Bonds from Jefferies Group Inc. (JEF) rose to the highest level since Nov. 15 and its shares gained after an Oppenheimer & Co. analyst said Egan-Jones Ratings Co.’s analysis that helped fuel a selloff in the securities contained “epic errors.”
The investment bank’s $700 million of senior unsecured 8.5 percent notes due in July 2019 added 3.4 cents to 93.1 cents on the dollar at 11:29 a.m. in New York, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority. The bonds, which fell to as low as 82 cents on Nov. 3 from 109.3 cents at the end of October, yield 9.8 percent, or 7.8 percentage points more than similar-maturity Treasures, Trace data show.
Egan-Jones said Nov. 22 that New York-based Jefferies should raise $1 billion in equity and reduce leverage as MF Global Holdings Ltd.’s bankruptcy increases scrutiny of the firm’s balance sheet. Without “major deleveraging,” Egan-Jones said it may cut Jefferies’s credit grade.
“Our report stands on its own,” Egan said today on Bloomberg Television’s “InBusiness with Margaret Brennan” in response to the Oppenheimer comments.
The analysis contains “epic errors of fact,” Chris Kotowski, an analyst at Oppenheimer, said today in an interview with Stephanie Ruhle and Erik Schatzker on Bloomberg Television’s “InsideTrack.”
Jefferies “is a fine company,” he said. “It’s conservatively leveraged compared to any other fixed income trader historically.”
Jefferies climbed 36 cents, or 3.4 percent to $11.01, as of 12:57 p.m. New York time. The shares had declined 60 percent this year through Nov. 25, outpacing the 17 percent drop in the Standard & Poor’s Midcap Financials Index. (S4FINL)
“The fact that this kind of deeply flawed work can get the media traction it has, just indicates to me that we’re living through something that is kind of like the inverse of the Internet bubble,” Kotowski said. “By 2000 it got to the point where people were just buying tech stocks no matter what the valuation or what the project. Now they’re shorting banks because shorting banks has worked for five years in a row, so people have this mentality of short a bank, get a check.”
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