By Jonathan Spicer and Lauren LaCapra
Jefferies' statement on Thursday, meant to clarify its trading positions after an analyst downgrade this week, comes days after broker-dealer MF Global Holdings <MFGLQ.PK> filed for bankruptcy after big bets on European sovereign debt went wrong.
Shares of Jefferies plunged as much as 20 percent to $9.81 early Thursday, their lowest since March 2009, triggering a trading pause on the New York Stock Exchange.
The shares bounced back after the company's statement, but were still down 9.1 percent by late morning, making for a decline of 24 percent so far this week.
Jefferies said it had a short position on $178 million of Spanish debt -- a position that profits as Spanish debt weakens -- and exposure to about $140 million of debt from other European nations, including $104 million to Italy.
Jefferies said its net short exposure of about $38 million was equal to about 1 percent of its net worth, or shareholders equity. Positions in such debt are short-term and are marked to market daily, it added.
"After seeing MF Global go down due to leverage and a dysfunctional EU, investors, counterparties and creditors are very nervous -- it's a fire first, ask questions later type of market," said Brad Hintz, analyst at Sanford C. Bernstein.
As of August 31, Jefferies had shareholders' equity of $3.49 billion, supporting $45.13 billion of assets, according to a regulatory filing. That means its assets were about 13 times its equity, compared with more than 30 times for MF Global.
"What is happening is the money that was used to short MF Global is going over and being used to short Jefferies," said Dick Bove, analyst at Rochdale Securities. "If the company is correct, the stories are false on Jefferies."
On Wednesday, Egan-Jones downgraded Jefferies due to concerns about its sovereign debt exposure. In a research report, Egan-Jones said the exposure was 77 percent of shareholder equity, which in part helped to undercut Jefferies shares.
(Additional reporting by Dan Wilchins in New York, editing by Gerald E. McCormick, Ted Kerr and Gunna Dickson)