Jefferies Stock Tumbles on First Brands Bankruptcy Exposure
Bank reveals a $161M direct hit, but a managed fund's $715M exposure fuels an 8% slide in shares.
Shares of Jefferies Financial Group (NYSE: JEF) plunged nearly 8% in trading after the investment bank disclosed significant financial exposure to the Chapter 11 bankruptcy of auto parts conglomerate First Brands Group.
In a letter aimed at reassuring investors, Jefferies' CEO and President stated the firm's . While the company affirmed it could absorb this loss, the market reacted to revelations of a much larger, indirect risk held within one of its managed funds.
The primary source of investor concern stems from Point Bonita Capital, a trade-finance fund managed by Jefferies' Leucadia Asset Management division. The fund has a staggering , an amount that constitutes roughly 25% of its entire trade-finance portfolio. This concentrated exposure highlights potential risks in specialized credit markets.
The market's response was swift and decisive. After falling 3.7% in premarket trading, Jefferies' shares closed the session down 7.9% as investors digested the full scope of the potential losses. The sell-off reflects broader anxiety over the health of corporate debt and the opaque nature of off-balance-sheet financing, which was a key factor in the First Brands collapse.
Compounding the firm's challenges, the disclosures have attracted legal scrutiny. A into whether Jefferies and Point Bonita Capital violated federal securities laws with their disclosures, adding a layer of regulatory uncertainty to the financial fallout.