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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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Mon, 11/07/2011 - 10:35 | 1852858 SheepDog-One
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Which 'bank' I wonder did they 'offload' their bad Euro debt to...'Bank of Fed taxpayer' I presume?

Mon, 11/07/2011 - 10:47 | 1852879 Pladizow
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!

Mon, 11/07/2011 - 10:47 | 1852905 gojam
gojam's picture

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


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

Mon, 11/07/2011 - 11:11 | 1853006 Quinvarius
Quinvarius's picture

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

Mon, 11/07/2011 - 11:26 | 1853063 gmrpeabody
gmrpeabody's picture

We could quit anytime we want!

Mon, 11/07/2011 - 10:40 | 1852881 HelluvaEngineer
HelluvaEngineer's picture

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

Mon, 11/07/2011 - 10:55 | 1852928 JohnG
JohnG's picture


Mon, 11/07/2011 - 11:07 | 1852984 GeneMarchbanks
GeneMarchbanks's picture

That's my line...

Mon, 11/07/2011 - 10:43 | 1852890 Unprepared
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?

Mon, 11/07/2011 - 12:37 | 1853438 kaiserhoff
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;)


Mon, 11/07/2011 - 10:47 | 1852904 CPL
CPL's picture

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

Mon, 11/07/2011 - 10:48 | 1852906 rosex229
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...

Mon, 11/07/2011 - 11:09 | 1852992 Theta_Burn
Theta_Burn's picture


A Dubai Gigapan viewer

Incredible hard for any sign of life...

Mon, 11/07/2011 - 11:22 | 1853051 Odin
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 ;-)

Mon, 11/07/2011 - 10:48 | 1852907 rosex229
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...

Mon, 11/07/2011 - 11:07 | 1852985 Quinvarius
Quinvarius's picture

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

Mon, 11/07/2011 - 11:12 | 1853009 Vergeltung
Vergeltung's picture

clever. I like it.


Mon, 11/07/2011 - 21:10 | 1855237 Buck Johnson
Buck Johnson's picture

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

Mon, 11/07/2011 - 10:35 | 1852859 junkyardjack
junkyardjack's picture

Get it while its liquid

Mon, 11/07/2011 - 10:48 | 1852908 Manthong
Manthong's picture

Could be a case of too much liquidity.

Like from bad sushi and a lot of wasabi.

Mon, 11/07/2011 - 11:24 | 1853054 earleflorida
earleflorida's picture

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

Mon, 11/07/2011 - 10:36 | 1852862 jcaz
jcaz's picture

LOL-  keeping the music going....

Mon, 11/07/2011 - 10:36 | 1852864 ZeroPower
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...

Mon, 11/07/2011 - 10:45 | 1852902 GeneMarchbanks
GeneMarchbanks's picture

Them and another dozen or so...

Mon, 11/07/2011 - 10:39 | 1852866 Mercury
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....

Mon, 11/07/2011 - 10:48 | 1852910 kaiserhoff
kaiserhoff's picture

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

Mon, 11/07/2011 - 11:03 | 1852967 kaiserhoff
kaiserhoff's picture

Actually, it was no problem.

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

Mon, 11/07/2011 - 10:45 | 1852870 gojam
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"

Mon, 11/07/2011 - 10:49 | 1852915 kaiserhoff
kaiserhoff's picture


Mon, 11/07/2011 - 11:12 | 1852921 gojam
gojam's picture

Thanks Kaiserhoff. +1

One of Tyler's Tweets explained it too.


Mon, 11/07/2011 - 10:50 | 1852917 Ethics Gradient
Ethics Gradient's picture

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

Mon, 11/07/2011 - 10:52 | 1852923 MonsterZero
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

Mon, 11/07/2011 - 10:39 | 1852874 defn8Dog
defn8Dog's picture

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

Mon, 11/07/2011 - 10:39 | 1852875 fuu
fuu's picture

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

Mon, 11/07/2011 - 10:39 | 1852876 Zgangsta
Zgangsta's picture

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

Mon, 11/07/2011 - 10:53 | 1852924 Raynja
Raynja's picture

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

Mon, 11/07/2011 - 11:05 | 1852978 Oh regional Indian
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.



Mon, 11/07/2011 - 10:39 | 1852878 tuco13
tuco13's picture

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

Mon, 11/07/2011 - 10:41 | 1852885 Turd Ferguson
Turd Ferguson's picture

Did I say "guaranteed"?

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

Mon, 11/07/2011 - 10:40 | 1852882 kaiserhoff
kaiserhoff's picture

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

Mon, 11/07/2011 - 10:45 | 1852898 nonclaim
nonclaim's picture

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

Mon, 11/07/2011 - 10:41 | 1852884 Lady Heather...UNCLE
Lady Heather...UNCLE's picture

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

Mon, 11/07/2011 - 11:03 | 1852892 Dr. Engali
Dr. Engali's picture

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

Mon, 11/07/2011 - 10:44 | 1852894 The Axe
The Axe's picture

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

Mon, 11/07/2011 - 10:44 | 1852895 BlueStreet
BlueStreet's picture

The liars cup runneth over. 

Mon, 11/07/2011 - 10:44 | 1852896 firstdivision
firstdivision's picture

Gross, meet Net.

Mon, 11/07/2011 - 10:44 | 1852897 SheepDog-One
SheepDog-One's picture

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

Mon, 11/07/2011 - 10:45 | 1852899 eBuddha
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?

Mon, 11/07/2011 - 10:45 | 1852900 Bartanist
Bartanist's picture

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

Mon, 11/07/2011 - 10:48 | 1852909 Cursive
Cursive's picture

Thank you Jefferies for offloading shareholder risk onto someone dumber.

Did they offload it to a SPV or a SIV?

Mon, 11/07/2011 - 10:48 | 1852913 lizzy36
lizzy36's picture

Be first, be smarter or cheat.

Mon, 11/07/2011 - 10:50 | 1852919 eBuddha
eBuddha's picture

that expression is so 1990 -- today it goes like this:


i am slow

i am dumb

therefore i cheat


Mon, 11/07/2011 - 10:49 | 1852914 drivenZ
drivenZ's picture

people are sheep, either way...that's evidence by the 20% drop and multiple halts the other day. What would you do if you were Jef? sit back and watch your clients pull money one after another to prove a point? or slash your exposure and go into crisis(whether real or percieved) management?  I fail to see how this move proves it "was an issue". It certainly became an issue for the firm's PR which has real business effects....but was it an actual inherent risk issue to Jefferies, a la MF Global? I'm not Jefferies mgmt, so I don't know, but if they were able to unload half their exposure in a few days it seems unlikely.   


Mon, 11/07/2011 - 11:30 | 1853090 I am a Man I am...
I am a Man I am Forty's picture

i agree, everybody may be overreacting in this case, until you know what bonds are held long and short and at what price nobody knows shit, jeff handled it the right way because perception is everything with these companies, and they have no credibility, they unwound half of their position to get everyone to STFU, most on this board is acting like the sky was falling, and jeff just proved it wasn't, unless they are lying of course.

Mon, 11/07/2011 - 10:50 | 1852916 Alex Kintner
Alex Kintner's picture

OT - I realize we're not supposed to discuss US news on ZH anymore (jus kiddin', viva la Euro) but...
60 Minutes last night was pretty good: "Jack Abramoff: The lobbyist's playbook"

Not that we all don't know the US Govt is rotten and corrupt to its core. But it is seldom that anyone who is Inside on the Con admits it and depicts exactly how it all works.

Mon, 11/07/2011 - 10:59 | 1852952 Stax Edwards
Stax Edwards's picture

In MSM no less.  I was impressed by candid nature of the story.  

The cat continues to claw its way out of the bag...

Mon, 11/07/2011 - 10:54 | 1852926 pendragon
pendragon's picture

why is the ecb pouring money down he drain supporting btp yields bullish for the euro?

Mon, 11/07/2011 - 11:05 | 1852976 drivenZ
drivenZ's picture

if they don't, then it's game over...or atleast pushes things to sudden death OT. 

Mon, 11/07/2011 - 10:54 | 1852927 Dick Darlington
Mon, 11/07/2011 - 10:56 | 1852930 chaartist
chaartist's picture

offtopic but this is going really fast, first Iran, now North Korea..:

Mon, 11/07/2011 - 10:57 | 1852934 Hephasteus
Hephasteus's picture

Euro stars in girl interrupted.

Mon, 11/07/2011 - 10:58 | 1852939 darkpool2
darkpool2's picture

So, let's ask a fun question. If any and all Euro sov. debt is now toxic on any balance sheet, just who is going to be buying all the new issuance and roll-overs? Let alone taking existing holdings off their hands
Option.....print baby print

Mon, 11/07/2011 - 11:01 | 1852961 Stax Edwards
Stax Edwards's picture

Bernank has a penchant for bad debt, he would love to have it

Mon, 11/07/2011 - 10:59 | 1852950 adr
adr's picture

I'd really like to know what is going on with oil. Oil seems to trade down everynight then spike back up every morning. There has already been a $3 swing from late last night.

The auto news out of China is horrible. Falling auto sales in China should be the kind of news that would send crude down 10% but in this bullshit rigged market all news is bullish.

I remember how all news was bullish in 1999 and how all news was bullish in 2007. Now in 2011 all news is once again bullish, didn't work out so well the last few times.

Mon, 11/07/2011 - 11:03 | 1852969 qussl3
qussl3's picture

Possibility of pew pew in Iran may have something to do with that.

Mon, 11/07/2011 - 11:02 | 1852964 qussl3
qussl3's picture

The ECB's interns must be hard at work today.

Mon, 11/07/2011 - 11:06 | 1852979 Roy T
Roy T's picture


First time ever that I heard a CNBC talking head saying that maybe the Euro strength is based on repatriation of funds from European banks.


I read it here two weeks ago.



Mon, 11/07/2011 - 11:09 | 1852981 virgilcaine
virgilcaine's picture

TD those bonds were never a problem, we have zero liquidity issues, all is well, really it is... Jef CEO.  (they were sold at a loss of 70%) ..

Mon, 11/07/2011 - 11:06 | 1852983 agNau
agNau's picture

Contagion "To infinity and Beyond"!
: ? Which Country in Europe does not hold anothers debt?
This is the ONLY reason for the lifelines. The reality is all the "lifelines" are anvils and millstones!
Every monetary transaction is by the nature of this system inherently tied to the dollar, and most importantly, is DEBT at it's most basic level.
Sink or swim baby.

Mon, 11/07/2011 - 11:10 | 1852997 willien1derland
willien1derland's picture

Thank you Egan Davis! The market FINALLY worked!!!! The downgrade of Jefferies by Egan Davis created Market concerns which forced Jefferies to liquidate their risk!!! Someone send this to CNBC's Steve Liesman - This is how it works! Well done!

Mon, 11/07/2011 - 11:20 | 1853011 virgilcaine
virgilcaine's picture

This mkt reminds me of the post Bear St default when the Mkt rallied for a while then nosed dived..we are due for some big moves. Stay vigilent, it's a coming.


It's the All IS Well Market!

Mon, 11/07/2011 - 11:17 | 1853023 Quinvarius
Quinvarius's picture

I smell an error account with a hedged position in sovereign debt.

Mon, 11/07/2011 - 12:12 | 1853252 Texas Ginslinger
Texas Ginslinger's picture


They sold it to demonstrate they are not trolls........

Mon, 11/07/2011 - 12:14 | 1853276 Wipeout2097
Wipeout2097's picture

Those PIIGS are the new Jews, Aborigenes or Indians. Kill them all!

Mon, 11/07/2011 - 12:37 | 1853441 tj3
tj3's picture

FuckinA, KILL Whitey!

Mon, 11/07/2011 - 13:51 | 1853838 Grand Supercycle
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Latest NASDAQ chart porn suggests fun times ahead:

Do NOT follow this link or you will be banned from the site!