Oppenheimer updgraded Jefferies to outperform on Friday, describing its exposure to the bankrupt autoparts maker First Brands as "very limited." Shares of Jefferies have plunged about 26% since First Brands filed for bankruptcy on Sept. 29. The stock is likely down on "atmospheric" credit concerns because credit managers, BDCs, and several banks are under pressure "for reasons we consider dubious," analyst Chris Kotowski told clients in a note "While the direct financial exposure to First Brands seems limited, we suspect the outsized reaction in JEF's stock is related to the fact Bear Stearns had hedge funds that contributed to their ultimate failure," Kotowski told clients. But Bear Stearns was leveraged up to 25 times with very long-term assets funded by short-term liabilities, Kotowski said. In the case of Jefferies, its leverage is more in the realm of 0.6 times with short-term assess "presumably" funded by short-term liabilities, he said. "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," Kotowski said. "Thus, presumably the positions and leverage will wind down relatively quickly." Jefferies exposure is "tiny" in the context of its overall capital and revenues, the analyst said. "In the end we expect this to have little if any financial impact," he said.
