Tags: Jefferies | Cuts | eu | europe | Holdings

Jefferies Cuts Sovereign Holdings Almost 50% for Five EU Nations

Monday, 07 Nov 2011 11:46 AM

Jefferies Group Inc. cut gross holdings in sovereign securities of Portugal, Italy, Ireland, Greece and Spain by almost 50 percent since last week’s close of trading to show how easily it can reduce funds at risk.

Jefferies lowered both long and short trading positions by about $1.1 billion, the New York-based firm said today in a statement. The move “resulted in no meaningful profit or loss on today’s trading activity or our remaining positions,” it said.

“We undertook this reduction in our holdings solely to demonstrate the liquid nature of this market-making trading book,” Chief Executive Officer Richard Handler and Executive Committee Chairman Brian Friedman said in the statement. “We will now resume our normal market-making activities and serve our clients around the world.”

Jefferies slumped 18 percent last week as Egan-Jones Ratings Co. downgraded the firm’s debt, citing large “sovereign obligations” relative to equity. The reductions announced today left Jefferies with net exposure to the nations’ sovereign debt of about $59 million, or 1.7 percent of shareholder equity, carrying “negligible market or credit risk,” Jefferies said.

The company’s stock jumped as much as 8.5 percent and was up 1 percent to $12.19 at 10:42 a.m. in New York. Bonds from Jefferies rose, with its $800 million of 5.125 percent senior unsecured notes maturing in April 2018 gaining 2 cents to 87 cents on the dollar with a yield of 7.73 percent at 10:02 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The securities fell as low as 78 cents on Nov. 3.

‘Fragile Times’

Jefferies has issued six statements since the start of last week detailing its investments in European sovereign debt. Broker-dealer MF Global Holdings Ltd., previously run by former New Jersey governor and Goldman Sachs Group Inc. co-Chairman Jon Corzine, filed for bankruptcy Oct. 31 after revealing a $6.3 billion bet on bonds of some of Europe’s most indebted nations, which prompted a credit rating downgrade.

“These are fragile times in the financial market and we decided the only way to conclusively dispel rumors, misinformation and misplaced concerns is with unprecedented transparency about internal information that is rarely, if ever, publicly disclosed,” Handler, 50, said in a Nov. 4 statement.

Leucadia National Corp., the firm’s biggest stockholder, bought 1 million shares for $11.84 each Nov. 3. The New York- based company followed with another purchase of 500,000 shares the next day for $11.35 each.

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