Jefferies Blames Woes on Lies, Rumors and Hedge Funds
Jefferies chief executive Rich Handler released a six-page letter to address markets "being misled by half-truths, false rumors and lies being disseminated with malice by a group whose interests are absolutely opposed to yours and ours," citing unnamed hedge funds behind the trouble.
Fears about Jefferies capital and liquidity surfaced after MF Global filed for bankruptcy on Oct. 31 as a result of a misplaced $6.3 billion bet on European sovereign debt. In November, ratings firm Egan Jones questioned whether Jefferies had a similarly perilous European exposure. Today's letter shows the bank cut its gross exposure to European peripheral debt by 50%.
Shares of the firm of tumbled 70% year-to-date and its shares fell below $10, near their lowest levels since March 2009.The letter, co-signed by chairman of the executive committee Brian Friedman, stressed that Jefferies survived the financial crisis without bailouts and raised capital opportunistically ahead of the crisis, while it also addressed confidence in the investment bank's long term capital and its funding sources. Of the crisis, Handler wrote, "Seeing events unfold, Jefferies acted in April 2008, raising $430 million of equity as a buffer against the ongoing crisis... As a result of these and earlier capital raises, as well as ongoing retained earnings, Jefferies maintains a liquid balance sheet supported by over $8.2 billion of long-term capital." Among that capital, $4.3 billion is from long-term debt that the New York based bank has raised, $3.5 billion from shareholder equity and another $438 million from preferred shares sold in 2008. About the bank's funding of its daily operations, also known as liquidity, Handler wrote, "we do not use or rely on "wholesale funding," a catch-all term typically used to refer to funding other than core deposits, such as brokered deposits, foreign deposits or commercial paper." The chief executive nominated in 2000 made clear that unlike investment banks Lehman Brothers and Bear Stearns, who revolved billions in overnight loans and came into crisis when lenders withdrew from them, Jefferies doesn't borrow unsecured funds overnight and has only $255 million of long-term in debt maturing in 2012. Handler wrote, "As of the close of business Friday, Jefferies had in excess of $2.2 billion in cash on hand, nearly $1 billion of unpledged quality collateral and $1.7 billion undrawn under our $1.95 billion total lines of credit."
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