In its regulatory filings concerning 2019 performance, the Connecticut (US) based institutional brokerage, Interactive Brokers Group, Inc. (NASDAQ:IBKR) has indicated that it is continuing debt collection efforts in regards to customers, who incurred losses greater than the balance of their trading accounts on January 15, 2015.
Many will recall that on that day 5 years ago the Swiss National Bank eliminated the currency peg put into place previously and sent the prices of Swiss Franc flying, leaving many traders and brokers in the red. The sudden market move caused many market participants to lose funds in excess of what they held in their trading accounts. As such, Interactive Brokers set out to collect the balances owed by such customers and institutions as a result of the ‘Black Swan’ event.
In the annual report for 2019, Interactive Brokers explains the results for 2015 include an unusual loss of $137 million recorded as customer bad debt. As of December 31, 2019, Interactive Brokers has incurred cumulative losses, net of hedging activity and debt collection efforts, of $115 million. Furthermore, the broker’s results for 2018 show similar incurred cumulative losses, net of hedging activity and debt collection efforts, of $116 million.
Considering that the broker has not been able to meaningfully reduce the cumulative losses over time, it becomes evident that such market events create situations in which recouping of losses is very difficult, if not impossible. Another question that looms is the cost of such debt collection measures and their impact considering the cumulative debt. In our mind, these losses will at some point need to be written off, as the prospects for collective them continue to dwindle as time passes.