Jefferies reports new $10mn First Brands loss as it writes off exposure

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Jefferies has written down its financial exposure to collapsed car parts supplier First Brands to zero, as the Wall Street firm battles a high-profile legal dispute over the debacle.

“Our direct exposure to First Brands is now zero,” chief executive Rich Handler and president Brian Friedman said in a statement on Wednesday, as the US investment bank reported first-quarter earnings. Jefferies reported $10mn in losses related to First Brands after adjusting for compensation and taxes, and $17mn when including its exposure to British lender Market Financial Solutions.

“Management is disappointed and takes full responsibility for the losses already recognised and that may be absorbed over time in respect of First Brands, all of which are manageable,” the statement said.

Arizona-based bank Western Alliance filed a lawsuit against Jefferies earlier this month alleging breach of contract and fraud over a loan it provided to a Jefferies-managed fund, which provided financing to First Brands before it filed for bankruptcy last year.

Overall, Jefferies posted revenue of $2.9bn in the first quarter of the year, up from $2.5bn in the same period last year. Net income rose 22 per cent year on year to $156mn.

It previously reported a $30mn loss tied to First Brands’ collapse, owing to a stake in an investment fund owned by the bank known as Point Bonita. Point Bonita provided hundreds of millions of dollars in off-balance sheet financing to First Brands. Jefferies is being investigated by the US Securities and Exchange Commission, which is probing disclosures it made to Point Bonita investors.

Jefferies was also among the lenders that extended financing to MFS, the London-based lender that collapsed into insolvency last month amid accusations of double-pledging of its collateral.

Shares in Jefferies have fallen by more than a third this year. The stock closed 2.2 per cent lower at $39.64 on Wednesday. The FT reported earlier this week that Japan’s second-largest lender, Sumitomo Mitsui Financial Group, is working on a possible takeover of the Wall Street firm.

Sumitomo, whose subsidiary already has a minority stake in the US bank, has tasked a small team with making sure it could act swiftly if the bank’s falling share price represented an opportunity. It took an initial 5 per cent stake in 2021 before agreeing in September to increase its position to up to 20 per cent.