So It Was An Issue After All: Jefferies Cuts Its Gross PIIGS Sovereign Debt Exposure In Half

Tyler Durden's picture

And so the sovereign exposure that was perfectly innocent according to three previous press releases from Jefferies, has just been offloaded to some other bank, which has a bigger market cap and "won't be cause for major alarm."

Full release:

Jefferies announced today that its trading positions in the sovereign securities of the nations of Portugal, Italy, Ireland, Greece, and Spain have been reduced by an aggregate of approximately $1.1 billion long and $1.1 billion short. This represents a 49.5% reduction in Jefferies’ gross holdings of these securities since the close of business Friday and resulted in no meaningful profit or loss on today’s trading activity or our remaining positions, which continue to be substantially matched by country and maturity.

 

Jefferies’ current net exposure to these sovereign securities is currently $59 million, or 1.7% of shareholder equity, with negligible market or credit risk.

 

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

Thank you Jefferies for offloading shareholder risk onto someone dumber. And now, all this action has done is made any PIIGS exposure on any bank balance sheet, gross or net (and yes, Gross exposure apparently is a risk factor in an of itself, and the market is starting to ignore all lies about bilateral netting), an immediate excuse to sell off stocks right into the circuit breaker. Look for the vigilantes to comb through any and every 10-Q with a fine tooth comb and punish any bank that still has any exposure gross or net. Our only question remaining re: Jefferies is what was the P&L hit on this liquidation?

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SheepDog-One's picture

Which 'bank' I wonder did they 'offload' their bad Euro debt to...'Bank of Fed taxpayer' I presume?

Pladizow's picture

Financial Three Card Monte!

Make your bet as to where Wall St has hidden the crappy derivatives.

My guess is, where ever the US tax payer is exposed the most!

gojam's picture

"We undertook this reduction in our holdings solely to demonstrate the liquid nature of this market-making trading book"

lol

They only did it to show that they could! No other reason.

Quinvarius's picture

The same reason that Charlie Sheen uses to bang seven gram rocks.  That is just how they roll.

gmrpeabody's picture

We could quit anytime we want!

HelluvaEngineer's picture

Of course.  Market Soars - it's a ponzi miracle!

Unprepared's picture

"reduced by an aggregate of approximately $1.1 billion long and $1.1 billion short"

WTF? They reduced their net exposure by ... $0.00 ?

For someone who tries to make you believe that gross exposure doesn't matter, what are they really trying to tell us here? That gross speaks louder than net?

kaiserhoff's picture

This does confuse people who don't hedge.  Let me try.

The initial position was roughly 2.2 billion long bonds, more or less matched by 2.2 billion short bonds.  They are/were market makers in this stuff, so a large inventory is not unusual.  The problem is, either side of that mountain of paper can blow up, due to the well known piigs problems, counter-party failure to perform, or plain illiquidity.  Bonds are niche markets and have lousy liquidity even in good times and the profit margins are thin.

Think of it as picking up nickels ahead of a steam roller;)

 

CPL's picture

I smell the mother of all lawsuits coming out of this.

rosex229's picture

Well according to the markets something bullish must have happened in the last 30 minutes. Just about everything from here to Dubai is now green... what universe am I living in...

Theta_Burn's picture

 

A Dubai Gigapan viewer  http://gigapan.org/gigapans/fullscreen/48492/

Incredible architecture..search hard for any sign of life...

Odin's picture

You living in the Bizzaro Market Universe where everyting is the opposite of what it should be. So don't worry, all the off-loading of debt and risk onto the taxpayer will actually be good for us in the long run ;-)

rosex229's picture

Well according to the markets something bullish must have happened in the last 30 minutes. Just about everything from here to Dubai is now green... what universe am I living in...

Quinvarius's picture

Not sure.  But there are two of you in this one.

Buck Johnson's picture

Yea no kidding, which bank took that extreme toxic junk.

junkyardjack's picture

Get it while its liquid

Manthong's picture

Could be a case of too much liquidity.

Like from bad sushi and a lot of wasabi.

earleflorida's picture

mercury is very liquid with a fickle temperament, but kills its host slowly

jcaz's picture

LOL-  keeping the music going....

ZeroPower's picture

The directors bought some more shares themselves (500k a piece that is) to appease the market about JEF's conditions as well. These guys are literally throwing everything they have to show the firm is fine...

GeneMarchbanks's picture

Them and another dozen or so...

Mercury's picture

And so the sovereign exposure that was perfectly innocent according to three previous press releases from Jefferies, has just been offloaded to some other bank, which has a bigger market cap and won't be cause for major alarm.

Unless it's floating on a chunk of Styrofoam anchored in some Caribbean island harbor....

kaiserhoff's picture

Enron style off-balance sheet?  Surely, the regulators wouldn't allow that;)

kaiserhoff's picture

Actually, it was no problem.

I took the short side, and Madhedgefundtrader took the longs.

gojam's picture

I 'm having trouble making the number add up.

"reduced by an aggregate of approximately $1.1 billion long and $1.1 billion short"

"This represents a 49.5% reduction in Jefferies’ gross holdings of these securities"

"Jefferies’ current net exposure to these sovereign securities is currently $59 million"

gojam's picture

Thanks Kaiserhoff. +1

One of Tyler's Tweets explained it too.

 

Ethics Gradient's picture

I'm guessing that $59 million is the difference between "approximately $1.1 billion long and $1.1 billion short"

MonsterZero's picture

Note the words here... gross and net.

They reduced gross holdings.. which looking at the simple numbers there would have changed net exposure by zero. They're saying what they have left is not net 0, but net 59 million

defn8Dog's picture

Like the big spot that keeps spreading in Dr. Suess' The Cat in the Hat Comes Back.

fuu's picture

I want a pop-corn shitting unicorn, these skittles are rotting my teeth.

Zgangsta's picture

You can't spell "bullshit" without "bullish"

Raynja's picture

More like you can't spell "bullish" without "bullshit".

Oh regional Indian's picture

You can't spell Spain without Pain.

I find the acronyms weirder by the day. BRICS and PIIGS. All very subtle programming. The BRICS will build the new structures while the PIIGS will go to slaughter.

Except that the BRICS are a bunch of Hollowponzi's themselves.

ORI

Wikidribbles

tuco13's picture

We hereby guarentee that our previous guarentee was warranted under the said guarentee...

Turd Ferguson's picture

Did I say "guaranteed"?

No, no ,no. I said 9% would be "rare, indeed".

kaiserhoff's picture

Well, at least they are saying "substantially matched" instead of fully hedged.  That has to be closer to the truth.

nonclaim's picture

"substantially matched"... somehow safety matches comes to mind.

Lady Heather...UNCLE's picture

...bullish for equities...glad I BTFD in the overnight. Square and outta here!. Sell again at 1305

Dr. Engali's picture

I wonder what kind of discount they sold it for. If they even sold it.

The Axe's picture

Hey, at least they put their money where their mouth is.....huge insider buying Friday afternoon....

BlueStreet's picture

The liars cup runneth over. 

SheepDog-One's picture

Euro/US equity peg suddenly snapped as Euro is down 1%, equities reverse and up 1%. 

eBuddha's picture

when are people going to start going to jail for all this b.s. lying.

hey - it's great that JEF was able to offload this shit, but i got long LEH b/c dicky fuld publicly said 'nothing was wrong' a hundred times and now JEF got away with it - but what if they hadn't and shareholders listened to these assholes!

just because every prime minister in europe and 'unofficial source' quoted by FT can get away saying whatever the fk they feel like at the moment, regardless of its correlation to the truth, does that mean that officers of public companies can now say whatever they want and get away with it?

Bartanist's picture

So let me get this straight: Dick Handler offloaded into someone else's face?

Cursive's picture

Thank you Jefferies for offloading shareholder risk onto someone dumber.

Did they offload it to a SPV or a SIV?