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Jefferies Shares Dropped: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of investment bank Jefferies Group (NYSE: JEF  ) were getting hammered today, falling as much as 14% in intraday trading on concerns over Greece's call for a referendum vote.

So what: Interestingly, Jefferies felt the need to issue a press release today saying that it has "no meaningful exposure" to debt from Portugal, Italy, Ireland, Greece, or Spain. That is no doubt a major issue on bank investors' minds today in the wake of Greece's call for a referendum vote on the recent bailout agreement as well as the failure of MF Global (NYSE: MF  ) .

Obviously, the press release wasn't enough to keep Jefferies stock from tanking today. While some investors may have been encouraged by it, the downward pressure that Greece's move is putting on the entire banking sector makes it like trying to swim against a tsunami surge.

Now what: If Greece manages to succeed in unraveling its bailout and, possibly, its membership in the euro, that would be bad news for banks around the world -- whether directly exposed to European debt or not. Is Jefferies the bank I'd be most worried about, though? Hardly.

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Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.

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  • Report this Comment On November 09, 2011, at 10:24 PM, MHedgeFundTrader wrote:

    I have an usually sensitive notice. Maybe that is because it is so big. It is particularly attuned to detecting bullpucky in broker research reports. So when an analyst recently downgraded the mid-level broker, Jeffries & Co (JEF), on the back of its European debt exposure, the stench was overwhelming.

    I went to the website at and had a quick look at the balance sheet and income statement. The leverage was a conservative 12:1 and earnings were growing nicely. But when I looked at the chart, it had chapter 11 written all over it, the stock plunging 40% in days. Things were just not adding up.

    So I called someone I knew in senior management. The European problems were being vastly exaggerated. Total positions amounted to 2% of assets, and these were all fully hedged, both by underlying security and duration. The firm was about to post its entire European portfolio on its website with every detail, down to the last CUSIP number, an unprecedented level of disclosure. There is no need for an emergency dilutive capital raise whatsoever. What’s more, he only knew of one client in his department who had pulled funds in the past week, and he would probably return, once the dust had settled.

    It all had the makings of a classic bear raid to me. This is where some opportunistic traders spread false rumors about the health of a company in the hope of making some quick profits on the short side. With MF Global, once the world’s largest future broker, having gone bust on Monday, the market was particularly sensitive to this kind of news.

    This is still a financial, a sector that I am not exactly enamored with. So I am going to limit this position in the calls to only a high risk allocation of 2.5% of my portfolio. There are still plenty of black swans out there looking for a place to land. For my notional “virtual” $100,000 fund, this amounts to 10 contracts ($2,500/100/$2.40). With any luck, we’ll be out of this next week

    The Mad Hedge Fund Trader

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Related Tickers

12/31/1969 7:00 PM
JEF.DL $0.00 Down +0.00 +0.00%
Jefferies Group CAPS Rating: **
MFGLQ.DL $0.03 Down +0.00 +0.00%
MF Global CAPS Rating: *****