Analyst Chris Kotowski addressed the situation in a note to clients, suggesting that the stock’s downturn is largely driven by “atmospheric” credit concerns. He pointed out that credit managers, business development companies (BDCs), and several banks are currently under pressure for reasons that he considers “dubious.”
Kotowski elaborated on the situation, stating, “While the direct financial exposure to First Brands seems limited, we suspect the outsized reaction in JEF’s stock is related to the fact that Bear Stearns had hedge funds contributing to their ultimate failure.” He drew a comparison between Bear Stearns and Jefferies, noting that Bear Stearns was heavily leveraged—up to 25 times—with long-term assets funded by short-term liabilities.
In contrast, Jefferies operates with a leverage ratio closer to 0.6 times, with short-term assets presumably funded by short-term liabilities. Kotowski remarked, “It was not disclosed, and we don’t know for a fact, but we would expect that these are likely in the range of 90–180 days.” This suggests that Jefferies’ positions and leverage will likely wind down relatively quickly.
Furthermore, Kotowski emphasized that Jefferies’ exposure to First Brands is “tiny” when viewed in the context of its overall capital and revenues. He reassured clients by stating, “In the end, we expect this to have little, if any, financial impact.”
