Moody's Investors Service, the ratings arm of
), announced that it has placed
Jefferies Group Inc.
) credit ratings, including Long Term Issuer rating of 'Baa2',
under review for a probable downgrade. The possibility of a
downgrade comes on the back of industry-wide risks faced by capital
JEFFERIES GP-NW (JEF): Free Stock Analysis
MOODYS CORP (MCO): Free Stock Analysis Report
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According to Moody's, though Jefferies has maintained a
conservative growth strategy while boosting its market share in
spite of the financial crisis, the company faces risks almost
similar to its peers. Nevertheless, the company has been able to
maintain a stable and relatively less complicated balance sheet.
Further, the company is expected to report upbeat financial results
for the remainder of fiscal 2012.
However, despite having a stable balance sheet position, Jefferies
is susceptible to the changes that take place in equity and debt
markets. At present, overall global markets are expected to remain
weak and there seems to be no end to the Euro-zone crisis. All
these factors put together are bound to impact the company's
financials. Nonetheless, while placing the ratings under review,
Moody's stated that if it downgrades the ratings, more than a notch
is less likely.
Moody's further stated that the review would also take into
consideration the risk management capabilities as Jefferies has
been expanding rapidly (both organically as well as through
acquisitions). In the last few years, the company has been
undertaking various initiatives to diversify its revenue base and
improve its market share. But while doing this, the company faces
increased risks related to the establishment and maintenance of
independent controls as capital market activities continue to
Currently, Moody's has a 'Stable' outlook on Jefferies, reflecting
disciplined business approach and low risk appetite of the company.
Similarly, Fitch Ratings has a 'Stable' outlook, while Standard and
Poor's has a 'Negative' outlook on the company.
In its latest quarterly filing, Jefferies stated that in case there
is a downgrade by a notch of its long term credit ratings, the
extra amount of collateral that would be called for will amount to
$30.9 million. Further, the ratings downgrade is expected to
increase the funding cost of the company.
Currently, Jefferies retains a Zacks #3 Rank, which translates into
a short-term Hold rating.