Jefferies’ stock is getting crushed today in a sickening manner, and shares were briefly halted from trading earlier.
Around 10 a.m. it was down 20%, trading at around $9.79 per share.
UPDATE: The stock has made a comeback – it’s now trading at $11.55, down 6%.
Jefferies has just released a statement stating that their $2.684 billion exposure to Europe is offset by $2.585 billion in short positions.
The “combined net short exposure of approximately $38 million equals approximately 1% of Jefferies’ shareholders’ equity,” which isn’t impacting to shareholders, the statement reads.
The company’s short position is for Spanish debt, but the key question is what kinds of debt make up that position, according to Bloomberg TV.
The firm has been under scrutiny ever since MF Global’s collapse this week, as it runs a similar style brokerage operation. Although there may be no dangerous exposure to the PIIGS debt, investors are clearly worried about oversight and regulation of broker-dealers, a CNBC report pointed out.
Jefferies, however, is a much bigger and varied operation than MF Global. The financial firm does have a broker-dealer department that operates like MF Global, but it also offers investment banking, sales and trading, research and wealth management services.
Sean Egan, president of ratings company Egan-Jones, was just on CNBC and said that the collapse of MF Global has pushed worries about mid-size broker-dealers into the limelight. He added that Jefferies’ 13 to 1 leverage ratio is too high when it is not a bank. (FYI: MF Global was leveraged about 40 to 1 when it fell.)
Last night, Egan-Jones downgraded Jefferies to BBB-, or “negative watch,” on worries of European sovereign debt, which put further pressure on the company. Egan-Jones was perhaps the only ratings companies that predicted the MF Global outcome – stating last Friday that it was very likely “majors will pick off MF key employees and clients will flee.” So people seem to be taking their word a lot more seriously now in the aftermath of MF Global’s implosion.