Key Stats for Jeffries Stock
- Price Change for $JEF stock: -8%
- Current Share Price: $54
- 52-Week High: $83
- $JEF Stock Price Target: $69
What Happened?
Jefferies (JEF) stock dropped almost 8% on Wednesday after Bloomberg reported that BlackRock is considering withdrawing money from a Jefferies fund with significant exposure to bankrupt auto parts supplier First Brands Group.
The fund in question is managed by Point Bonita Capital, a unit of Jefferies’ Leucadia Asset Management.
According to people familiar with the matter, BlackRock and other investors, including Texas Treasury Safekeeping Trust, have been discussing partial redemptions from Point Bonita.
The fund manages a $3 billion trade finance portfolio and has held accounts receivable tied to First Brands since 2019.
First Brands filed for bankruptcy on September 28. But payments to Point Bonita actually stopped two weeks earlier, on September 15.
Jefferies disclosed on Wednesday that Point Bonita had $715 million invested in receivables owed to First Brands.
Here’s how trade finance works: Point Bonita bought the right to collect payments that companies like Walmart and AutoZone owe to First Brands for auto parts.
First Brands was responsible for directing those customer payments to Point Bonita. When First Brands stopped making those payments, the fund lost access to the cash it was counting on.
Making matters worse, First Brands’ special advisers are now investigating whether the receivables may have been pledged as collateral more than once. That would mean multiple parties could have claims on the same assets in bankruptcy proceedings.
Jefferies said Leucadia holds just a 5.9% stake in the Point Bonita funds. That means losses on the First Brands debt would mostly affect third-party investors, such as BlackRock, rather than Jefferies directly. But the situation still damages Jefferies’ reputation as an asset manager.
Representatives for Jefferies, BlackRock, and Texas Treasury Safekeeping Trust all declined to comment on the Bloomberg report.
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What the Market Is Telling Us About JEF Stock
The 7% drop in Jefferies stock indicates that investors are concerned about reputational damage and potential ripple effects beyond the immediate First Brands exposure.
Even though Jefferies’ own financial stake is relatively small at 5.9%, having a major client like BlackRock pull money raises questions about the fund’s due diligence and risk management.
Trade finance is supposed to be a low-risk business. You’re essentially buying the right to collect payments from creditworthy companies like Walmart and AutoZone. The fact that First Brands stopped directing those payments suggests either fraud or severe operational breakdown at the supplier level.
The timing is unfortunate for Jefferies as the company just reported strong third-quarter results with net revenues of $2.05 billion. Investment banking advisory delivered record quarterly results driven by increased market share and improved M&A activity. Net earnings hit $224 million with a 13.6% return on adjusted tangible shareholders’ equity.
CEO Richard Handler and President Brian Friedman stated that they’re “encouraged by the rebound in global market sentiment” and believe Jefferies is “more strongly positioned than ever” to deliver long-term value. Asset management fees and revenues of $84 million were higher than those in the prior year’s quarter.
But the Point Bonita situation threatens to overshadow that positive momentum. Asset managers thrive or falter based on investor confidence. If other institutional investors follow BlackRock’s lead and pull capital, it could force Point Bonita to liquidate positions at unfavorable prices, creating a vicious cycle.
Notably, the company’s investment banking business has been gaining market share as deal-making activity increases. But this asset management problem introduces a new source of uncertainty.
Investors now face questions about how much money Point Bonita will ultimately lose on First Brands, whether other positions in the portfolio face similar risks, and how much capital will be withdrawn from the fund. Until those answers become clearer, Jefferies stock will likely remain under pressure.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!