Jefferies Stock Plummets, Raising Concerns Over US Private Credit Market
The stock of Jefferies, a prominent investment bank on Wall Street, has plummeted, raising concerns about potential failures in the U.S. private credit market. The recent bankruptcy of First Brands, an automotive parts company that received funding from Jefferies, has triggered fears reminiscent of the collapse of Silicon Valley Bank (SVB). On October 16, Jefferies stock dropped by more than 10%, marking a decline of over 25% in October alone, the largest monthly drop since March 2020 amid the COVID-19 pandemic.
Jefferies provided funding secured by $715 million in revenue bonds from First Brands through its subsidiary, Point Bonita Capital. Following First Brands bankruptcy, speculation arose that a significant portion of these assets had become distressed, contributing to the stocks decline.
Private credit refers to non-bank financial institutions lending money or providing funding through private agreements at higher interest rates than banks, often with less transparency than traditional bank loans.
Additionally, JP Morgan Chases subsidiary, Tricolor, has also faced turmoil, having supplied funds to businesses through asset-backed securities before filing for bankruptcy in early October.
The credit risk of regional banks is also coming under scrutiny. Zions Bancorporation announced significant losses due to defaults from several borrowers, while Western Alliance reported fraudulent activities by one of its borrowers. Both banks stocks fell by over 10% on the same day.
As a result of these developments, the New York stock market experienced declines, and as of 6 AM Eastern Time on October 17 (7 PM Korean time), the S&P 500 futures were down by more than 1%, with the pan-European Stoxx 600 index dropping around 1.5%. The dark side of private credit, often referred to as blind lending, is being highlighted, with experts suggesting that Jefferies might be just the tip of the iceberg.
Jefferies provided funding secured by $715 million in revenue bonds from First Brands through its subsidiary, Point Bonita Capital. Following First Brands bankruptcy, speculation arose that a significant portion of these assets had become distressed, contributing to the stocks decline.
Private credit refers to non-bank financial institutions lending money or providing funding through private agreements at higher interest rates than banks, often with less transparency than traditional bank loans.
Additionally, JP Morgan Chases subsidiary, Tricolor, has also faced turmoil, having supplied funds to businesses through asset-backed securities before filing for bankruptcy in early October.
The credit risk of regional banks is also coming under scrutiny. Zions Bancorporation announced significant losses due to defaults from several borrowers, while Western Alliance reported fraudulent activities by one of its borrowers. Both banks stocks fell by over 10% on the same day.
As a result of these developments, the New York stock market experienced declines, and as of 6 AM Eastern Time on October 17 (7 PM Korean time), the S&P 500 futures were down by more than 1%, with the pan-European Stoxx 600 index dropping around 1.5%. The dark side of private credit, often referred to as blind lending, is being highlighted, with experts suggesting that Jefferies might be just the tip of the iceberg.
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