FXCM hit by shock, gets $300 mn from Jefferies owner Leucadia

Leucadia National Corp gave FXCM Inc a $300 million cash infusion, extending a lifeline to the currency brokerage hobbled by the Swiss central bank's decision to let the franc trade freely against the euro.

Leucadia, which owns New York-based investment bank Jefferies Group, extended FXCM a two-year, $300 million senior secured term loan with an initial coupon of 10 per cent, according to a statement Friday. The transaction allows FXCM, the largest US retail foreign-exchange broker, to "continue normal operations," according to the statement. Shares of New York-based FXCM had tumbled as much as 92 per cent to 98 cents Friday morning before they were halted.

After the Leucadia deal was released, FXCM's stock rebounded to $4.44 as of 5:40 p.m. New York time. That's still down from the prior day's closing price of $12.63.

Leucadia Chief Executive Officer Richard Handler has prior experience saving imperiled financial firms. Before Leucadia purchased the business, he ran Jefferies when the company was part of a group that bailed out Knight Capital Group Inc., which teetered on the brink of collapse after bombarding markets with errant trades in August 2012.

FXCM had warned Thursday that client losses due to the Swiss National Bank's action threatened the broker's compliance with capital rules. The company, which handled $1.4 trillion of trades for individuals last quarter, said it was owed $225 million by clients.

The franc surged as much as 41 percent versus the euro on Thursday, the biggest gain on record, and climbed more than 15 percent against all of the more than 150 currencies tracked by Bloomberg. Dealers in London at banks including Deutsche Bank AG, UBS AG and Goldman Sachs Group Inc. battled to process orders yesterday when the SNB surprised investors by ending its three-year policy of capping the franc at 1.20 a euro.

The U.S. Commodity Futures Trading Commission lets investors put down as little as 2 percent of the value of their foreign-exchange bets. Brokers may get stuck with the balance of losses suffered by clients who used leverage, borrowed on credit cards, or did both to bet against the franc.

FXCM Chief Executive Officer Drew Niv, in remarks published in Bloomberg Markets magazine's December issue, said individual currency traders are enticed by the chance to control large positions with little money down.

"Currencies don't move that much," he said. "So if you had no leverage, nobody would trade."

FXCM has its own experience saving an embattled trading firm. Last year, it acquired some assets from Infinium Capital Holdings LLC, a high-frequency trading firm based in Chicago. The trading desks it bought became part of V3 Markets LLC.