Jefferies Faces Questions After First Brands’ Collapse

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Investment bank Jefferies is facing tough questions after the collapse of Auto Parts' giant First Brands.

Alexander Gladstone (0:25)

Jefferies has said that they didn't know of any fraud and they have indicated that they felt like they were misled by the company. But the question is really more a matter of business judgment.

Sabrina Siddiqui (0:34)

Plus, President Trump says he and Putin will meet in Budapest to discuss an end to the war in Ukraine. And college endowments achieved their strongest returns in years. It's Thursday, October 16th. I'm Sabrina Siddiqui for The Wall Street Journal, filling in for Alex Osala. This is the PM Edition of What's News, the top headlines and business stories that move the world today. President Trump says he's going to meet with Russian President Vladimir Putin in Budapest for talks on ending the war in Ukraine. Trump said today on his social media platform Truth Social that he had a quote, very productive call with Putin. He says the two agreed to set up a meeting next week for high level advisors from the US and Russia, including Secretary of State Marco Rubio. Trump's meeting with Putin is expected to follow, but there is no announced date for it. The conversation between the two leaders comes just a day before Trump is expected to meet with Ukrainian President Volodymyr Zelensky at the White House. Trump's declaring the phone call quote productive could weaken the prospect of the US providing Ukraine with powerful Tomahawk missiles that can travel more than a thousand miles. Trump in recent days had signaled that he was leaning towards sending the powerful weapons to Ukraine. When they meet, Trump and Zelensky are expected to discuss US restrictions on Ukraine using long range weapons provided by the US to strike inside Russia. And in another update from Washington, the US government shutdown is now entering its third full week with no end in sight. Both Republicans and Democrats see a possible way out that would involve extending the health care subsidies that have been at the center of the fight. But both parties also think they are winning the battle of public opinion, offering little reason to concede. President Trump also hasn't yet indicated what kind of agreement he would back, if any. Top Republicans and Democrats believe that his support is crucial for any deal to pass.

Jefferies, one of Wall Street's top investment banks, is facing questions because of its deep ties to auto parts maker First Brands, which collapsed in bankruptcy amid an accounting scandal. Jefferies played an important role at the firm through both its investment banking and asset management divisions. Over the summer, its bankers set out to help First Brands refinance corporate loans. Jefferies initially told prospective lenders that First Brands had roughly $5.9 billion of debt, but it turned out to be almost double that. Wall Street Journal reporter Alexander Gladstone joins me now to discuss, Alex, you reported that leaders at Jefferies have tried to reassure investors that the bank is fundamentally sound and that its bankers were unaware of any fraud at First Brands. Today was the bank's investor day. Did we hear anything further from them?

Alexander Gladstone (3:21)

They closed it to press. We're getting dribs and drabs from people who were there. We just heard that they were on a defensive footing and that there was some heat.

Sabrina Siddiqui (3:29)

And what is it that's causing investors to question Jefferies' role here?

Alexander Gladstone (3:33)

The thing to understand about Jefferies' role in First Brands is they were the company's capital markets investment bankers. Jefferies, through its asset management division, is also an investor in supply chain financing for First Brands. It has been for years. And so the bank sort of wears two hats with First Brands or wore two hats over the summer. As I said, they tried to refinance these six billion of loans after the company collapsed a few months later, we find out there's almost twice as much debt. But the question that some investors have had is that, you know, since the asset management side of Jefferies was involved in the supply chain financing, which is known as factoring, they should have known or maybe they could have known more. And also just given the billions of dollars of off balance sheet debt that was found, the question that some have asked is, well, Jefferies, it might have behooved them to do better work doing due diligence and examining what exactly they were representing when they got involved with First Brands as their investment banker.