Bloomberg News

Jefferies Gains as Oppenheimer Says Egan Made ‘Epic Errors’

November 29, 2011

(Updates bond and share prices starting in second paragraph.)

Nov. 28 (Bloomberg) -- Bonds from Jefferies Group Inc. rose to the highest level since Nov. 15 and its shares gained after an Oppenheimer & Co. analyst said Egan-Jones Ratings Co.’s analysis that fueled a selloff in the securities had “epic errors.”

The investment bank’s $700 million of senior unsecured 8.5 percent notes due in July 2019 added 3.4 cents to 93.1 cents on the dollar at 2:16 p.m. in New York, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority. The bonds, which fell to as low as 82 cents on Nov. 3 from 109.3 cents at the end of October, yield 9.8 percent, or 7.8 percentage points more than similar-maturity Treasures, Trace data show.

Egan-Jones said Nov. 22 that New York-based Jefferies should raise $1 billion in equity and reduce leverage as MF Global Holdings Ltd.’s bankruptcy increases scrutiny of the firm’s balance sheet. Without “major deleveraging,” Egan-Jones said it may cut Jefferies’s credit grade.

“Our report stands on its own,” Egan said today on Bloomberg Television’s “InBusiness with Margaret Brennan” in response to the Oppenheimer comments.

The analysis contains “epic errors of fact,” Chris Kotowski, an analyst at Oppenheimer, said today in an interview with Stephanie Ruhle and Erik Schatzker on Bloomberg Television’s “InsideTrack.”

Jefferies “is a fine company,” he said. “It’s conservatively leveraged compared to any other fixed income trader historically.”

‘Deeply Flawed’

Jefferies rose 25 cents, or 2.4 percent to $10.90, as of 4:01 p.m. New York time. The shares have declined 59 percent this year, outpacing the 15 percent drop in the Standard & Poor’s Midcap Financials Index.

“The fact that this kind of deeply flawed work can get the media traction it has, just indicates to me that we’re living through something that is kind of like the inverse of the Internet bubble,” Kotowski said. “By 2000 it got to the point where people were just buying tech stocks no matter what the valuation or what the project. Now they’re shorting banks because shorting banks has worked for five years in a row, so people have this mentality of short a bank, get a check.”

--With assistance from Laura Marcinek, Erik Schatzker and Margaret Brennan in New York. Editors: Pierre Paulden, John Parry

To contact the reporter on this story: Shannon D. Harrington in New York at

To contact the editor responsible for this story: Alan Goldstein at

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