NEW YORK ( TheStreet) -- Jefferies ( JEF) and Egan Jones are in a reputation battle of Wall Street welterweights that cost either firm the most prized banking commodity -- credibility. Jefferies on Monday released a six-page letter to address markets being informed about its strength by, "half-truths, false rumors and lies being disseminated with malice." The letter, while addressed to unnamed "irresponsible" individuals, cites data points intended to buck ratings firm Egan Jones and its November reports, which have sent Jefferies shares nearly 20% lower.
Jefferies competes in investment banking activities against the likes of Goldman Sachs ( GS), Morgan Stanley ( MS) and JPMorgan Chase ( JPM) that all have balance sheets ten times larger, and also against higher market cap brokerages Raymond James ( RJF) and Charles Schwab ( SCHW). Because of its scrappy nature, small dings to their reputation may be more destructive than multi-million dollar suits filed against larger competitors. Meanwhile, Egan Jones competes against ratings behemoths Moody's, Standard & Poor's and Fitch Ratings but has just five analysts and 14,000 ratings -- a miniscule size compared to the over half million corporate ratings that earn its competitors billions in sales. If they are proved wrong about Jefferies, it could be a knock-out punch to the firm's ascendance. Both firms, nevertheless, have provided ample competition against their larger peers. Jefferies, which provides essentially the same financial offerings as powerhouses like Goldman, has a a specialty in advising restructurings and M&A, while it's also strong in underwriting IPOs and high yield debt. In U.S M&A and IPOs, Jefferies is near the top 10 with market shares that are only second to some of the biggest banking conglomerates in the world. The investment house also didn't need government bailout funds to survive the crisis, unlike some competitors. On the other side of the boxing ring is, Sean Egan a co-founder of Egan Jones, who was called by Fortune Magazine the number one person to who saw the crisis coming - ahead of Nouriel Roubini, David Einhorn and John Paulson. Egan Jones won the honor after giving harsher ratings assessments to Ambac Financial, MBIA, Lehman Brothers and MF Global prior to their bankruptcies than the big three ratings agencies.
When asked about Jefferies's Monday letter, Sean Egan said in a phone interview with TheStreet that the ratings firm didn't have a response. Of Egan Jones ratings, he said "we are known for our timely, accurate ratings." According to an email obtained by Bloomberg, Egan Jones will provide a response to Jefferies letter later this week. With the ratings notices, the TV appearances and Monday's letter, it's clear that a war of words has turned into a battle. At a time of widespread market fear and when many bank shares fall to 2011 lows, the stakes are critically high. As of Monday trading, the letter seems to have stabilized shares - but they're still over 20% below the levels of $12.27 a share prior to Egan's ratings downgrade. After falling more than 4% in early trading to $9.60, Jefferies erased earlier losses and gained nearly 2% to $10.27 a share in afternoon trading. Meanwhile, the KBW Bank Index ( BKX) is down over 2% to $36.47. In its most recent quarter ended in August, Jefferies earned $68.3 million in profits, a slowing on earnings from earlier quarters in the year. About Jefferies's fourth quarter ending in November, Handler wrote that the bank "expect
s to record operating results for our fourth quarter that, although not where we want them to be, will be profitable and stronger than our third quarter." The investment bank has come out of the crisis on track to earn over $200 million in annual profits after posting a 2008 loss of $540 million. Whether the letter will mirror failed jabs at manipulative shorts during the demise of Lehman Brothers and Bear Stearns, or if it will be seen as a stabilizing blow against Egan Jones's analysis and its reputation is still to be seen. For second-sized players in Wall Street's high stakes investment banking and securities trading businesses, the battle among lean mean welterweights, now has a heavyweight dimension. -- Written by Antoine Gara in New York.