* Jefferies has cut Euro debt exposure by another 50 pct
* Bank responds to "malicious lies and false rumors"
* Shares close up 0.4 percent
By Lauren Tara LaCapra
Nov 21 Jefferies Group Inc said it has
reduced its exposure to troubled European sovereign debt by
another 50 percent, part of the investment bank's effort to
restore investor confidence following MF Global Holdings Ltd's bankruptcy.
In a public letter on Monday, top Jefferies executives said
the company has reduced gross exposure to debt of Greece,
Ireland, Italy, Portugal and Spain by a total of nearly 75
percent since worries first surfaced in early November.
The bank now has a net short position of $134 million to
those countries' bonds, meaning Jefferies will profit as bond
values deteriorate. The exposure represents about 3.8 percent
of shareholders' equity, they said.
"By now, everyone should recognize Jefferies is the firm
with the least exposure to the sovereign debt of Greece,
Ireland, Italy, Portugal and Spain of all of our major
competitors," Jefferies said in a letter signed by Chief
Executive Richard Handler and Brian Friedman, chairman of the
The six-page letter represents Jefferies' latest salvo in a
weeks-long battle to restore confidence in its funding and
The executives said they are responding to "malicious lies
and false rumors" that have been spread about its operations by
investors seeking to profit from a decline in its share price.
Jefferies has received a letter from a hedge fund that
asked several questions that seemed to show "an intentional
misreading of our public filings," Handler and Friedman said,
to support rumors that they believe the hedge fund has been
In an interview, Friedman declined to name the hedge fund,
but said its message was symptomatic of broader rumor mongering
across Wall Street regarding Jefferies' financial health. The
company issued its letter to combat those misperceptions, he
said, and will continue to defend itself as necessary.
"My sense is that everyone is supportive and recognizing
that the facts do win out," said Friedman. "We've been
encouraged by the broad-based supportive response that we've
Jefferies shares have been brutalized in the aftermath of
MF Global's Oct. 31 bankruptcy filing, as investors worried that
Jefferies might have similar troubles. Bond-rating agency Egan
Jones downgraded Jefferies on Nov. 2, arguing that the bank is
also too highly leveraged with a heavy reliance on short-term
Jefferies is down more than 20 percent since MF Global's
bankruptcy, compared with a 12 percent drop for the NYSE Arca
Securities Broker/Dealer Index , which includes
Jefferies and competitors like Goldman Sachs Group Inc ,
Morgan Stanley and Raymond James Financial Inc .
MF Global's downfall came from big bets on troubled
European debt combined with a heavy reliance on short-term
funding. Jefferies executives have tried hard to distance the
firm from its felled competitor, even taking the unusual step
of publicly disclosing the CUSIP numbers of all the European
bonds it holds.
But after brief respites from investor pressure after each
statement, a new worry cropped up in the market.
Addressing the latest concerns in the letter on Monday,
Jefferies executives said the bank had not sold its European
debt to an affiliate and was under no obligation to repurchase
the bonds at a later date.
They also dismissed reports that clients have been fleeing
Jefferies' prime brokerage business and said there has been no
"undisclosed major loss" at its partnership with Leucadia
National Corp .
While there is still time before its fiscal fourth quarter
closes on Nov. 30, the executives also said they expect
Jefferies to post an operating profit, excluding costs related
to its purchase of Prudential Bache, and "stronger" results
than the previous period.
Jefferies shares closed up 0.4 percent to $10.20 after a
rocky day of trading during which the shares fell as much as
5.5 percent and rose as much as 3.2 percent.