Euro Slips Ahead of ECB's Meeting; FXCM Shares Plunge

        By James Ramage
        FXCM Inc. shares plunged by nearly 90% Tuesday as investors reeled from terms of a rescue deal for the foreign-exchange broker after it had suffered heavy losses tied to the Swiss franc's jump last week.
        The euro lost 0.9% as it fell to 1.0126 Swiss francs Tuesday, and dropped 0.5% against the dollar to $1.1551, as the market anticipated news from the European Central Bank meeting on Thursday. The bank is expected to announce a large bond-buying program that would weigh on the value of the euro. The dollar was up 1.1% at 118.81 yen.
        FXCM accepted a $300 million, two-year loan from Jefferies Group LLC parent Leucadia National Corp. on Friday. The cash is needed to cover client losses stemming from the Swiss National Bank's surprise move last Thursday to end its cap on the franc's exchange rate to the euro.
        The ensuing sharp rise in the franc's value against the euro, dollar and other currencies caught off-guard FXCM's clients, who are mainly small, often highly leveraged retail investors. The broker's customers owe it $225 million, putting the company in danger of violating regulatory capital requirements.
        The loan will keep FXCM in business, but at terms that will leave shareholders with just a sliver of future profits, analysts say. FXCM will pay up to 17% annual interest, and Leucadia can force a sale of the company after three years. Overall, FXCM will end up paying as much as 82% out of future profits to Leucadia over the course of the loan, said Richard Repetto, an analyst at Sandler O'Neill + Partners. FXCM released details of the loan late Sunday.
        "Bottom line, we view [Leucadia's] financing as accomplishing one primary goal: avoiding bankruptcy," Mr. Repetto wrote in a research report. "Otherwise it is highly punitive to FXCM shareholders."
        FXCM's stock price plummeted 87%, to $1.60 from the $12.63 it had been at last Thursday. Trading in the company's shares was halted on Friday.
        An FXCM spokesperson didn't immediately respond to a request for comment.
        (END) Dow Jones Newswires

        January 20, 2015 18:08 ET (23:08 GMT)

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