Leucadia

Knight 2.0: Jefferies Rescues FXCM With $300 Million Bailout, CNBC Reports

In an apparent replay for 2012's Knight Trading algo-implosion $400 million cash-infusion bailout, Jefferies (owned by NY-based I-bank Leucadia) is riding its white horse to the rescue of FXCM and its $200-million-plus client losses:

  • *LUK IN $300M DEAL TO LET FXCM CONTINUE NORMAL OPS: CNBC
  • *LEUCADIA GIVE FXCM $300M IN FINANCING CNBC

Leucadia will get $250m in senior notes as part of the deal, CNBC says. So - in summary - a central bank blew up an FX broker and a mid-market junk-bond underwriter bailed them out... must be good for a green close for the week in stocks!

Wall Street Harbinger Jefferies Reports Q4 Bloodbath: 73% Plunge In Fixed Income Revenue, 45% Drop In Equities

What Jefferies is best known for among Wall Street shareholders is that, by still reporting a Nov. 30 fiscal year end, 1 month ahead of everyone else, it provides an invaluable glimpse into the fortunes of its Wall Street peers with a 4 week advance notice, especially when it comes to its bread and butter: fixed income trading (recall that CEO Rich Handler was a Drexel bond trader when the firm blew up). And report it did earlier today, although most of Wall Street shareholders would rather it didn't, because the numbers were absolutely abysmal, and indicative of nothing short of a trading bloodbath on Wall Street in the latest three months of trading.

Frontrunning: August 25

  • Jackson Hole Theme: Labor Markets Can’t Take Higher Rates (BBG), or anything else for that matter
  • Kidnappers free American missing in Syria since 2012 (Reuters)
  • More unpatriots: Burger King in merger talks with Canada's Tim Hortons (Reuters)
  • California Quake to Cost Insurers Up to $1 Billion, Eqecat Says (BBG)
  • Congo declares Ebola outbreak in northern Equateur province (Reuters)
  • Missouri Governor Defends Ferguson Prosecutor (BBG)
  • Kuroda Douses Japan Stimulus Expectations (WSJ)
  • London Jihadi Call Vies With Banks in Canary Wharf Shadow (BBG)
  • Netanyahu Signals Expansion of Air Attacks in Gaza (WSJ)
  • Libya's Islamist Militias Claim Control of Tripoli (WSJ)

Frontrunning: August 18

  • Yellen Dashboard Warning Light Glows as Millions Work Part Time (BBG)
  • More US drones boosting global GDP: Unidentified war planes, explosions heard in Libyan capital (Reuters)
  • London Home Asking Prices Plunge Most in More Than Six Years (BBG)
  • Carney - Rate Hike before Pay Recovers (Times)
  • No Fed fireworks, but plenty of clues, expected at Jackson Hole (Reuters)
  • Kurdish, Iraqi forces in control of Mosul dam (Reuters)
  • China Pushes Cleanup of Banks (WSJ)
  • Russia Widens Ruble Trading Band in Move Away From Managed Rate (BBG)
  • Dollar General Makes $9.7 Billion Family Dollar Counterbid (BBG)
  • Autopsy finds unarmed teen killed by police was shot six times (NYT)
  • Bull Market Waning as Barclays Sees 1% Gain for S&P 500 (BBG)
  • Credit Suisse Caught Up in Espírito Santo Mess (WSJ)

"More Bloodletting" As Citi/JPM See Plunge In Trading Volumes

Jefferies, Deutsche Bank, and now Citi and JPMorgan are all facing a collapse in trading volumes as Bloomberg reports the two banks brace for a fourth straight drop in first-quarter trading revenues - a period of the year when the largest investment banks typically earn the most from that business. “It sounds like more bloodletting on Wall Street,” warns one analyst, as Citi expects trading revenue to drop by a “high mid-teens” percentage.

Jefferies' Epic Plunge In Bond Trading Revenues Shows Not All Is Well

The chart below summarizes what can only be described as an epic collapse in Jefferies' fixed-income trading revenue, which imploded by an unprecedented 88% Y/Y, and 84.5% from later quarter, to $33.1 million - the lowest since the same quarter in 2011 when the European collapse dragged everyone down, and sent Jefferies stock into the single digits over concerns about its European exposure, forcing Dick Handler to release a CUSIP by CUSIP disclosure of its European holdings.

Frontrunning: November 19

  • Israel Ready to Invade Gaza If Cease-Fire Efforts Fail (Bloomberg)
  • Petraeus: A Phony Hero for a Phony War (NYT)
  • IMF'S Lagarde says Greek deal should be "rooted in reality" (Reuters) "rooted" or "roofied"? And where was it until now?
  • ECB's Asmussen says Greece to need aid beyond 2014 (AP)
  • EU makes budget plans without (FT)
  • Japanese Poll Shows LDP Advantage Ahead of Election (WSJ)
  • Shanghai Composite Dips Below, Regains 2,000 Level (Bloomberg)
  • Bond investor takes big punt on Ireland (FT)
  • Noda defends BoJ’s independence (FT) Indewhatnow?
  • Inaba Says BOJ Could Ease More If Government Reins in Debt (Bloomberg) Actually it's the other way around
  • Miles Says Bank of England Can Do More If U.K. Slump Persists (Bloomberg) So much for the end of QE
  • US tax breaks worth $150bn face axe (FT)

Frontrunning: November 13

  • The Bild is now a source for EURUSD stop hunts: Germany eyes 'bundled' loan payment to Greece-paper (Reuters, Bloomberg)
  • Congress comes back Tuesday to confront “fiscal cliff.”  (Reuters)
  • Gen. John Allen ensnared in Petraeus scandal (Politico)
  • FBI Agent in Petraeus Case Under Scrutiny (WSJ)
  • Comcast's NBCUniversal unit lays off 500 employees (Reuters)
  • University Fees Stoke U.K. Inflation (WSJ)
  • Consumers Closing Wallets in Japan Add to Noda’s Woes (Bloomberg)
  • John McAfee Wanted for Murder... and explaining bathsalt anal suppositories (Gizmodo)
  • Europe Gives Greece 2 More Years to Reach Deficit Targets (Bloomberg)
  • Where Spain Is Worse Than Greece (WSJ)
  • Microsoft's Windows unit head, once a possible CEO, exits (Reuters)
  • Glitch stops NYSE trading in 216 companies (FT)
  • Large European Banks Stash Cash (WSJ)
  • The death of San Bernardino: How a vicious circle of self-interest sank California city (Reuters)
  • Apple stores most productive US shops (FT)
  • Treasuries See U.S. Falling Over Cliff as Yields Converge (Bloomberg)
  • Bra-Bodysuits Make H&M One Hit Wonder as Zara Prospers (Bloomberg)

Frontrunning: November 12

  • Jefferies to be bought by Ian Cumming's Leucadia in an all-stock deal for $3.59 billion or about $17/share (WSJ)
  • FBI Scrutinized on Petraeus (WSJ)
  • Identity of second woman emerges in Petraeus' downfall (Reuters)
  • SEC staffers used government computers for personal use (Reuters)
  • Japan edges towards fifth recession in 15 years  (FT)
  • Europe Finance Chiefs Seek Greek Pact as Economy Gloom Grows (BBG)
  • Americans Say Europe Lesson Means Act Now as Austerity Will Fail (BBG) - of course it would be great if Europe had ever implemented austerity...
  • Greece battles to avert €5bn default  (FT)
  • You don't bail out the US government for nothing: No Individual Charges In Probe of J.P. Morgan (WSJ)
  • Israel Warns of Painful Response to Fire From Gaza, Syria (BBG)
  • Greece's far-right party goes on the offensive (Reuters)
  • Don’t fear fiscal cliff, says Democrat  (FT)
  • Apple Settles HTC Patent Suits Shifting From Jobs’ War (BBG)
  • Man Set on Fire in Argentina Over Debt (EFE)
  • Iraq cancels $4.2-billion weapons deal with Russia over corruption concerns (Globe and Mail)
  • An Honest Guy on Wall Street (Bloomberg)

Subordination 101: A Walk Thru For Sovereign Bond Markets In A Post-Greek Default World

Yesterday, Reuters' blogger Felix Salmon in a well-written if somewhat verbose essay, makes the argument that "Greece has the upper hand" in its ongoing negotiations with the ad hoc and official group of creditors. It would be a great analysis if it wasn't for one minor detail. It is wrong. And while that in itself is hardly newsworthy, the fact that, as usual, its conclusion is built upon others' primary research and analysis, including that of the Wall Street Journal, merely reinforces the fact that there is little understanding in the mainstream media of what is actually going on behind the scenes in the Greek negotiations, and thus a comprehension of how prepack (for now) bankruptcy processes operate. Furthermore, since the Greek "case study" will have dramatic implications for not only other instances of sovereign default, many of which are already lining up especially in Europe, but for the sovereign bond market in general, this may be a good time to explain why not only does Greece not have the upper hand, but why an adverse outcome from the 11th hour discussions between the IIF, the ad hoc creditors, Greece, and the Troika, would have monumental consequences for the entire bond market in general.

Why The UK Trail Of The MF Global Collapse May Have "Apocalyptic" Consequences For The Eurozone, Canadian Banks, Jefferies And Everyone Else

Reposting by popular demand, and because everyone has to understand the embedded risks in this market, courtesy of the shadow banking system.

In an oddly prescient turn of events, yesterday we penned a post titled "Has The Imploding European Shadow Banking System Forced The Bundesbank To Prepare For Plan B?" in which we explained how it was not only the repo market, but the far broader and massively unregulated shadow banking system in Europe that was becoming thoroughly unhinged, and was manifesting itself in a complete "lock up in interbank liquidity" and which, we speculated, is pressuring the Bundesbank, which is well aware of what is going on behind the scenes, to slowly back away from what will soon be an "apocalyptic" event (not our words... read on). Why was this prescient? Because today, Reuters' Christopher Elias has written the logical follow up analysis to our post, in which he explains in layman's terms not only how but why the lock up has occurred and will get far more acute, but also why the MF Global bankruptcy, much more than merely a one-off instance of "repo-to-maturity" of sovereign bonds gone horribly wrong is a symptom of two things: i) the lax London-based unregulated and unsupervised system which has allowed such unprecedented, leveraged monsters as AIG, Lehman and now as it turns out MF Global, to flourish until they end up imploding and threatening the world's entire financial system, and ii) an implicit construct embedded within the shadow banking model which permitted the heaping of leverage upon leverage upon leverage, probably more so than any structured finance product in the past (up to and including synthetic CDO cubeds), and certainly on par with the AIG cataclysm which saw $2.7 trillion of CDS notional sold with virtually zero margin. Simply said: when one truly digs in, MF Global exposes the 2011 equivalent of the 2008 AIG: virtually unlimited leverage via the shadow banking system, in which there are practically no hard assets backing the infinite layers of debt created above, and which when finally unwound, will create a cataclysmic collapse of all financial institutions, where every bank is daisy-chained to each other courtesy of multiple layers of "hypothecation, and re-hypothecation." In fact, it is a link so sinister it touches every corner of modern finance up to and including such supposedly "stable" institutions as Jefferies, which as it turns out has spent weeks defending itself, however against all the wrong things,  and Canadian banks, which as it also turns out, defended themselves against Zero Hedge allegations they may well be the next shoes to drop, as being strong and vibrant (and in fact just announced soaring profits and bonuses), yet which have all the same if not far greater risk factors as MF Global. Yet nobody has called them out on it. Until now.

Is It Time For Jefferies CEO Dick Handler To Put His Money Where His Mouth Is And Buy Jefferies Stock?

Last night Jefferies went on a full out media PR blitz in which the firm's CEO Richard Handler told Bloomberg that he "sees the turmoil easing soon" - he will most certainly be right, one way or another. Handler defended his firm's status after Zero Hedge pointed out that its bonds had tumbled to record lows: "It is not surprising that our bonds are under pressure after the assault on our company over the past two weeks,” Handler said yesterday in an e-mail. “Some bond investors sell first and ask questions later. We expect the market to return to normal pricing once we move beyond the ripple effect of the inaccuracies others have recently disseminated and once investors digest all the information” that Jefferies disclosed. Shares of the New York-based firm fell yesterday to close at their lowest since March 2009 and its bonds traded with junk- like yields that were double the level of mid-August. Jefferies came under pressure from short sellers after MF Global’s $6.3 billion bet on European debt led to an Oct. 31 bankruptcy and spurred scrutiny of similar stakes at financial firms. Handler countered by detailing his firm’s European holdings and later cutting the positions by half. Still, the yield on some Jefferies debt hovers near 10 percent and analysts questioned whether the firm needs a more stable funding model. “We have no need to access the debt markets at this time,” Handler, 50, said in a Nov. 15 interview at Jefferies’s headquarters in Manhattan. “By the time we might consider it again, we think yields will be back in a reasonable range.” Maybe, maybe not. Unfortunately, today it is equity investors who are selling first and asking questions later, and at last check have sent the firm's stock to the lowest price since March 2009, last trading at $9.60, down over 7% for the day. Which is why ask: after back on September 22 Dick Handler sold 2 million shares of his stock to Leucadia at a gross proceeds of about $25 million, it is perhaps time he actually put his money where his mouth is and instead of selling, buy some JEF for a change?

Jefferies Back To Single Digits As Implied Default Probability Rises Even More

Last time when Jefferies' (which is not MF Global although it is just as a big question market in the TBTF category, and as a reminder is not a Bank Holding Company, being the last pure play investment bank left out there) stock had a $9 handle, it triggered a -20% circuit breaker and forced a short covering squeeze. This time it is far more methodical. At this time Leucadia is underwater on both of its recent purchases, all past and future Jefferies press releases have been priced in and will be irrelevant in the future, and Handler only has half of his original gross sovereign book left to sell (into a bidless market and thus generating more major P&L losses).

Perhaps It Is Time For Another Statement From Jefferies

4 statements later, countless promises, several Leucadia triple-downs, and one 2-page CUSIP statement later and... Jefferies is down 9.2%. Perhaps the market was not all that convinced that "Jefferies is fine" after all. Our spidey sense is tingling that yet another statement by Jefferies is imminent. Also, it may be time for Jefferies to bite the bullet and unload the other half of its sovereign flow book: that sure will teach the market to doubt management's good intentions. And never mind the spread on liquidation firesales: after all who cares about EPS on a day like today.