FXCM Hit Hard by Swiss National Bank’s Surprise Move
Uri Gruenbaum | Jan 19, 2015 09:43AM ET
FXCM Inc (NYSE:FXCM) was deeply affected by the Swiss National Bank’s decision to abandon its cap on the Swiss franc, catapulting their clients into negative equity balances. FXCM, or Forex Capital Markets, is a foreign exchange market that operates through its own online trading platforms as well as third-party platforms. It is the largest forex broker in U.S. and Asia.
On January 15th, the Swiss National Bank deserted its franc cap that regulated the difference between the Swiss franc and the euro. This policy has been in place since the summer of 2011, when the Swiss franc was significantly stronger and more stable than the euro. The Swiss National Bank explained the move in a press release: “The euro has depreciated considerably against the US dollar and this, in turn, has caused the Swiss franc to weaken against the US dollar. In these circumstances, the SNB concluded that enforcing and maintaining the minimum exchange rate for the Swiss franc against the euro is no longer justified.”
Since this move was unannounced, free trading between the Swiss franc and the euro caused the value of the Swiss franc to surge compared to other currencies. As a result, shares of FXCM fell an overwhelming 88% in pre-market trading on January 16th.
After the Swiss National Bank removed the cap, FXCM released a statement announcing that “due to unprecedented volatility” from the removal of the cap, FXCM “clients experienced significant losses [and] generated negative equity balances owed to FXCM of approximately $225 million.”
Many investors saw this as the end of FXCM, but the company found financing to “continue normal operations.” On January 16th, FXCM announced that Leucadia National Corporation, which owns Jefferies Group investment bank, will provide $300 million in cash to FXCM “that will permit [the company] to meet its regulatory-capital requirements and continue normal operations after [the] loss of $225 million due to the unprecedented actions of the Swiss National Bank.”
Analysts turned bearish following the Swiss National Bank’s drastic move to remove the cap.
On January 16th, analyst Strong Sell .
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