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Nov. 3, 2011, 11:14 a.m. EDT
By MarketWatch
NEW YORK (MarketWatch) "” With the body of MF Global Holdings Inc. cooling in the regulatory morgue, Wall Street is full of suspicion of who may next be the victim of the European plague known as sovereign debt.
To no one's surprise, the weak are getting defensive, eager suddenly to show that they have a clean bill of health. They are disclosing their holdings of bonds from at-risk countries in Europe.
Marketwatch's David Weidner details, in his weekly column, how investors were misled and burned by MF Global CEO Jon Corzine.
Jefferies Group Inc. /quotes/zigman/188140/quotes/nls/jef JEF -1.39% , rattled by rumors that it had caught the deadly disease, on Thursday disclosed its holdings: $5 million in Portuguese bonds, $104 million in Italian debt, less than $178 million in Spanish bonds and just $3 million in Greece. The bank said it's long positions were offset almost entirely by short positions. Read full story on Jefferies' European holdings .
All told, Jefferies said the combined net short exposure was just $38 million, or 1% of shareholders equity. In a statement, the company said the holdings were "not meaningful" to shareholders.
Jefferies' newfound candor is welcome. Investors only wish more financial institutions would be as forthright when it comes to detailing exposure to troubled securities.
But it's not enough. An analyst who followed MF Global until the end said that European debt may have been the lynch pin, but that counterparty exposure was the bomb. In other words, after downgrades last week, MF Global's lenders got cold feet and cut off the firm from additional borrowing.
This led MF Global into a cash crunch. And you can see Jefferies' plan to nip another panic in the bud. For investment banks that are still using leverage to fund their trading activities, they are still vulnerable to the black death of isolation and a credit crunch.
That's why exposure numbers are nice, but hardly an inoculation against heavy borrowing to fuel trading profits. Institutions may not have the symptoms, but may very well be carrying the disease.
"” David Weidner
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