FXCM: tough questions for Deutsche

Given the FXCM stake is a passive shareholding with only two seats on the board, one may think it won’t be too problematic, as incumbent board members have the power to overrule any potentially rash decisions. But it is a risk. The severity of that risk depends largely on the actual relationship between the two partners: namely, whether the relationship extends beyond the roles of bank and technology vendor.

Comments from Deutsche Bank indicate the relationship may be limited to that of a technology vendor and bank. How much that could come under threat is something to consider, and perhaps makes independent margin trading platform vendors look more appealing.

Some have questioned why any bank would even be interested in purchasing the FXCM stake. There is, naturally, reputational risk involved in owning a platform catering to retail clients. If that’s not much of a concern, there is also the issue of competing internally against the bank’s private banking business.

Depending on how much the 35% stake costs, this could be an extremely attractive way to crack into a market estimated to be worth more than $50 billion a day and growing. Although a slightly different case, Saxo Bank generated interest from a number of banks when it was selling 25% of its business. In the end, the stake was sold to private equity firm General Atlantic for $126.5 million.

This time, given the shares on offer are common shares and not preferred shares, the chances are higher that a bank may come out a winner in this sale over a private equity firm.