Earnings – FXCM’s EBITDA in Q2 came in at $10.9 million, up slightly from Q1’s $10.3 million. However most of that cash flow went toward paying the ever-growing interest on the loan from Leucadia National Corp (NYSE:LUK). FXCM paid out $21.2 million in interest during Q2, nearly two times its EBITDA.
Leucadia loan – Given FXCM’s Earnings as we describe above, it isn’t surprising that the loan balance owing to Leucadia at the end of Q2 was virtually unchanged from Q1. FXCM still owes Leucadia $192.5 million.
FXCM also reported July volume figures. Retail volumes were strong, up 2% MoM to $281 billion. Institutional volumes were down 28% MoM to $41 billion.
Our conclusion?
As we’ve written before in FXCM is doing great… and is in big trouble, the ‘business’ part at FXCM is certainly doing OK. The company’s operations are stable if not growing, and the company’s operations are making money. But they are not making near enough money to deal with the huge Leucadia loan that FXCM has to deal with.
And from a shareholder point of view, even if FXCM does dig itself out of debt at some point in the future, most of the upside will accrue to Leucadia, not to FXCM shareholders.
FXCM’s full Q2 results press release can be seen here.
