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Jefferies shares recover after Thursday's selloff
"We believe we were defrauded," says Jefferies CEO
First Brands, Tricolor collapse unsettles credit market
By Manya Saini
Oct 17 (Reuters) - Jefferies JEF.N was defrauded by bankrupt auto parts maker First Brands Group, its CEO Rich Handler said at its investor day held on Thursday.
His comment comes against the backdrop of several financial firms alleging fraud, while the U.S. Department of Justice is also probing the company.
"I'll just say this is us personally, we believe we were defrauded," Handler said according a regulatory filing released on Friday, adding that despite this the environment remains generally good.
The collapse of First Brands and subprime lender and dealership Tricolor have unsettled Wall Street's multitrillion-dollar credit market, which includes leveraged loans, collateralized loan obligations, trade-finance funds and subprime auto loans.
"I'm not saying there aren't other issues like this... I think there's a fight going on right now between the banks and direct lenders who each want to point fingers at each other and say, it's your fault, no, it's your fault," Handler told analysts and investors.
Jefferies' stock slumped after First Brands disclosed more than $10 billion in liabilities in bankruptcy protection filing in late September.
The shares recovered nearly 6% in morning trading on Friday after closing down nearly 11% in the previous session.
"The stock is down on 'atmospheric' credit concerns because credit managers, BDCs (Business Development Companies), and numerous banks have all been under pressure, for reasons we consider dubious," Oppenheimer analysts said in a note.
FIRST BRANDS FUND SEPARATION
Jefferies President Brian Friedman said the fund caught up in the collapse of First Brands is separate from its investment banking business.
"Kind of Chinese Wall 101. Nothing more to be said," he said. "The two have absolutely no relationship and, in fact the decision in 2019 of the asset management Point Bonita team to engage with First Brands, was absolutely away from independent and disconnected from anything on the investment banking side."
"We've estimated the firm's direct exposure to the First Brands fallout to be relatively small, after recoveries - comfortably under $100 million," Morningstar analyst Sean Dunlop said.
Earlier this month, Jefferies had said its exposure to First Brands is limited and any potential loss would be "readily absorbable".
The bank had called the share reaction overdone while disclosing that its Leucadia Asset Management fund holds about $715 million in receivables linked to First Brands.
Shares of U.S. regional bank had slumped on Thursday after Zions Bancorporation ZION.O disclosed a $50 million charge-off in the third quarter. Western Alliance WAL.N also alleged fraud and disclosed it had initiated a lawsuit against a borrower.
(Reporting by Manya Saini in Bengaluru; Editing by Arun Koyyur)
((Manya.Saini@thomsonreuters.com; X: manya__saini;))