Egan Jones Downgrades Jefferies On Concerns About Sovereign Exposure Amounting To 77% Of Equity

Because like with insolvent sovereigns and the law of communicating vessels, there rarely is just one cockroach.

From the note:

Jefferies Group Inc: EJR lowered BBB to BBB- (Neg.) (S&P: BBB)


Synopsis: Changed environment - the problems of MF have increased scrutiny of other medium-sized broker/dealers. We are concerned about the values included the $2.7B of " sovereign obligations " per page 24 of the Aug. 2011 10-Q representing 77% of shareholders equity. Although not as highly leveraged as MF Global's 40:1, we would prefer that JEF maintain a lower leverage than its 12.9:1. Note, the fiscal statements of JEF are skewed by the change in fiscal years. The financials are respectable especially given the tough operating environment. An item to watch is the $108M rise in interest expense (reflecting in part the $420M purchase of Pru Bache's Global Commodities Group) On the pos. side, JEF is a respectable competitor.