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No. of Recommendations: 5
I hate banks--no secret
They give me a migraine and at the end I have no idea of the big picture after bogging down in 1000 page 10Ks and balance sheets that are the spawn of hell

But Jeffries is now $10 and back at 2008 levels. Is it really that bad?


Credit Where Due for Jefferies


It's never a good thing when the main argument for a stock is that it really isn't the same as Bear Stearns, Lehman Brothers or MF Global. Sometimes, though, that isn't the worst selling point for a company's bonds.

On Thursday, Jefferies Group once again found itself in the market's cross hairs. The company has been buffeted for weeks, first by the collapse of MF and then by a downgrade from ratings company Egan-Jones over Europe worries.

While Jefferies doesn't appear to be at immediate risk, the sell-off in its shares is somewhat understandable. For starters, the firm is likely to have to shrink its balance sheet and may face increased regulatory constraints. That wouldn't be good for earnings going forward. Also, as a small investment bank with about $45 billion in assets, it is seen as being more vulnerable than bigger Wall Street players and certainly isn't too big to fail.

That said, things aren't as dire as they may appear. Despite the 40% fall in its shares over the past three months, the stock is valued at 76% of tangible book value. While nothing to write home about, Jefferies is in line with the valuation of Goldman Sachs, at about 76% of tangible book, and above Morgan Stanley, at about 51%.

Jefferies' 5.125% senior unsecured bonds due April 2018, for example, were trading Thursday below 80 cents on the dollar for a yield of more than 9.5%, according to MarketAxess. Meanwhile, its 5.875% debt due June 2014 was trading at about 85 for a yield of nearly 13%.

Those distressed prices could end up proving lucrative if the concern around Jefferies' European exposure really is being driven by fear rather than fundamentals. After all, bondholders don't need the firm to flourish in the face of Europe's crisis, it just has to avoid sinking.
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