Bloomberg News

Jefferies, Cantor Fitzgerald Outlooks Cut to ‘Negative’ by S&P

January 29, 2012

Jan. 28 (Bloomberg) -- Jefferies Group Inc. and Cantor Fitzgerald LP had their outlooks lowered to “negative” by Standard & Poor’s on the prospect that concern about Europe’s debt crisis will weigh on trading and investment banking.

Brokers “will likely face continued pressures and lower profitability as a result of broader issues affecting the securities markets,” the ratings firm said yesterday in a statement on the New York-based firms.

Jefferies, seeking to ease investors’ concern, reduced its European sovereign holdings by three-quarters in November after Egan-Jones Ratings Co. said the firm may face losses tied to the region’s debt crisis. The company slashed assets to $35 billion during its fiscal fourth quarter from $45.1 billion at Aug. 31.

“Although Jefferies’s direct exposure to Europe is modest, in our view, and Cantor’s even more so, the risk of contagion from the region’s debt crisis could lead to a prolonged period of reduced trading and underwriting activities, heightened risk of a recession in the U.S.” and less favorable funding conditions, S&P said.

Richard Khaleel, a spokesman for Jefferies, declined to comment on the downgrade. Sandra Lee, a spokeswoman at New York- based Cantor, didn’t immediately respond to messages seeking comment. S&P also placed GFI Group Inc. on “CreditWatch negative.” Patricia Gutierrez, a spokeswoman for New York-based GFI Group, declined to comment.

Jefferies slipped 39 cents, or 2.4 percent, to $15.81 in New York. The firm has dropped about 39 percent in the past 12 months. GFI rose 36 cents, or 2.2 percent, to $16.92. Its shares have gained 11 percent this year.

Negative Impact

A long-term debt rating downgrade from a credit-rating firm could “negatively impact our stock and bond prices and could have a material adverse effect on our business, financial condition and liquidity,” Jefferies said yesterday in its annual filing with the U.S. Securities and Exchange Commission.

As of Nov. 30, Jefferies’s counterparties could call $20.2 million in collateral in the event of the one-level downgrade of the long-term credit rating, and $77.5 million if there was a two-level cut, the filing shows.

Jefferies, which is recovering from a 48 percent stock slide last year and sought to ease investor concern about its European holdings after the collapse of MF Global Holdings Ltd., said business has rebounded after slumping in November.

“Client transaction flows were reduced notably in November 2011 due to the attention focused on our firm following the bankruptcy of MF Global Holdings Ltd.,” Jefferies said in the filing. “Subsequent to November 2011, our transaction flows have returned to more normal levels consistent with those preceding the November events.”

--With assistance from Patrick Clark in New York. Editors: Dan Kraut, David Scheer

To contact the reporter on this story: Laura Marcinek in New York at Lmarcinek3@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net


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