thepupil Posted December 17, 2014 Share Posted December 17, 2014 1. agreed, all investment banks are black boxes and you can't trade junk and distressed without holding inventory. LUK and JEF have a long history of high yield market making AND prop trading, but they really are one and the same; Dodd Frank bedamned. banks need to take risk to make markets and make money. 2. winery was spun off and it didn't really make money; shareholders were able to monetize or keep. casino sale makes perfect sense. owning one regional casino in a saturated and tired gaming market doesn't really makes sense for a financial services centric conglomerate. they monetized and moved on. it would make more sense to own a casino company versus a single operation. otherwise it's a sub scale distraction of a "position". LUK is building platforms (asset management, lending, energy, etc.) not one-off single asset deals (though Linkem is certainly one-off but that's legacy LUK). The Bache acquisition looks dumb in hindsight, but JEF was certainly not the only bank to heedlessly rush to become a player in commodities; practically everyone had Goldman envy and wanted to be big badass physical trading shop. I see nothing wrong with them trying to increase their capabilities / become a full service investment bank and play with the big boys. As long as they don't bet the company on any one thing or let the balance sheet get too unwieldy, it's fine (considering they didn't crumble in 2008 and responded wonderfully to the Sovereign Debt Scare/Attack of 2011, I'm inclined to give them the benefit of the doubt). This isn't the old LUK and never will be. This wasn't a great year for the most important sub, but you can't have the good ones without the bad ones (and this quarter was more than manageable). Just as at old LUK there could not be home-run Fortescue's without goose egg Sangarts. At new LUK there can't be profitable Harbinger Capital rescues without some junk bond vol marking down the inventory. Link to comment Share on other sites More sharing options...
benhacker Posted December 22, 2014 Share Posted December 22, 2014 Pupil, +1 to your last two posts. Agree completely. Link to comment Share on other sites More sharing options...
jay21 Posted January 14, 2015 Share Posted January 14, 2015 Wheeler stepping down as COO of LUK and now permanent CEO of Berkadia http://seekingalpha.com/pr/12206296-berkshire-hathaway-corporation-and-leucadia-national-corporation-appoint-justin-wheeler-ceo-of-berkadia?app=n Link to comment Share on other sites More sharing options...
KinAlberta Posted January 15, 2015 Share Posted January 15, 2015 Guess my sentiments are two-fold. 1. LUK is like a black box BDC. How many shareholders knew the Bache division was having problems or what junk bonds and fixed income they owned? 2. They sold a casino and a winery making good money to buy a commodity broker below tangible book and still had to write it down. I wonder what capital allocation acumen was involved in assessing that this broker was a better use of 400m than the businesses they already owned and actually sold something. The house usually wins in a casino, not so much in financial markets apparently. "I wonder what capital allocation acumen was involved in assessing that this broker was a better use of 400m than the businesses they already owned " Well, we all know someone that bought a textile company and slowly wrote it down to, what, to nothing? Link to comment Share on other sites More sharing options...
scorpioncapital Posted January 15, 2015 Share Posted January 15, 2015 Buffett's astuteness was in taking the money out and doing something more intelligent with it. What I see with many companies today is either just muddling along too scared to shut things down and re-allocate the capital or if they do re-allocate the capital doing so in something equally dumb. It would be analogous to Buffett running down Berkshire textiles and using the money to buy a brand new textile mill thinking, this time we'll do better! Link to comment Share on other sites More sharing options...
fareastwarriors Posted January 16, 2015 Share Posted January 16, 2015 FXCM Said in Talks With Jefferies for $200 Million Rescue http://www.bloomberg.com/news/2015-01-16/fxcm-said-to-be-in-talks-with-jefferies-for-200-million-rescue.html Link to comment Share on other sites More sharing options...
thepupil Posted January 16, 2015 Share Posted January 16, 2015 Looks like Knight Capital Redux. JEF/LUK are apparently the go to shop for small brokerage/trading blow-ups, for better or worse. Link to comment Share on other sites More sharing options...
Grenville Posted January 16, 2015 Share Posted January 16, 2015 I like this type of opportunistic investing by JEF than trying to grow the asset management business. Just me…. Link to comment Share on other sites More sharing options...
jawn619 Posted January 16, 2015 Share Posted January 16, 2015 LUK is halted Link to comment Share on other sites More sharing options...
undervalued Posted January 16, 2015 Share Posted January 16, 2015 Anyone knows why my LUK holdings is only worth $10.93 per share? It dropped 50%. I put in a buy order at this price. Link to comment Share on other sites More sharing options...
tengen Posted January 16, 2015 Share Posted January 16, 2015 Anyone knows why my LUK holdings is only worth $10.93 per share? It dropped 50%. What are you looking at? I see $21.84 on Google finance. Link to comment Share on other sites More sharing options...
thepupil Posted January 16, 2015 Share Posted January 16, 2015 Unless Jefferies just London Whale'd their way to insolvency, I don't think that's correct. My IB account shows no change. Link to comment Share on other sites More sharing options...
undervalued Posted January 16, 2015 Share Posted January 16, 2015 I am looking at my actual holding value in OptionsHouse. This is probably the way they 'HALT' the trade? Link to comment Share on other sites More sharing options...
benhacker Posted January 16, 2015 Share Posted January 16, 2015 I am looking at my actual holding value in OptionsHouse. This is probably the way they 'HALT' the trade? I have heard (although I question the legality) of some brokers marking down shares that are halted to test margin accounts for potential deficits... I don't think the quote is accurate. If it is, I might have to cry.... ;-) Link to comment Share on other sites More sharing options...
scorpioncapital Posted January 16, 2015 Share Posted January 16, 2015 I was looking at FXCM's latest balance sheet: http://www.sec.gov/Archives/edgar/data/1499912/000149991214000005/fxcm-20140930x10q.htm 641m equity including non controlling interests minus 300m in goodwill (useless of course) = 340. If they lost $225m = $130m equity. So if Jefferies plugs the hole, they are getting $340m of equity for $200m, assuming everyone else gets nothing + future cash-flows. Also a great article on probabilities, black swans, models, the Swiss franc, and FXCM: http://www.bloombergview.com/articles/2015-01-16/no-one-was-supposed-to-lose-this-much-money-on-swiss-francs Link to comment Share on other sites More sharing options...
Grenville Posted January 16, 2015 Share Posted January 16, 2015 Also a great article on probabilities, black swans, models, the Swiss franc, and FXCM: http://www.bloombergview.com/articles/2015-01-16/no-one-was-supposed-to-lose-this-much-money-on-swiss-francs Nice article by Matt Levine. Thanks! Link to comment Share on other sites More sharing options...
jawn619 Posted January 16, 2015 Share Posted January 16, 2015 http://www.cnbc.com/id/102343957 Bailout! Link to comment Share on other sites More sharing options...
undervalued Posted January 16, 2015 Share Posted January 16, 2015 Anyone have any idea why they halted LUK when FXCM is the one in trouble? Link to comment Share on other sites More sharing options...
jawn619 Posted January 16, 2015 Share Posted January 16, 2015 Anyone have any idea why they halted LUK when FXCM is the one in trouble? they often do this when 2 companies have news pending. If for example LUK got a really good deal for FXCM, LUK shares would go flying when they announce the terms of the deal. Link to comment Share on other sites More sharing options...
thepupil Posted January 16, 2015 Share Posted January 16, 2015 So looking at FXCM's financials, it looks like an okay, but unspectacular deal. I don't think LUK is going to make out like a bandit on the 75% equity they bought, but they'll probably get paid back their interest and the debt in two years and get back all their capital (2 yrs of coupon is coincidentally the $50mm they are paying for 75%). I am assuming that FXCM doesn't see all its business go away though. I can't decide if people will say "hey its' now backed by a bigger co and lightning doesn't strike the same place twice" or will say "eff this, I'm going to IB", so it's possible the business does not do well enough to pay back LUK. I think this is more of a "build our reputation as a source of capital in times of distress and gain some points with regulators" deal than a financial masterstroke. I'd love for them to prove me wrong to the upside though. any more knowledgeable minds care to opine on FXCM? Doesn't seem overly profitable has negative tangible equity; I see no obvious appeal for LUK here. EDIT: It looks like the entire $300MM consideration is in the form of a senior secured loan and then they get a certain % of divvies or sales proceeds http://finance.yahoo.com/news/leucadia-national-corporation-fxcm-announce-205500756.html http://www.gurufocus.com/stock/FXCM Link to comment Share on other sites More sharing options...
benhacker Posted January 16, 2015 Share Posted January 16, 2015 [Edited my #'s below to show the note as $300m (vs. $250m in my first note) per LUK / FXCM press release] I don't know, at first blush I agree pupil. Financials for FXCM are marginal... but I'm cautiously optimistic that the market value placed on FXCM (3 days ago) of $750m isn't totally devoid of merit / detached from reality. We look at tangible book because we are looking at this with a fresh pair of pessimistic eyes, but I think the stickiness of some of these brokers has commanded much better multiples to book than other businesses in the past (although, the recent press certainly should crush a lot of that goodwill)... on the tangible asset front, this looks so-so, but perhaps it's basically essentially no downside (they get paid back in 2 years prior to any other debt coming due) and upside could be meaningful, or minimal, but it's probably a good risk reward. Agree that maybe getting their name out there as a capital supplier that can act quickly in times of distress isn't a bad thing... Oh yeah, how about the folks who sold / bought FXCM converts (due '18) at $0.30 -- just 90 minutes ago. They should have halted the debt in addition to the stock. Ouch! Seems like pro-forma of the deal, the 10% note for 2 years is probably worth face (2.25% notes due 6/18 are already trading YTM of 12%), so the "fee" for services for LUK is the 75% ownership. Pro-form tangible book is probably $125m, so call their fee maybe $90m for a rough number.... if stock opens at $0.50-0.75 next week, that would validate the markets view of this deal. My gut says it opens up higher than that, but I have no real strong reason to say that, just a feel. I don't know, seems good, but not quite a NITE deal either... we'll see where the stock opens, will be fun to watch. Link to comment Share on other sites More sharing options...
physdude Posted January 16, 2015 Share Posted January 16, 2015 The share price is currently in the 3s so those who got the converts have made out like bandits! The price is 3.81 as I post this. Link to comment Share on other sites More sharing options...
scorpioncapital Posted January 16, 2015 Share Posted January 16, 2015 From what I understand the 75% is if FXCM is sold or dividends are paid in the next 2 years. If neither occurs, does that mean essentially LUK gets nothing except not having use of their 300m for 2 years? If a sale occurs, it said LUK would need a sale of 400m to break even. I fail to see the outstanding investment Handler mentions in the press release. Could this investment have something to do with the strategic review of the Jefferies Bache business? Link to comment Share on other sites More sharing options...
thepupil Posted January 17, 2015 Share Posted January 17, 2015 From what I understand the 75% is if FXCM is sold or dividends are paid in the next 2 years. If neither occurs, does that mean essentially LUK gets nothing except not having use of their 300m for 2 years? If a sale occurs, it said LUK would need a sale of 400m to break even. I fail to see the outstanding investment Handler mentions in the press release. Could this investment have something to do with the strategic review of the Jefferies Bache business? It's a $300mm senior secured term loan with a 10% coup. Base case they make 10%. They didn't pay for the % of proceeds option thingamajig. They need to get their money back to breakeven; the article you reference and the breakeven was based on the original rumor or $250mm loan and $50mm for the 75% proceeds thing. Here's the language: NEW YORK--(BUSINESS WIRE)-- Leucadia National Corporation (NYSE: LUK) and FXCM (NYSE: FXCM) today announced that Leucadia would be providing $300 million in cash to FXCM and its subsidiaries (collectively "FXCM") that will permit FXCM to meet its regulatory-capital requirements and continue normal operations after yesterday's loss of $225 million due to the unprecedented actions of the Swiss National Bank. Under the terms of the agreements, Leucadia is investing $300 million in cash into FXCM in the form of a $300 million senior secured term loan with a two-year maturity and an initial coupon of 10%. The term loan obligations are guaranteed, on a secured basis, by certain of FXCM's domestic subsidiaries. In addition, Leucadia will receive, in the event of a sale of FXCM or its subsidiaries, a certain percentage of the sale proceeds and, in the event FXCM makes other distributions on account of its equity, a corresponding payment for its own account. This transaction is expected to close this afternoon At least that's how I read things, but frankly I don't care too much and am not putting a ton of time into it. It's not material. On the margin, I'm glad LUK is deploying the balance sheet, but this isn't game changing either way. Link to comment Share on other sites More sharing options...
mcliu Posted January 17, 2015 Share Posted January 17, 2015 Decent coupon and security. Not too much downside unless another 20-standard-deviation event in FX occurs again in the 2 years. Doesn't seem to have much upside either though.. :o Link to comment Share on other sites More sharing options...
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now