C (3:21)

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

B (3:29)

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

C (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 and has been for years. And so the bank sort of wears two hats with First Brands or wore two hats over the summer as they said. They tried to refinance these 6 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 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.

B (4:36)

And what about First Brands? What is this scandal really about? How do we get here?

C (4:41)

The First Brands was founded and built by its sole equity owner and chief executive, Patrick James, who resigned. He basically over a period of about 15 or 20 years, rolled up all these different automotive aftermarket components brands. So these are like windshield wipers, spark plugs, filters, all these different brands that make these kinds of products that sit on the shelf in Autozone, Walmart, O'Reilly. And so he financed this roll up strategy by taking on a huge amount of debt, both on balance sheet and off balance sheet debt, using this pretty complex web of different affiliates and companies and subsidiaries. So there is evidence, I wouldn't say it's proven yet. But there what I've been hearing from my sources is there's evidence the company was double pledging certain invoices. So there's a huge discrepancy between the amount of debt outstanding and the underlying collater. And so right now the books are messy and there are, there's accountants and investigators going through it, trying to figure out where the money went, what happened. And it's going to be a long and difficult process.

B (5:53)

As you pointed out, many lenders say they were misled by First Brands, but some blame Jefferies for not digging deeper into the company's finances. What does all of this mean for the bank's future?

C (6:02)

Well, the asset management side of Jefferies, they only have about 45 million of exposure to First Brands of their own, but there's about 700 million of its clients money which is now tangled up in this bankruptcy. The bigger issue, though is really more a matter of Jeffries judgment. 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. And there's many other people who feel misled by First Brands. But the question is really more a matter of business judgment. And are there other problematic companies out there that are going to blow up in the future? We just don't know yet.

B (6:40)

That was the Wall Street Journal's Alexander Gladstone. Thank you, Alex.

C (6:44)

Thank you.

B (6:45)

Coming up, the endowments at Harvard, mit, Stanford and others had a great year. So what's keeping America's colleges and universities on edge? That's after the break.

D (7:01)

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B (7:27)

Stocks of larger banks lost some ground today after their strong earnings earlier this week, while Jefferies shares fell more than 10%. The Dow s and P and Nasdaq all closed lower, falling by less than 1%. And oil prices ended just under $57 a barrel, the lowest price since February 2021 due to a glut of oil and worries about a slowing global economy. We have several corporate news items today. Nestle said it would cut 16,000 jobs, about 6% of its workforce, and review its sprawling portfolio of over 2000 brands. The maker of Nescafe coffee and Purina pet food is dealing with changes in consumer preferences after years of price increases and a shift away from eating processed foods. And Ikea, the Swedish company famous for its warehouses of low cost furniture, is now raising prices on some products because of President Trump's tariffs. A fresh round of levies on furniture came into effect this week. And Ikea, which relies heavily on imports, is also trying to source more goods in the US to counter the pain from tariffs. And the major US Banks reporting this week showed a robust economy with good signs from nearly every indicator of consumer lending and financial health, like fewer late payments on credit cards and auto loans. But there might be something missing from this picture.

A (8:48)

Something banks have been doing in recent years is concentrating more of their business on relatively wealthier borrowers and consumers.

B (8:56)

That's Tellas Demos, a writer for Hurt on the street and co host of WSJ's take on the Week podcast.

A (9:02)

A lot of banks identified a problem during the pandemic, which was that because a lot of people weren't spending as much and had gotten government stimulus, they looked more credit worthy than they really were. They got credit cards and auto loans that ultimately they couldn't really afford. In response, a lot of lenders tightened up their standards. They said, we really want to focus our business on wealthier people who actually still do a lot of borrowing. They borrow against their investments, they borrow against their homes, other assets. It's a big business. And the biggest banks have really been focused on growing in those wealth businesses. What that means is that banks earnings really tell us a story about what's happening with relatively wealthy Americans and are not going to give us a good early warning indicator for people that are more economically vulnerable. And that's something that investors really would like from banks or someone in the absence of the government data that they often rely on to spot those trends.

B (10:04)

That was Teles Demos, a writer for Hurt on the street and co host of WSJ's take on the Week podcast. College and university endowments saw their best returns in years, helped by stock market gains and increases in the value of private companies. At Harvard, the endowment gained 11.9% to $56.9 billion, while endowments at the Massachusetts Institute of Technology and Stanford University both gained more than 14%. Cambridge Associates said the median endowment gain was 10.9% for the fiscal year ending June 30. But many schools are cautious about celebrating. Endowment performance has taken on greater importance, with the Trump administration saying schools aren't doing enough with their swelling endowments to help students. The administration has been in a prolonged fight, with many universities threatening billions in federal funding and hiking the tax rate on some schools, income from investments. And finally, Andrew Cuomo, Curtis Liwa and Zoran Mamdani face off in a debate tonight at 7:00pm Eastern Time. To find out how New York City's candidates for mayor address the issues in a race that has riveted the city's financial and real estate industries. Go to WSJ.com for the key takeaways. And that's what's news for this Thursday afternoon. Today's show was produced by Pierre Bienname and Zoe Culkin, with supervising producer Tali Arbel. I'm Sabrina Siddiqui for the Wall Street Journal. We'll be back with a new show tomorrow morning. Thanks for listening. Sam.