Bgc Group Inc

NASDAQ:BGC

Earnings Call Transcript 2020-Q4

[Operator]

Welcome to the BGC Partners, Inc., Fourth Quarter and Full Year Earnings conference call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to Jason Chryssicas, Head of Investor Relations. Please go ahead.

[Jason Chryssicas, executive]

Good morning. Today, we issued BGC's fourth quarter and full year 2020 financial results press release and the presentation summarizing these results. You can find these at ir.bgcpartners.com.

Please note, you can find additional details on our quarterly and full year results in today's press release and investor presentation. Unless otherwise stated, the results provided on today's call compare only to the fourth quarter of 2020 with the year earlier period. We will be referring to our results on this call only on an adjusted earnings basis unless otherwise stated.

We may also refer to adjusted EBITDA. We may refer to our liquidity, which we define as cash and cash equivalents plus marketable securities that have not been financed, reverse repurchase agreements and securities owned, less security loans and repurchase agreements. We define total capital as redeemable partnership interest, total stockholders' equity and noncontrolling interest in subsidiaries.

Please see today's press release for results under generally accepted accounting principles or GAAP. Please also see the relevant section at the back of today's press release for the complete and updated definitions of any non-GAAP terms, reconciliations of these items to the corresponding GAAP results and how and when and why management uses such terms.

Additional information with respect to our GAAP and non-GAAP results mentioned on today's call is available on our website at ir.bgcpartners.com and in our investor presentation. We refer to the company's electronic businesses as Fenics. Fenics offerings include our fully electronic brokerage, Fenics Integrated brokerage and our market data software and post-trade services.

Desks are categorized as Fenics Integrated to utilize sufficient levels of technology such that significant amounts of the transactions can be or are executed without broker intervention and had expected pretax adjusted earnings margins of at least 25%.

I also remind you that the information regarding our business on today's call that are not historical are forward-looking statements. These include statements about the effects of the COVID-19 pandemic on the company's business, results, financial position, liquidity and outlook.

Any forward-looking statements involve risks and uncertainties, except as required by law. BGC undertakes no obligation to update any forward-looking statements. Any outlook and targets discussed on this call assume no material acquisitions, buybacks, extraordinary transactions or meaningful changes to the company's stock price.

For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see BGC's SEC filings, including, but not limited to, the risk factors and special note on forward-looking information set forth in these filings and any updates to such risk factors and special note on forward-looking information contained in the subsequent reports on Form 10-K, Form 10-Q and Form 8-K.

With that, I'm now happy to turn the call over to Howard Lutnick, Chairman and CEO of BGC Partners.

[Howard W. Lutnick, executive]

Thank you, Jason. Good morning, and thank you for joining us for our fourth quarter and full Year 2020 conference call. Joining me for today's call are BGC's Chief Operating Officer, Sean Windeatt; and our Chief Financial Officer, Steve Bisgay.

I'm incredibly proud of our people. Our employees showed incredible resolve and determination to overcome the challenges that 2020 presented. Through ingenuity and commitment to client service, BGC performed its critical role providing transaction infrastructure and liquidity to the global capital markets in the most difficult of circumstances.

Fenics and Corant Global are newly branded insurance brokerage business, each generated record revenue. Fenics generated quarterly and annual net revenue records, led by a 41% improvement in Fenics brokerage revenues. Additionally, revenue growth from Fenics standalone businesses, including Fenics UST, Fenics GO and Lucera continued to significantly update our overall business and industry.

Corant also achieved record quarterly and annual brokerage revenue of $49 million and $183 million, respectively, driving the business to profitability in the fourth quarter. We continue to see increasing productivity from recently hired insurance brokers and newly launched business lines, underpinned by hardening pricing trends within the insurance market.

Turning to BGC overall. Last quarter, we said we expected to match last year's fourth quarter earnings. I'm pleased to say we exceeded it by growing post-tax adjusted earnings by 18% and setting a new fourth quarter profitability record. The outperformance of profitability came despite the continued COVID-related dislocations faced by our clients and the impact on our revenues. As we move into 2021, revenue growth and improving margins remain a top priority of the firm. The company is well-positioned for growth, which we will create a more profitable and technology-driven business.

With that, I'll turn the call over to Sean.

[Sean Windeatt, executive]

Thank you, Howard, and good day, everyone. As Howard mentioned, both our Fenics and Corant businesses generated strong revenue growth. Fenics' net revenue grew 33%, while Corant brokerage revenue grew 13%, each setting new quarterly records. These are businesses that we have invested in over the past few years as we aim to digitalize and diversify our more than $2 billion revenue base.

Within our voice/hybrid business, we had strong growth across European governments and credit bonds, Asian bonds, U.S. and European inflation products as well as in U.S. and European equities. The group's fixed income agency brokerage business, which serves a broader client set, also outperformed. This growth was offset by lower revenues across European listed rates and emerging market credit and FX products.

BGC is uniquely positioned to capitalize on accelerating electronic execution trends. Compared to other platforms, we have a significantly higher revenue base for digitization. Compared to other wholesale brokers, we have a substantial head start in digitalizing parts of the OTC markets, including through our newly built standalone electronic platforms.

Fenics US Treasury and Fenics GO, 2 of our newer fully electronic offerings, achieved record volumes during both the fourth quarter and full year 2020. Fenics US Treasuries ended 2020 with 16% CLOB market share and grew volumes by 66% against the backdrop where primary dealer U.S. Treasury volumes increased by only 1.6%.

Fenics U.S. Treasury is the clear #2 U.S. Treasury CLOB. We view recent consolidation of this space as proof of just how successful and important our platform has become. As an example, over 70% of all Fenics U.S. Treasury trades in the fourth quarter were executed at tighter price levels only offered on the Fenics U.S. Treasury platform. T-bills launched on the Fenics UST platform at the end of the fourth quarter, and we plan to launch U.S. repos by the end of the first quarter of this year. Going into 2021, we have optimized our Fenics U.S. Treasury commercial agreements, which will drive revenue growth.

Fenics GO trading volumes increased by over 600% from a year ago, driven by strong performance in its Euro Stoxx 50 and NIKKEI 225 Index Options offerings as well as recent launches of additional European and Asian index option products. Fenics GO is the only anonymous multilateral electronic platform for block-size listed equity options, which delivers a unique advantage, providing traders best execution as well as benefits to compliance officers who need to validate these requirements.

Our data, software and post-trade businesses, which are predominantly comprised of recurring revenue, grew by nearly 15%, reflecting strong performance across several of our businesses as well as the acquisition of Algomi. Fenics market data had solid growth in both the fourth quarter and full year 2020, signing a record number of new multiyear contracts throughout the year. Lucera won key new clients across its Connect and LumeMarkets offerings, driving revenue 45% higher in 2020.

Advancing on this success, Lucera expanded its Lume offering to rates products with the potential to scale to other asset classes in the future. Capitalab’s NDF matching business continued to increase its market share throughout the year, growing revenue by 27% for the full year. The state of the art technology and trading protocols underpinning our standalone Fenics platforms were designed to scale across multiple products and asset classes. For example, we launched electronic Asian NDF this quarter, which leverages Lucera's technology.

We also plan to launch repos this quarter utilizing the Fenics U.S. Treasury platform with European government bonds to follow. Fenics GO's technology is scalable across all listed options, fixed income and commodities products. As we continue to digitalize existing businesses and grow our standalone Fenics platforms, our profitability and margin profile are expected to continually improve.

With that, I'm now happy to turn the call over to Steve.

[Steven Bisgay, executive]

Thank you, Sean, and hello, everyone. As reported in today's earnings release, total revenue for the fourth quarter was down 1.6%, reflecting lower FX and rates revenue as well as lower fees from related parties. This was partially offset by higher revenue from insurance broking, equity derivatives and cash equities as well as data, software and post-trade. Our revenue by geography saw higher Europe, Middle East and Africa revenues, which increased by 5.4%. The Americas were down by 13.4%, while Asia Pacific revenues declined by 2.2%. By asset class, energy and commodities, equity derivatives and cash equities and insurance increased by 0.3%, 7% and 12.80%, respectively, while rates, credit and FX were down by 3.9%, 2.2% and 8.9%, respectively.

We continued our optimization of front office headcount across less profitable businesses, which lowered revenues in the short term, but increased profitability during the quarter. This led to an 8.4% improvement in average productivity of our financial brokers and salespeople compared to the fourth quarter a year ago. Additionally, pandemic-related lockdowns and continued dislocations across the globe weighed on our overall revenue.

Moving on to Fenics. This quarter, Fenics generated record quarterly net revenue of $83.3 million, an improvement of 33.4%. This was driven by record Fenics brokerage revenue of $62.4 million, an increase of 41% and data, software and post-trade growth of 14.9%. Fenics rates and FX were up 51.2% and 125.9%, respectively, driven by Fenics Integrated. Fenics rates growth was driven by Euro and U.S. rates products, including government bonds, interest rate derivatives and inflation products, while FX growth was primarily driven by FX options and spot FX.

Corant, our insurance brokerage business, achieved record quarterly brokerage revenue, growing by 12.8% and turned profitable in the fourth quarter, driven by improved productivity from previously hired brokers and hardening insurance pricing trends. Our aviation and aerospace business peak won key new clients, driving its highest ever quarterly revenue and laid foundations for strong growth going forward.

Moving on to expenses. Our compensation and employee benefits expense under both GAAP and adjusted earnings decreased as a result of lower commissionable revenues and lower headcount as well as cost reduction initiatives that were executed in 2020. Compensation expense under GAAP reflects $1.6 million of charges related to cost-saving initiatives for the fourth quarter. Our non-compensation expenses decreased primarily due to lower selling and promotion and lower professional and consulting fees. The decline in these expenses was due to a continued focus on tighter cost management as well as the impact of the COVID-19 pandemic. The decrease in these expenses was partially offset by an increase in interest expense, driven by the $300 million of 4.375% senior notes due 2025, less lower interest expense on our revolving credit facility, which was repaid in full during the third quarter of 2020.

Moving on to our adjusted earnings. Our pretax income was $80.1 million, an increase of 9.4%. We achieved record fourth quarter post-tax adjusted earnings of $73.6 million, up 18% from 2019 and record fourth quarter adjusted EBITDA of $107.9 million, an improvement of 32.8%.

Turning to share count. Our fully diluted weighted average share count increased by 0.8% sequentially to $553.6 million under adjusted earnings in the fourth quarter of 2020. As of December 31, 2020, our spot share count was $553.2 million, and an increase of 0.9% sequentially. We expect to use relatively more cash with respect to compensation and acquisitions to minimize dilution.

With respect to our balance sheet. As of December 31, 2020, our liquidity was $652.6 million compared with $473.2 million as of year end 2019, an increase of $179.3 million or 37.9%. Cash and cash equivalents were $593.6 million versus $415.4 million as of year-end 2019. Notes payable and other borrowings were $1.3159 billion compared with $1.1427 billion, and total capital was $828.9 million compared with $748.6 million.

The year-end balance sheet figures reflect the issuance of $300 million of 4.375% senior notes due 2025, the pay down of our revolving credit facility in full, $44 million of tendered 5.125% senior notes due May of 2021 and ordinary movements in working capital. The year-end balance sheet also reflects significant investment in new hires across our Corant businesses, capital expenditures in Fenics as well as costs associated with transitioning our workforce from office locations to new virtual and remote work environments.

It also reflects charges associated with our cost reduction program executed in 2020. During the fourth quarter, we identified a theft of U.K. tax payment related funds from the company. The theft, which occurred over several years ending September 2020, was perpetrated by 2 individuals associated with the company and did not involve the operations or business of the company. Litigation has commenced against the 2 individuals seeking recovery of stolen amounts.

The consolidated net loss under GAAP caused by the theft has been determined to be approximately $35.2 million. We expect to recover most or substantially all of the stolen funds through a combination of insurance and return of assets through litigation. The amount of loss was not material to any prior period financial statements. However, given the cumulative adjustment to the current period, prior period GAAP financial information has been revised to reflect this loss as well as any other previously unrecorded immaterial adjustments.

The financial information reflects this revision for 2019 and applicable quarterly and comparison periods as well as the first 3 quarters of 2020. Neither the loss nor the revisions impacted non-GAAP pretax adjusted earnings in any period. The impact of the theft on GAAP income before income taxes was $13.3 million and $10.8 million for the full year of 2020 and 2019, respectively, and the balance was reflected in prior periods.

And with that, I'm happy to turn the call back over to Howard.

[Howard W. Lutnick, executive]

Thank you, Steve. Turning to our capital allocation plan. We will prioritize share and unit repurchases over dividends and distributions. However, we will look to increase our current dividend perhaps $0.01 toward the end of the year. With respect to our potential corporate conversion, we continue to await insight on the new administration's U.S. federal tax policies.

Turning to our outlook for the first quarter of 2021 compared with the year earlier. BGC's revenues were approximately 1% higher year-on-year for the first 34 trading days of the first quarter of 2021. This comparison does not yet reflect the latter part of the first quarter of 2020 and significant levels of market-wide volatility and trading volumes spiked in connection with the onset of the COVID-19 pandemic. During this period, which was at the end of the quarter last year, BGC's revenue was approximately 25% higher versus that same period in 2019.

Should global vaccination efforts proved successful at containing the virus, we expect our clients to return to the office to improve our performance. Looking forward for our first quarter guidance, we expect to generate total revenues between $540 million and $590 million, which compares to $603.2 million last year. We anticipate pretax adjusted earnings to be in the range of $102 million to $122 million versus $112.1 million last year. We anticipate our full year 2021 adjusted earnings tax rate to be in the range of 10% to 12%, which compares to 11% for the full year of 2020.

And with that, operator, we are available and open the call for questions.

[Operator]

[Operator Instructions] And our first question comes from Rich Repetto of Piper Sandler.

[Richard Repetto, analyst]

Congrats on the strong revenue growth in Fenics brokerage. And I guess just zoning on the rates, in particular, strong, I think it was up 51%, I think, is what you said the Fenics rates. But you mentioned that consolidation sort of, what you call, legitimize the value in the space. I was wondering could you comment on that. Having a competitor -- maybe an improved competitor in the space, how that's going to impact you? And then where do we stand on ever getting margins in the Fenics overall category or segment?

[Howard W. Lutnick, executive]

So number one, we've now merged the #3 player and the #4 player in the space. To merge, so first point is we've gone -- they were both in business for way, way, way longer periods of time, and we have blown past them in terms of market share and volumes, and in our view, value. Step two, for them to bring that liquidity together will be a significant task, which I think they have said it will take them more than a year and potentially 2 years to integrate their technology. So I think while they're trying to do that, it's very difficult for them to dramatically improve either of the systems.

So that gives us plenty of time to continue to build our market share and volume and value. And yes, are they a big competitor? Of course, they are. But they've been a good competitor for years before we announced -- from years before we opened and for the last couple of years that we did open, and that has not stopped us from going and dramatically growing our market share right past them. So I think we have validated our ability to compete and our ability to succeed in this statistic where 70% of our trades were done at superior prices than alternative systems. So this defines our position in where we stand and why we're growing. So I think that's number one.

Number two, we've said we've optimized our model, which means starting this year all of our market participants or virtually all of our market participants are -- have entered into commercial agreements with us and are now going to be paying for their system. And so our revenues will start to grow and build. We are adding products, however. That's new, right? We are adding treasury bills at the end of the fourth quarter. We're adding repos. This quarter, we're going to add European government bonds. We're going to take our system and march this system across the rates environment around the world, and I think we are going to add tremendous value to our clients and to our shareholders.

So I think from a perspective of value, we've made a massive investment over many years in our rates, technology and franchise, and that is starting to pay off now. We are going to continue to grow it and build it. And I think we are going to build tremendous asset value for our shareholders here. And I think that consolidation just proves the fact that Fenics is here to stay and Fenics is a powerhouse in the rates CLOB market.

[Richard Repetto, analyst]

And any comment on the -- when we could expect margins for the overall Fenics segment?

[Howard W. Lutnick, executive]

Well, I think we've tried to articulate in the past. So Fenics Integrated is a -- the model for Fenics Integrated is the business has to have 25% margins. The electronic businesses -- remember, they -- we have started to charge more when we say we commercialized, meaning our clients are starting to pay market rates and that is just offset by our continuing to grow new products and new areas of the business. So -- but our business of Fenics for our standalone businesses we expect when they are fully -- sort of at full power, we expect their margins to be commensurate with the other fully electronic systems out there basically in the 40s and 50s, just like they are.

So I mean, that's the business model. We just are in a sort of fast growth model and continuing to roll out new products. But that we should be able to come up with and describe to you precisely how that is, and we are going to put that together for you. And we will do a Fenics -- as I said, we will do a Fenics Analyst Day in the coming months and really detail this point.

[Richard Repetto, analyst]

Okay. And 1 last thing. On the capital return policy, Howard, I guess, everybody has been waiting or investors have been waiting until after sort of the Newmark sort of restrictions to lift, but to get a more detailed or quantitative guidelines on the capital return or the buyback. And I think we already had the message that you'd -- I think that you'd prioritize repurchases. But is there any way you can quantify the amount of repurchases or how much capital overall of, say, net income you expect? You used to talk about a dividend and a 75% payout. So how can we get our arms around how much you're going to repurchase in a little bit more detail?

[Howard W. Lutnick, executive]

Okay. So what I think the stock is undervalued. And so in my opinion, the stock here is undervalued. Therefore, I think our actions are going to be when we do acquisitions, we're just going to pay more cash. When we compensate our employees, we're just going to pay more cash. Both of those will be -- reduce the issuance of the stock, and then we were going to buy back share. So those 3 things together will be -- as compared to our path, will be capital return of us using our earnings to buy back shares. And we think the stock is undervalued. I did say we're going to favor that over dividends, although I did say we'll perhaps raise the dividend towards the end of the year around $0.01.

But I think we're going to focus on growing our Fenics business and investing in our Fenics business. Beyond growing and investing in our Fenics business, we are going to be focused on anti-dilutive measures and buying back the shares because we think they're undervalued. But I'm not really quantifying it because I just don't think that's sort of what I'm supposed to do today other than to tell you that I plan -- that the company's intent is to do capital return policy focused on reducing its share count and buyback shares. We're reducing its issuance in other way.

[Richard Repetto, analyst]

Okay. I mean your liquidity went up nicely, approximately $100 million quarter-over-quarter. So I guess, I don't know when the restrictions actually lifted. But I think investors do -- are trying to get the rounds around how much you would repurchase. How much is going to need to go towards -- to employees to offset dilution and so forth? Because it's just hard to model this out unless we have some guidelines, anyway.

[Howard W. Lutnick, executive]

I think -- look, I hear the question. I don't know if we're ready to model that out. I would tell you that we were constrained from buying back shares both from the Newmark model. Then the fact is we had after the quarter until today, when we do our earnings, we don't buy back shares because we just don't. That the window is closed. So starting tomorrow, the firm is capable of doing what it wishes to do. And then over the period of the next couple of quarters, we will try to help you understand our level and our scale of these things, but I have tried to be clear.

I think the stock is undervalued, and we want to buy back shares, reduce share issuance by compensation and reduce share issuance by doing acquisitions in cash. And you got to put those 3 things together, coupled with whatever we're going to build in Fenics and what kind of -- what we need to build with respect to Fenics, if there is such a thing in CapEx, which should be rather muted, I would think, going forward. As compared to this year, I wouldn't think it would materially grow, in my opinion. So therefore, I think we will have our earnings available to pay our dividends. But distributions, by the way, will be consistent, right? So our -- when I say dividend, I'm also intellectually trying to match the concept for our -- for the partners and distributions as well.

[Operator]

[Operator Instructions] And our next question comes from Patrick O'Shaughnessy of Raymond James.

[Patrick O'Shaughnessy, analyst]

To follow-up on your last response, Howard, can you give any quantification around your expected cash flow needs for forgivable loan grants and capital expenditures in 2021?

[Howard W. Lutnick, executive]

I would say they both should decline, right? I think our CapEx will be lower. And I think our -- the amount of employee loan balances, that rate of -- the amount we gave last year will be lower in our expectation in '21. So both things will be reduced. And therefore, we will have more cash available to buy back shares.

[Patrick O'Shaughnessy, analyst]

Okay. Got it. Can you give an update on the strategic plans for your insurance brokerage business? Corant, obviously, that was I think something you kind of contemplated. Does it make sense as part of B2C partners? Does it make sense under another owner? Where does that discussion stand?

[Howard W. Lutnick, executive]

So as I've said, we are open-minded would be the right way to say it. We like the business a lot. We are brokerage experts, and this is a brokerage business, and we've made the investments in that business. It is now profitable. We've made great hires that we think will drive our profits going forward. But as I've said, we were interested since I think the stock is undervalued. If there's a transaction out there, that would enable the company to gain a substantial amount of money and to buy back our shares at a material and substantial way. That sounds good to me, too. So I think we are -- the right way to say it is we are completely open-minded, and we act accordingly.

[Patrick O'Shaughnessy, analyst]

Got it. And then speaking on that business, I imagine you have a pretty decent line of sight into increased productivity from recent hires. Do you have a preliminary expectation of how you expect that business to grow on the top line in 2021?

[Howard W. Lutnick, executive]

I don't think we've discussed 2021. What we have said, I think, is that we expect -- over a period of a couple of years, we expect the company to grow to $300 million in revenues and to reach industry standard margins, which would be 15%. So I think those are our expectations. That is not my expectation for 2021, however, but it is a multiyear objective. You can see the rate of growth that we've had at 12.8% to give you a sense of growth rate, but we expect to reach industry margins of 15%. And then we will exceed them thereafter, but we will get to there, which would be $300 million gross and $45 million net.

[Patrick O'Shaughnessy, analyst]

Got it. With your new commercial agreements with Fenics UST that you've signed, can you quantify the magnitude of the expected incremental revenue from those new agreements?

[Howard W. Lutnick, executive]

Well, remember, what we've said in the past was that we had spent in 2020 about $40 million in new systems, right -- in these new platforms. And we expected that number to drop materially, and that would be from revenues -- obviously, from revenues. It could be from -- I guess, technically, it could have been from reduction in costs as well. But our expectation, as you've heard, is that we're going to continue to roll out systems. And so we had the expectation, and our revenues, we feel really, really good about the way things are playing out.

So I think our expectations were that we would improve things about $40 million. We'll see how that plays out through the course of the year. That certainly was our expectations. And that, of course, was without rolling out all of these new systems. So we're going to be continuing to roll out systems. But we want you to understand that the underlying business is dramatically improving economically. We've said that last year, and I think we expect that business to -- those businesses to dramatically economically improve the bottom line of the company in 2021.

[Patrick O'Shaughnessy, analyst]

Okay. For the overall company, so this would be voice/hybrid plus Fenics, kind of the outlier is I'm looking at in 2020 is the foreign exchange business. Revenues were down 15% in 2020 year-over-year. That was on top of a 7% decline in 2019. What are the dynamics going on right now in foreign exchange? And is it cyclical, such that you'd expect a rebound? Or are there some structural things going on that create headwinds?

[Steven Bisgay, executive]

I think actually, Patrick, 2 things. Number one is, as we've mentioned before, our FX offering has -- a big piece of it is in the option offering, which has been in sort of a cyclical -- more of a decline over the last year. What we're actually seeing now is that returning to more normal levels. So we feel very good about that.

Secondly, within our spot foreign exchange business, I think following on to what Howard said, that's a business that we've developed and invested in over the last few years. And again, we expect that business to grow this year. So one of it -- one is sort of structuring in where our strengths were in '19 and '20, and we expect that to increase again in '21.

[Patrick O'Shaughnessy, analyst]

Got it. Expense question for you guys. How are you thinking about the progression of non-comp expenses over the course of 2021? I think particularly some pandemic-related expenses may start to come online in the back half of the year.

[Howard W. Lutnick, executive]

Look, we've -- obviously, we -- I would say, benefited -- I think benefit is a wrong word, but our numbers certainly reflect the pandemic, as you would expect, but we are laser-focused on improving our margins. And while we're focusing on compensation, we're certainly focusing on our non-compensation costs as well line-by-line and then making sure that we are doing everything possible to keep our belt as tight as possible and operate as efficient as possible. So we're being very, very careful. I would expect that we'll see some pickup, of course, in the expenses, as you would expect as we get back to some level of normalcy, which will take a little bit more time, but we are certainly laser-focused at all levels throughout the organization to optimize our performance. And really, that comes down to improving our margins, which is critical.

[Patrick O'Shaughnessy, analyst]

Got it. And then last one for me. The $35 million theft that you spoke to, what does it imply about your systems and controls that affected that magnitude could persist for as long as it did?

[Howard W. Lutnick, executive]

I don't think there's anything else that we are prepared to add at this point. As I mentioned, the theft involved U.K. tax rate payments. It was certainly an unfortunate event, but again, the loss was not material in any period. We don't want to spend much time discussing it now, but I will repeat, we definitely expect to recover most or substantially all of the loss through insurance and then the return of assets through litigation, no question about that. In addition to what we said today, what we had in our press release and what was in our prepared remarks, there'll be some additional information contained in our 10-K when we file that.

[Operator]

The next question is a follow-up from Rich Repetto of Piper Sandler.

[Richard Repetto, analyst]

I just want to follow-up on FX a little bit closer. I see the year-over-year decrease. But when you look at the electronic Fenics side of the FX, that's one of your top performer. You've seen a big step-up from Q2 of last year on, on the electronic Fenics FX side. So can you just talk about what's the differences on why the Fenics FX is doing so well versus overall FX numbers are much softer?

[Sean Windeatt, executive]

Yes, sure. I think that plays nicely into how I tried to answer before, which is in the -- on the Fenics side, on the electronics side, yes, you're absolutely right. That's where we've invested, part of our newer businesses, the new spot business and the migration of some of our FX business to our electronic Fenics and Fenics Integrated. But the offset of that were 2 things. Number one is, as I mentioned, our -- one of our strengths was in the FX option space, which was cyclically weaker during 2020 and some of '19. And also, you may remember that there was a part of our business that in China that we spoke about back in Q3. So you would have noticed that, that business, where we are facilitating banks in China on the -- for the onshore/offshore market. That business actually is now being done in-house, as we mentioned in Q2. So that had an effect in '20, but of course, that will not have an effect in '21.

[Richard Repetto, analyst]

Got it. That's helpful, Sean. And then another on the Fenics businesses, when you look at rates and credit, very interesting -- just approximately eyeballing, but you're about 1/4 on the Fenics electronic rates and credit of Tradeweb's revenue in those categories as well. But the 1 thing that I'm picking up is that on the credit side, it's almost the reverse of FX. The credit electronic Fenics revenue is down year-over-year. And could you just talk a little bit about the progress you make? Is that -- again, your overall Fenics revenues are up strongly, but credit looks like it was down year-over-year in Q4, and I believe it's down year-over-year overall, Fenics credit?

[Howard W. Lutnick, executive]

Yes, sure. I think to give a little bit of color on that. And we've -- certainly, during 2020, on the -- with our Fenics credit revenues, I think I mentioned it in my prepared remarks, some of our -- the fixed income agency brokerage business, which obviously grew, which is more -- that's grown on the more voice/hybrid side than on the credit side. So again, that's just a mix. But what I think I would focus on is our platforms and the capability that the platforms have. That's very much during 2020 being client-led. In terms of that, the client requirements of the voice aspect of our -- of the IDB. I think where -- again, as part of my prepared remarks, where we feel incredibly confident is where we've been able to provide those services from a voice perspective during 2020 when our clients have needed it during the volatility caused by the pandemic. But now that -- those same clients, of course, is as business somewhat returns to more normality. I think that's where the investments and the strength of our Fenics credit platforms will come into play.

[Steven Bisgay, executive]

Additionally, Rich, we -- in 2020, we made an investment in Algomi, which was a credit aggregator for the buy-side, and as we invest in that business, what that will do is that will enhance our ability to assist our clients, the big banks and market makers to transact business directly with clients who are on Algomi, and that's one of our key initiatives, is to create this ecosystem of our clients, the banks and market-makers who are already integrated and connected to our system to bring on buy-side, which we have. As we said, we have a nice agency business, a pretty incredible agency business in Europe.

But now with Algomi, we're going to be installing that technology across the buy-side and enabling our sell-side clients and market-makers to transact business directly with the buy-side. And you're going to see as that -- as we invest in that business and as that business grows, our credit business because that's a -- focus of that business is on credit, our credit business will be enhanced, and we will be a really interesting intellectual competitor to market access. And that's a gigantic market. It's an enormous, enormous market. And we'll just be in that space in a better way. And I think we will harvest substantial returns for our shareholders.

[Richard Repetto, analyst]

Okay. And last question for me. The equity-based comp. So what was excluded between GAAP and adjusted was approximately $80 million of equity-based comp in 4Q. And I know overall share dilution wasn't as big as in years past, but it's still at -- $80 million is excluded, and it was a big jump. And I know it's year-end, but could we -- Steve, could we go into a little bit more of the detail of the driver on that big number in 4Q?

[Steven Bisgay, executive]

Sure, Rich. That is mainly driven by exchangeability. Often, there's -- you may see in Q4, and it was about $11 million more, I believe, if I can check the number exactly, but it be, it's about $11 million more from last year's level. But it's comparable to last year, but you'll see Q4 is typically our biggest quarter with regard to exchangeability, and that's what drives our [indiscernible].

[Howard W. Lutnick, executive]

So, Rich, remember, exchangeability is literally letting our employees sell old units that are already in the share count. So it's not really a share count issue. And then we get a tax deduction for it, and that's why our tax rate is where it is. So this is -- so while you are right, of course, it's compensation and it goes against our GAAP earnings. So it doesn't change the share count. It's really harvesting of previously issued shares that are already in the share count and getting our tax deduction, which we focus on, obviously, at the end of the year to meet, so we have our tax rate that we had expected.

[Operator]

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Lutnick for any closing remarks.

[Howard W. Lutnick, executive]

Thank you all very much, and we look forward to updating you again next quarter. Thanks, everyone, and have a great day today.

[Operator]

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.