It will be very interesting to see how FXCM Inc (NYSE:FXCM) shares trade today, after yesterday’s release of Q4 and full-year 2014 results, as well as an update on February trading volumes at FXCM.
For now, it seems as though investors were cheering the news, with FXCM trading up 11% in aftermarket action Thursday, sending FXCM shares up to $2.39 – their highest level since late January.
We, however, wonder why.
FXCM’s financial results from Q4 are, in our view, largely irrelevant at this stage. That was a very different market environment, and a very different FXCM before the events of January 15 sent FXCM to a near-brush with insolvency followed by a $300 million distress capital raise from Leucadia.
While FXCM’s Q4 results were fairly impressive, the main ‘news’ items from yesterday’s release were:
- Trading volumes were down significantly in February, with institutional volumes off 36% and all-important retail trading volumes down 40%. It seems as though February was a down month volume-wise for the FX industry worldwide, but 36-40% is a much larger drop than average, indicating that many FXCM clients are either not trading any more, or are leaving the firm. By contrast, rival Gain Capital saw February volumes down about 20%.
- FXCM’s negative client balances generated on January 15 were a lot larger ($276 million) than previously reported ($225 million).
FXCM did indicate that it had begun to repay the $300 million loan to Leucadia, making $12 million of repayments so far. And FXCM CEO Drew Niv indicated that the company is going to pay the loan down further via proceeds of planned asset sales. The company is planning to sell its institutional business FXCMPro (as was first exclusively reported by LeapRate). Mr. Niv also outlined FXCM’s plans to exit the Japan and Hong Kong markets, likely selling both subsidiaries in those jurisdictions.
But as the saying goes, ‘that’s not the problem.’ FXCM’s issues (at least as far as public shareholders go) are what value is left for public shareholders with the upside on an eventual sale going mostly to Leucadia, even if things turn around. And even before considering that, it has to be questioned whether or not FXCM’s clients are abandoning the company, with the 40% reported drop in February retail trading volumes.