What is the best thing about these Jefferies bonuses? For me it’s this:
For 2011, we offered our employees the option to receive the stock portion of their year-end compensation in the form of either shares or cash, with the cash amount being equal to 75% of the grant-date amount of the stock that an employee would otherwise receive. The election resulted in a decrease to share-based compensation expense of approximately $23.3 million, as certain employees elected to receive reduced cash awards lieu of the full grant-date amount of the shares. This offset increased cash compensation expense by approximately $17.5 million. The net effect of this election on total compensation and benefits expense was a reduction of approximately $5.8 million. While these cash awards were fully expensed in 2011, they will legally vest in future periods.
When I first skimmed the headline I thought, okay, paying a 25% discount for liquidity makes sense. I, anyway, would be a lot wealthier had I gotten … really almost any percentage of my stock-based comp in cash rather than vaporizing most of it and leaving a small stub subject to a nondisparagement agreement when I left (I love you guys!), but that is neither here nor there. Because that’s not actually what the Jeffererers got. The people taking the “cash” got no more liquidity or vestedness or, um, cash, than the people taking the shares. They got … at a first approximation, they got an illiquid JEF bond. If they’re around, and Jefferies is around, and the cash is around, in three years or whenever this stuff vests, then they get a fixed amount of money. If not, not.
So the only thing that the Jeffers got for giving up 25% of their stock-based comp was … avoiding the risk that Jefferies stock would decline by more than 25%. Here’s a silly coincidence: Read more »
Apparently a bunch of employees have been notified their services to the firm are no longer necessary. Read more »
Richard Handler has declared himself not worthy. Read more »
Good news and less good news. The good news: junior mistmakers needn’t worry much about the new rule stating that one’s bonus will be taken back should he/she leave the firm for greener pastures less than a year after the money hits the bank. The less good news: Read more »
Maybe you’re a Jefferies employee who thinks the light at the end of the tunnel is near. Bonus time’s a’ comin’ and once you get yours, you’re out of this place, you’ve told family and close friends. Just a couple more months and you can bust out. Break free. Live again. Just gotta wait for the money for last year’s work to hit your account and bye-bye Jefferies, hello the first day of the rest of you life, right? WRONG! Jefferies is trying out something new this year and it’s called you’re not going anywhere. Read more »
There’s that famous line that “Every banker knows that if he has to prove that he is worthy of credit, however good may be his arguments, in fact his credit is gone.” It is sort of inspiring to see Jefferies refute that with a combination of (1) pretty good arguments and (2) still existing. At the core of their argument is, basically, “we are not as reliant on fickle overnight funding as you think.” From their letter to clients, shareholders, friends, Sean Egan, etc.:
To be clear at the outset, we do not use or rely on “wholesale funding,” a catch-all term typically used to refer to funding other than core deposits, such as brokered deposits, foreign deposits or commercial paper. We do not have any unsecured overnight borrowings ….
We finance a portion of our long inventory and cover some of our short inventory by pledging and borrowing securities in the form of repurchase or reverse repurchase agreements, respectively. About 87% of all our repo activities use collateral (or inventory) that is eligible for repo transactions with clearing utilities. … Put differently, 87% of our repos end up with clearing utility counterparties who are blind to the Jefferies’ name in the same way that we are blind to their names. … The remaining 13% of our repo activity is currently contracted for a term that, on average, exceeds 80 days. …
Finally, at any time we are concerned about our inventory funding rollover, we obviously have the alternative of reducing inventory through sales in the market. Given the mix of inventory we carry, this is a straightforward exercise, as evidenced by the actions we took two weeks ago and since then in respect of our European sovereign inventory book.
What I take away from that is:
(1) If you believe it, then you should probably feel okay facing JEF on its funding trades, but
(2) if you believe it, then it doesn’t really matter: JEF just isn’t particularly at the mercy of whimsical short-term funding. Read more »
Whatever you’ve heard, whatever you’ve read, whatever you’ve seen, whatever you saw- lies, all lies, spread by a hedge fund that Jefco isn’t going to dignify with a name-check. Read more »
Two bits of news are out today at the high and low ends of what you could loosely call big financial institutions. At the low end, Jefferies, which I’ll stick with calling wee given its $40 billion balance sheet, is blasting out minute-by-minute, issuer-by-issuer, maturity-by-maturity, CUSIP-by-CUSIP accounts of its holdings of European sovereign bonds, its trading activity in those bonds, and the lunch orders of the traders trading those bonds. First it had no exposure – $2.4bn gross, $9mm net short notional, $37k of DV01, almost all cash with some futures – and then it had even less exposure, cutting gross exposure in half although apparently increasing net. The aggressive PR campaign seems to be working, with the stock basically where it was before anyone spent any time thinking about Jefferies, and up today in a down tape.
At the high end, Berkshire Hathaway, which is not entirely unlike a thinking man’s AIG and has a $385 billion balance sheet, disclosed Friday that it lost two billion dollars last quarter in mark-to-market on its $34 billion notional of short S&P index puts. Also Berkshire is ramping up single-name equity investments without telling anyone what they are.
One more thing about BRK/A that you may or may not find related is that it may or may not be a “non-bank G-SIFI,” that is, a financial institution that is not an FDIC insured bank but is nonetheless “too big to fail” because of its size and interrelationships:
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Let’s talk about Jefferies for a bit. Jefferies is a wee broker-dealer who briefly traded down 20% this morning though they got better. They have some problems that they like talking about because they aren’t really problems (being long $9mm of MF Global bonds), and some problems that they don’t like talking about because they’re maybe small deep holes and also kind of embarrassing (missing problems at MF Global repeatedly when underwriting and considering buying it).
Then there’s the problem that they have to talk about, even though it’s maybe not a problem, and it goes something like this. They have $2.7 billion gross long exposure to sovereign debt, or 77% of their book equity. That’s bad. They have $38 million net short exposure to PIIGS debt, or 1% of their book equity. That’s good.
There are about three things you can think about that information:
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