NEW YORK (Reuters) ? Jefferies, responding to a stock plunge and growing fear over its stability, said it had no meaningful net exposure to European sovereign debt and that it was, in fact, positioned to profit should credit quality there deteriorate further.
The statement on Thursday, meant to clarify the U.S. investment bank's trading positions and rebut an analyst downgrade this week, comes days after broker-dealer MF Global Holdings (MFGLQ.PK) filed for bankruptcy after big bets on European sovereign debt went wrong.
Shares of Jefferies Group Inc (JEF.N) plunged as much as 20 percent to $9.81 early Thursday, their lowest since March 2009, triggering a trading pause on the New York Stock Exchange.
The shares bounced back after the company's statement, but were still down 7.1 percent by early afternoon, making for a decline of 23 percent so far this week.
Jefferies said it had a short position on $178 million of Spanish debt -- a position that profits as Spanish debt weakens -- and exposure to about $140 million of debt from other European nations, including $104 million to Italy.
Its net short exposure of about $38 million was equal to about 1 percent of its net worth, or shareholders equity, Jefferies said. Positions in such debt are short-term and are marked to market daily, it added.
"After seeing MF Global go down due to leverage and a dysfunctional EU, investors, counterparties and creditors are very nervous -- it's a fire first, ask questions later type of market," said Brad Hintz, analyst at Sanford C. Bernstein.
As of August 31, Jefferies had shareholders' equity of $3.49 billion, supporting $45.13 billion of assets, according to a regulatory filing. That means its assets were about 13 times its equity, compared with more than 30 times for MF Global.
MF Global shed two thirds of its market capitalization last week as its credit ratings were cut to junk and confidence evaporated in the firm run by former Goldman Sachs executive Jon Corzine.
On Wednesday, Egan-Jones downgraded Jefferies due to concerns about its sovereign debt exposure. In a research report, Egan-Jones said the exposure was 77 percent of shareholder equity, which in part helped to undercut Jefferies shares.
"What is happening is the money that was used to short MF Global is going over and being used to short Jefferies," said Dick Bove, analyst at Rochdale Securities. "If the company is correct, the stories are false on Jefferies."
Political turmoil in Greece and uncertainty over the euro zone continued the rush into safe-haven government bonds on Thursday, and away from countries seen vulnerable to default.
Exposure to such risky debt has undercut European banks and, particularly with MF Global, begun to hurt U.S. firms.
Investors and ratings agencies often look to a firm's liquidity position to determine whether they can survive losses from trades gone wrong. Jefferies had $2.01 billion in cash and equivalents on August 31, according to the filing.
Short sellers "brought MF Global down because it did not have a huge amount of liquidity. Now they're targeting Jefferies," said Bove.
"Jefferies has a lot of short-term debt so it's vulnerable to be taken down."
(Additional reporting by Dan Wilchins in New York, editing by Gerald E. McCormick, Ted Kerr and Gunna Dickson)
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