Eagerly Awaiting That Jefferies CUSIP-Level European Exposure Update
Update: Here is the full two page list
Yesterday, when Jefferies CEO Richie Handler issued his 3rd, and probably not last, public promise that "the firm is fine", he also promised to release granular level detail of every single European holding it has via a complete CUSIP dump. To wit: "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,“ said Richard Handler, Chairman and CEO of Jefferies. “Later today, after the markets are closed in Europe and we have completed our inventory control accounting, we will post on our web-site our day-end, CUSIP-level holdings in the securities of these countries. We care for our clients, shareholders, bondholders and employees and want to allay any concern that may have arisen. As was the case yesterday, the facts about our sovereign debt exposure and other matters are straightforward and easily understood. We encourage all market participants and interested parties to review our public filings that contain extensive disclosure of the nature, extent and financing of our assets. Our firm stands on a solid foundation of over $8.5 billion of long-term capital and we look forward to continued success." This was yesterday. Now, we can only assume we simply are unable to navigate the company's news release section quite efficiently, because it is now tomorrow, and all those clients, shareholders, bondholders and employees of the firm are quite curious just why the firm still has not released what it has promised. Just as they are curious why the firm's public net European exposure fluctuates materially in 48 hours.
We can only attribute the delay to the firm's posting of actual transaction dates for all the CUSIPs because otherwise it sure would smell very, very fishy if the firm shorted billions in European bonds this week only to make it seem that it was hedged. And even if it had done the shorting previously, one wonders: why have a matching short cash bond for every long? Because last time we checked, risk, which if right translates into profit, means taking one side of the bet. Why Jefferies would use up enough of its balance sheet to amount to 77% of its stockholders' equity for a trade that is nothing but a wash, in Jefferies' words, is something we urge clients, shareholders, bondholders and employees to think long and hard on...
So here is the Jefferies CUSIP update with the full list: a completely de minimis update which unfortunately as expected tells us nothing of position inception, has any CDS detail level (we'll take your word that 1 year CDS matches 5 year), or, most importantly, has any exposure on counterparties.
BusinessWeek shares more:
One concern that was not addressed was the identity of the counterparties on Jefferies' short positions, said Sean Egan, managing director of Egan-Jones Ratings Co., which on Thursday cut its ratings on Jefferies debt in a move that helped fuel an early selloff of the stock. "If it's a third-tier bank, then you have to question whether or not the bank will be able to fulfill its obligations in the event the peripheral countries in the EU continue to slide."
"They may prefer not to disclose that, and so be it, but that's a comfort that investors need to properly view an entity like the Jefferies Group," Egan said in an interview.
There's also the larger question of how much debt Jefferies is carrying. Egan said the main reason for the downgrade was his firm's view that Jefferies is over-leveraged. While acknowledging the debt is not has high as MF Global's, or the levels that failed competitors Bear Stearns and Lehman Brothers carried before they collapsed in 2008, he said it is still a concern.
Egan-Jones is so far alone among ratings companies on this issue. Larger agencies have not issued opinions in recent days on Jefferies' debt.
Full "list" - the first to figure out which CUSIPs are short, and when they were put on, gets a free Zero Hedge hat.
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