Jefferies can withstand First Brand losses, execs say

[Jefferies.]
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Jefferies Financial Group (NYSE:JEF [https://seekingalpha.com/symbol/JEF]) executives recently said that any losses from the First Brands collapse [https://seekingalpha.com/news/4503159-red-flags-at-first-brands-ignored-by-creditors] last month could be absorbed.

Point Bonita Capital, a division of Jefferies' (NYSE:JEF [https://seekingalpha.com/symbol/JEF]) Leucadia Asset Management that manages trade-finance assets on behalf of third-party institutional and other investors, has some $715M invested [https://seekingalpha.com/news/4502610-jefferies-tallies-161m-of-exposure-to-bankrupt-auto-parts-maker-first-brands#hasComeFromMpArticle=false#source=section%3Amain_content%7Cbutton%3Abody_link%7Cfirst_level_url%3Anews] in receivables owed to auto-parts giant First Brands.

"Relative to the scale of Jefferies, we are confident that any losses or expenses from these investments or otherwise in respect of First Brands can readily be absorbed and do not threaten our financial condition or business momentum," Jefferies CEO Rich Handler, and its president, Brian Friedman, wrote in an open letter [https://seekingalpha.com/pr/20262761-jefferies-provides-letter-from-its-ceo-and-president-regarding-point-bonita-capital-and-first] released over the weekend.

JEF stock advanced 3.1% in late Monday morning trading, though it's still down 8.6% in the past five sessions and -33% year-to-date.

“We believe there has been an impact on our equity market value and credit perception that is meaningfully overdone, and we expect this to correct soon as the facts and range of outcomes are better understood,” the executives added.

In addition, Handler and Friedman denied that Jefferies (JEF [https://seekingalpha.com/symbol/JEF]) earned undisclosed fees on financing it provided to First Brands through a “side letter.”

"First Brands entered into a written agreement with Point Bonita that was solely for the benefit of the investors in Point Bonita, and that, furthermore, was disclosed to all first and second lien lenders to First Brands. There were no undisclosed fees earned by Jefferies," they explained.

As for its investment banking ties with First Brands, Jefferies (JEF [https://seekingalpha.com/symbol/JEF]) only once served as financial advisor to a company acquisition. "In each of the other four First Brands acquisitions in which we were involved, we were on the other side of the table, negotiating against First Brand," the letter said.

The executives emphasized that nobody at the investment bank was ever aware of any fradulent activity at First Brands. "We learned of the fraud allegations when the rest of the public learned, and then only after First Brands ceased remitting to Point Bonita cash collected in respect of the accounts receivable owned by the fund."

Earlier Monday, First Brands' elusive founder and CEO Patrick James was said to have resigned [https://seekingalpha.com/news/4503585-first-brands-ceo-patrick-james-resigns-from-collapsed-auto-parts-giant] from the company.

MORE ON JEFFERIES FINANCIAL GROUP

* Jefferies: Positioned For A Cyclical Recovery [https://seekingalpha.com/article/4822743-jefferies-positioned-for-a-cyclical-recovery]
* Morningstar sees limited fallout from First Brands on financials, auto, direct lending sectors [https://seekingalpha.com/news/4503319-morningstar-sees-limited-fallout-from-first-brands-on-financials-auto-direct-lending-sectors]
* Jefferies tallies $161M of exposure to bankrupt auto-parts maker First Brands (updated) [https://seekingalpha.com/news/4502610-jefferies-tallies-161m-of-exposure-to-bankrupt-auto-parts-maker-first-brands]
* Seeking Alpha’s Quant Rating on Jefferies Financial Group [https://seekingalpha.com/symbol/JEF/ratings/quant-ratings]
* Historical earnings data for Jefferies Financial Group [https://seekingalpha.com/symbol/JEF/earnings]