IB 42m bad debt expense - which stock?

Discussion in 'Retail Brokers' started by freedinner, Apr 17, 2019.

  1. -- from IB's quarterly CC transcript (seeking alpha):

    "Second, we disclosed in early March, what was then a $47 million margin loan loss, which is now $42 million and on which we still are likely to collect more. This occurred in the U.S. listed stock in which several customers invested by borrowing on margin. The stock's price fell rapidly over a very brief period of time while simultaneously the trading volume suddenly dried up. Due to the very low trading volume, we were unable to liquidate as much of the stock as we wanted.

    We have made and expect to make further recoveries here. We are continually looking to make our systems and algorithms better. As a result, we have tightened margin borrowing in very low trading volume stocks and we'll be using average daily volume as a greater weight when we assess margin loan risk in future."

    -- this is from the 10K at the end of Feb (haven't read this before):

    "Over an extended period in 2018, a small number of the Company’s brokerage customers had taken relatively large positions in a security listed on a major U.S. exchange. The Company extended margin loans against the security at a conservatively high collateral requirement. In December 2018, within a very short timeframe, this security lost a substantial amount of its value. The customer accounts were well margined and at December 31, 2018 they had incurred losses but had not fallen into any deficits. Margin shortfalls were met in a timely manner by delivery of additional shares by the customers. Subsequent price declines in the stock have caused these accounts to fall into deficits, despite the Company’s efforts to liquidate the customers’ positions. Through February 27, 2019, the Company has recognized an aggregate loss of approximately $47 million. The maximum aggregate loss, which would occur if the securities’ prices all fell to zero and none of the debts were collected, would be approximately $59 million. The Company is currently evaluating pursuing the collection of the debts.

    The ultimate effect of this incident on the Company’s results will depend upon market conditions and the outcome of the Company’s debt collection efforts. Our Risk Management Committee continuously monitors and evaluates our risk management policies, including the implementation of policies and procedures to enhance the detection and prevention of these types of events."

    ----> Any idea what's the US listed stock they are talking about?
    MoreLeverage and dealmaker like this.
  2. JSOP


    Probably some penny stocks that those investors got into in those "pump & dump" scams. Thinking the stock is going somewhere, borrowed to buy more and to also earn more $$ in IB's Stock Yield Enhancement program and the stock went bust.
  3. very unlikely a penny stock

    1) they are talking about a stock "listed on a major US exchange"

    2) IB before already had a 100pc margin requirement for stocks with market cap below 200m usd
  4. JSOP


    What I mean by penny stocks, I mean low cap, <$5 stocks. They can still be listed. Otherwise there should've been a market for them. Why would IB not be able to liquidate them?
  5. Biotech? Only thing that could catch them by surprise like that.....
  6. JSOP


    At first when I looked at it, I thought you said "Biotch". LOL I need to get some sleep...
    Cdntrader likes this.
  7. d08


    Show me a low cap < $5 stock that offers margin on IB. Like @athlonmank8 said, it's most likely a biotech.
  8. Or cannabis
  9. destriero



    (Trump Steaks)
  10. Fascinating. This is pretty much the worst case scenario for a brokerage firm I would suspect at a larger scale.
    #10     Apr 21, 2019