Jefferies Was Net Short Five EU Nations at Fiscal-Year End
Jefferies Group Inc. (JEF), which sought to ease investor concern about its European holdings after the collapse of MF Global Holdings Ltd., ended November with a $96.1 million short position against five European countries.
Jefferies’s net exposure to Portugal, Ireland, Italy, Greece and Spain included debt and derivatives tied to sovereign issuers, corporations and financial institutions, the New York- based company said today in a regulatory filing. The company had a negative net exposure of $122.9 million to the countries’ governments on Nov. 30, the end of its fiscal year.
Following the Oct. 31 bankruptcy of MF Global, brought on by a $6.3 billion bet on the bonds of some of Europe’s most indebted nations, Jefferies faced investor concern that its own European holdings would lead to losses. The firm reduced sovereign holdings in the region by three-quarters in November amid what Chief Executive Officer Richard Handler called a “barrages of misinformation.”
“In November 2011, we became the subject of unfounded allegations and false rumors, including among others those relating to our exposure to European sovereign debt,” Jefferies said in the filing. “Although we were able to reverse the negative impact of such unfounded allegations and false rumors, there is no assurance that we will be able to do so successfully in the future and our potential failure to do so could have a material adverse effect on our business, financial condition and liquidity.”
Sovereign Holdings
The firm’s net holdings of debt securities had a positive fair value of $75.6 million. That was more than offset by a net derivative notional position of negative $171.7 million. Presenting the notional amounts of derivatives “best reflects the reduction in the underlying market risk,” Jefferies said in the filing.
Jefferies’s net short on Italy, including sovereign, corporate and financial-institution exposure, was $215.5 million at Nov. 30, the filing shows. Jefferies was net long on Portugal $2.6 million, $32.3 million on Ireland and $84.5 million on Spain.
Jefferies released its notional exposure to the five countries, sometimes called GIIPS, something larger U.S. banks haven’t officially disclosed. JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said last month that his firm had bought and sold notional credit derivatives on about $100 billion of sovereign and non-sovereign debt in the five nations.
Jefferies had a short position on notional derivatives of $225 million and a long position of $53.3 million as of Nov. 30, bringing its net position to negative $171.7 million.
To contact the reporter on this story: Laura Marcinek in New York at lmarcinek3@bloomberg.net; Michael J. Moore in New York at mmoore55@bloomberg.net.
To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net
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