Bloomberg News

Jefferies’s Liquidity Can Weather Market Turmoil, Fitch Says

December 06, 2011

(Updates share price in fifth paragraph, Fitch comment starting in seventh.)

Dec. 6 (Bloomberg) -- Jefferies Group Inc., the investment bank whose stock plunged last month after the collapse of MF Global Holdings Ltd., has sufficient liquidity to weather debt- market turmoil, Fitch Ratings said.

“The firm has been able to continue to fund its business on economically viable terms,” the ratings company said today in a statement. Jefferies “established that it has sufficient liquidity to allow it to navigate what Fitch expects to be a challenging market environment.”

Jefferies Chief Executive Officer Richard Handler has sought to reassure investors that the New York-based company doesn’t face the types of leveraged and concentrated risks that forced MF Global into bankruptcy. That firm failed when investors lost confidence in its ability to manage a $6.3 billion bet on European sovereign debt.

“Unlike MF, Jefferies’s sovereign exposure supports its European rates market-making business,” Fitch wrote. “None of its sovereign exposures are off-balance sheet nor based on significant proprietary positions, and the firm does not use credit-default swaps to hedge.”

Jefferies pared losses in New York trading after Fitch’s statement, declining 3.2 percent to $12.49 at 12:45 p.m. after earlier falling as much as 3.8 percent.

Egan-Jones

Handler, 50, defended his firm as it came under pressure from short sellers and a credit downgrade by Egan-Jones Ratings Co. Jefferies issued at least seven statements on its European holdings and cut its position by about three-quarters as of Nov. 21. A Nov. 23 report from Egan-Jones said Jefferies needs to raise $1 billion in equity and reduce leverage.

Jefferies has “stable leverage,” and 87 percent of the collateral supporting its repurchase transactions is eligible for funding through a central clearinghouse, an “important mitigant against liquidity risk,” Fitch wrote.

“Jefferies’ stock price and its bond spreads are likely to continue to experience fragile market confidence and investor views of a wholesale-funded firm with earnings prospects that are likely to remain challenged through 2012,” Fitch wrote. “However, Fitch believes Jefferies has adequate liquidity to navigate the coming challenging quarters.”

--Editors: Peter Eichenbaum, William Ahearn

To contact the reporter on this story: Laura Marcinek in New York at lmarcinek3@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net


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