Regular readers know and Jefferies confirmed that the only way to restore confidence is by releasing current asset, liability and off-balance sheet exposure details.
As Jefferies CEO said,
These are fragile times in the financial market and we decided the only way to conclusively dispel rumors, misinformation and misplaced concerns is with unprecedented transparency about internal information that is rarely, if ever, publicly disclosed.[Your humble blogger thinks this information should always be disclosed to pre-empt sources of financial instability like rumors, misinformation and misplaced concerns!]
Unfortunately, Wall Street's Opacity Protection Team got the better of Jefferies.
On the asset side, it published position level detail down to the CUSIP on the individual sovereign bonds, but stop short of saying how much of each bond they held, what their historical cost was...
It got even worse when it came to reporting how it hedged these positions. Jefferies failed to identify who its hedges were with.
This omission makes it impossible for market participants to assess Jefferies true risk as they cannot analyze the quality of the counter-parties.
This omission shows the power of opacity.
Jefferies was disclosing this detailed information because it believes it has nothing to hide. Yet, by not disclosing everything, Jefferies failed to eliminate all doubts.
The Jefferies Group Inc. on Friday released detailed information about its European debt holdings in a bid to calm investors rattled by the investment bank's exposure to the continent's ongoing financial turmoil. The information appeared to quell some fears, sparking an immediate rebound in the firm's stock....
New York-based Jefferies also holds debt issued by the most troubled European countries: Italy, Spain, Ireland, Portugal and Greece. But the firm has spent the week maintaining that it is handling its situation differently than MF Global.
On Friday, Jefferies published a list of the amount of debt it holds from each country, and the positions it has taken to counterbalance those holdings.
The firm showed that it maintains a net $9 million short position -- a bet on a decline in price -- on $2.41 billion in bonds from the five countries.
"As is clear from this information, Jefferies has no meaningful credit risk in respect of the sovereign debt of these nations, and an insignificant risk related to interest rate movements," Jefferies Chairman and CEO Richard Handler said.
He said his firm decided to disclose the normally closely held information in order to "conclusively dispel rumors, misinformation and misplaced concerns."
Yet it may not be enough.
One concern that was not addressed was the identity of the counterparties on Jefferies' short positions, said Sean Egan, managing director of Egan-Jones Ratings Co., which on Thursday cut its ratings on Jefferies debt in a move that helped fuel an early selloff of the stock. "If it's a third-tier bank, then you have to question whether or not the bank will be able to fulfill its obligations in the event the peripheral countries in the EU continue to slide."
"They may prefer not to disclose that, and so be it, but that's a comfort that investors need to properly view an entity like the Jefferies Group," Egan said in an interview.
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