The Jefferies’ drama continues. And this time it looks like it’s turning into a very public Egan-Jones versus Jefferies battle.
Egan-Jones, the ratings company that originally sent Jefferies’ stock tumbling after it downgraded the investment bank to BBB-, wrote in a note to investors today that if Jefferies doesn’t build up more capital, it may face another ratings downgrade. [via Bloomberg]
Specifically, Egan-Jones wants Jefferies to raise about $1 billion in equity and start “major deleveraging.”
Jefferies’ leverage and exposure to European debt was the original issue that caused Egan-Jones to downgrade the company. Ever since then, the investment bank has been facing investor doubts and falling stock prices as the situation in Europe worsened.
Yesterday, Jefferies released a six-page letter reassuring investors of the company’s stability and announcing that they had slashed its European exposure by another 50% (they bank is now basically short European debt, and stands to gain if the debt values fall).
That still doesn’t seem to be enough for Egan-Jones. Ironically, Jefferies also blasted Egan-Jones president Sean Egan (though his name isn’t mentioned) yesterday in their letter, for his inaccurate assessment of the firm’s leverage. Here’s the tidbit:
Second, we were both shocked and perversely amused when the analyst who first misled the public about our sovereign debt exposure being 77% of our shareholders’ equity actually had the temerity to state on widely broadcast television that he omitted the material fact that we had almost equal and offsetting short sovereign debt positions because, and we quote, he had “space constraints.” (By the way, that same analyst also points to our 12.9x leverage at the end of August to be too high, but omits here the further material point that we have been operating successfully and profitably with similar leverage for years, including during the 2008-09 financial meltdown. In addition, he said that our leverage ratio was now higher because our stock was trading lower. As all of you probably recognise, trading prices are irrelevant to a company’s leverage ratio. Neither our equity, our debt obligations nor the cost to us of our existing debt changes one iota with market prices. What more can we say on this one?)
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