Shares in the US investment bank fell as much as 20 per cent yesterday to $10, their lowest since March 2009, prompting the New York Stock Exchange to suspend trading.
The slide in Jefferies’ stock came after Egan-Jones Ratings Company downgraded the firm and estimated its exposure to European sovereign debt at $2.7bn (£1.68bn) – or 77 per cent of shareholder equity.
Jefferies has been under fire since MF Global’s bankruptcy on Monday, after concerns that other medium-sized financial institutions may similarly be exposed to European debt.
MF Global shed two thirds of its market capitalisation last week as its credit ratings were cut to junk and confidence evaporated.
Egan-Jones, which downgraded Jefferies from BBB to BBB-, said that although “not as highly leveraged as MF Global” it would prefer the bank to maintain a lower leverage.
Shares resumed trading after Jefferies responded with a statement, saying the firm had a net short exposure of just $38m – equal to about one per cent of its net worth.
Positions in such debt are short-term and are marked to market daily, it added.
“Recent reports and calculations appear to have been focusing only on long inventory of $2.684bn but not taking into account the fact that there were offsetting short positions in such sovereign debt of $2.545bn as well as offsetting positions in futures instruments,” Jefferies said.
Its shares bounced back after the statement, closing the day down only 2.1 per cent, after its biggest investor, Leucadia National, stepped in to buy 1m more shares. The vote of confidence by Leucadia, which now owns about 29 per cent of Jefferies’ stock, helped to stem the tide of selling.