Interactive Brokers CEO: Unlikely to Recover Most Losses From Franc Trades

 
   By James Ramage 
 

        Interactive Brokers Group Inc. (IBKR) is unlikely to recoup trading losses suffered by its clients in the wake of the Swiss National Bank's surprise decision last week to remove a cap on the value of the franc, the brokerage's chief executive said Tuesday.
        The broker, which conducts trades for retail investors and others, saw losses of about $120 million on Thursday after the franc shot up against the euro, dollar and other major currencies. The move went against wagers that the franc would fall, resulting in steep losses, particularly for investors who had leveraged their bets.
        The broker is unlikely to recover those losses, Chief Executive Thomas Peterffy said in a conference call with analysts following the company's earnings release. The largest losses come from customers living in five areas outside the U.S., including Spain and Hong Kong. The laws of the countries and the degree of solvency of the investors involved could make repayment impossible, Mr. Peterffy said.
        Most of the losses came in the currency futures market, Mr. Peterffy said.
        Interactive Brokers expects to increase margin requirements, the amount of collateral investors must provide up front as a percentage of any trade, Mr. Peterffy said.
        The company's shares were down 1.85% to $27.60 in after-hours trading. The stock closed up 0.1% at $28.12 before the earnings release.
        (END) Dow Jones Newswires

By James Ramage And Tess Stynes 

        Interactive Brokers Group Inc. is unlikely to recoup trading losses suffered by its clients in the wake of the Swiss National Bank's surprise decision last week to remove a cap on the value of the franc, the brokerage's chief executive said Tuesday.
        The broker, which conducts trades for retail investors and others, said the surge in the Swiss franc on Thursday resulted in several of its customers getting hit by losses in excess of their deposits with the firm. The firm said the losses totaled about $120 million, but were less than 2.5% of its net worth. The currency's move went against wagers that the franc would fall, resulting in steep losses, particularly for investors who had leveraged their bets.
        The broker is unlikely to recover those losses, Chief Executive Thomas Peterffy said in a conference call with analysts following the company's earnings release. The largest losses come from customers living in five areas outside the U.S., including Spain and Hong Kong. The laws of the countries and the degree of solvency of the investors involved could make repayment impossible, Mr. Peterffy said.
        Most of the losses came in the currency futures market, Mr. Peterffy said.
        Interactive Brokers expects to increase margin requirements--the amount of collateral investors must provide up front as a percentage of any trade, Mr. Peterffy said.
        Before the call, Interactive Brokers said its fourth-quarter earnings rose as lower expenses tied to execution and clearing and employee compensation helped mask a decline in revenue.
        The recent volatility in the Swiss franc heightened currency risks faced by financial firms and companies doing business abroad from the strengthening of the U.S. dollar. But any impact related to that volatility would affect the first-quarter results of Interactive Brokers and its peers.
        For the fourth quarter, which ended Dec. 31, Interactive Brokers reported a profit of $7.1 million, or 12 cents a share, up from $3.6 million, or seven cents a share, a year earlier. Excluding items such as currency impacts, per-share earnings fell to two cents from nine cents. Net revenue decreased 17% to $208.1 million.
        Analysts polled by Thomson Reuters expected a per-share profit of six cents and revenue of $238.1 million.
        Total daily average revenue trades climbed 24% to 619,000 trades. Customer accounts increased 18% to 281,000.
        Pretax income from its market-making division, Timber Hill, one of the world's largest traders of options contracts fell 49% to $15.1 million. Segment revenue fell 30% to $53.6 million.
        At its electronic brokerage unit, used mainly by professional traders and small hedge funds, pretax income surged to $166.9 million from $49.2 million. Segment revenue rose 23% to $261.5 million.
        Total noninterest expenses declined 37% to $133.8 million amid lower execution and clearing and employee compensation costs.
        The company's shares were down 1.85% to $27.60 in after-hours trading. The stock closed up 0.1% at $28.12 before the earnings release.
        Write to Tess Stynes at tess.stynes@wsj.com
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        (END) Dow Jones Newswires

        January 20, 2015 18:57 ET (23:57 GMT)

        January 20, 2015 18:27 ET (23:27 GMT)

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