FXCM Shares Skyrocket 50% as Shareholders Reassess Fundamentals

If there was ever proof that the behavior of financial markets is irrational at times, it could be seen in the recent price action surrounding shares of NYSE traded FXCM Inc. The company’s shares soared in yesterday’s trading session by 50 per cent, after the firm merely reminded shareholders about its intentions going forward.

A buyback program that totaled $130 million has remained in play and the deal with Leucadia may be renegotiated after the repayment of the loan that FXCM was granted in January 2015 - these were the main takeaways from Friday’s statement that the brokerage issued through an SEC filing.

While nothing new has been provided to the market in terms of specific information, the mere mention was enough to force a huge short squeeze in shares of FXCM. The company’s stock has dropped about 53 per cent since the reverse stock split it announced in July to an all time low of $5.26 last Friday.

After the statement was issued, FXCM shares closed yesterday’s trading session higher by more than 52 per cent. A number of short positions have been squeezed out of the market causing a rally on virtually no news.

FXCM Inc Third Quarter Earnings Call Revisited

To delve deeper into the rationale of the move yesterday and to somewhat discourage further speculative interest in the company’s shares when it comes to testing lower grounds, one has to go no further than the third quarter earnings call transcript.

The company’s CEO Drew Niv repeatedly stated during the call that Leucadia and FXCM have been on good terms, with the former mentioning in October that it is very pleased with the partnership between the two. That in itself has not been a surprise, since Leucadia has stated that it almost tripled the investment that it made in FXCM in January.

What has been more crucial to the shareholders of FXCM though was the fact that its CEO stated at the time that the sale of the institutional business of FXCM will “materially improve” what the shareholders of the company are entitled to.

Institutional Business and Leucadia Loan Agreement

The institutional business of FXCM has been one of the key factors for the company to repay its loan to Leucadia National, and the management of the company has been reiterating it for a while.

While Drew Niv has refrained from mentioning any specifics about the matter, he has been clear that the sale of the institutional business of FXCM and the repayment of the loan to Leucadia itself would open the doors for the firm to renegotiate its agreement with its creditor.

Referring to the matter, Mr Niv said: “Those negotiations haven't even started and will not start until we pay the debt back and I don't want to give guidance and say that that's something to expect. What I can tell you is that we're focusing right now on putting the business in the best possible shape that we can and repaying the debt as fast as we can.”

In the end it will be the asset sales that will reshape the company’s profitability. Mr Niv explained during the third quarter earnings call: “As we simplify our operation by selling off institutional businesses, overhead for the core company essentially declines fairly substantially.”

As to the deal with Leucadia, Mr Niv shared an insight: “As we said before and what Leucadia said is they want to be long-term partners.”

With these nuggets of information, we are only left with pondering how soon FXCM will be able to sell its institutional business and repay its loan to Leucadia National.