Jefferies Financial Group Inc (NYSE: JEF), a New York-headquartered investment bank and financial services provider, revealed a maximum loss exposure of $82.8 million between December 2022 and February 2023 due to its investment in FXCM.

Jefferies Reduces Its FXCM Loss Exposure

According to the Form 10-Q filing with the Securities and Exchange Commission (SEC), the maximum loss exposure to Jefferies from its FXCM investment declined in the last quarter from $94.8 million in the previous three months, September and November.

At the end of the latest quarter, Jefferies had $46.7 million in equity interests in FXCM, which is down from $59.7 million at the end of 30 November 2022, consisting of 50 percent voting rights.

“We also have a senior secured term loan to FXCM due May 6, 2023, which is accounted for at a fair value of $36.1 million and $35.1 million, [on] February 28, 2023, and November 30, 2022, respectively, and is reported within Financial instruments owned, at fair value in our Consolidated Statements of Financial Condition,” Jefferies stated in the SEC filing.

“FXCM is considered a VIE, and our term loan and equity interest are variable interests. The assets of FXCM primarily consist of brokerage receivables and other financial instruments and operating assets as part of FXCM’s foreign exchange trading business.”

Loss exposure Depends on the Nature of the Business, Not the Value

VIEs are variable interest entities for which Jefferies Group is the primary beneficiary. The filing detailed that the maximum exposure of the group depends on the nature of its variable interest in VIEs and differs from the carrying value.

“Our maximum exposure to loss does not include the offsetting benefit of any financial instruments that may be utilized to hedge the risks associated with our variable interests and is not reduced by the amount of collateral held as part of a transaction with a VIE,” the filing added.

Last year, Jefferies shuttered its forex prime brokerage unit and migrated clients to another institution. Additionally, two former executives of Jefferies’ FX Prime Brokerage team established a crypto company, Crossover Markets Group, backed by several brokerages, that recently launched an execution-only cryptocurrency Electronic Communication Network (ECN).

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