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Jefferies believes it was “defrauded” by First Brands Group, the bank’s chief executive has told rattled investors, as Wall Street fights to contain the damage from the car parts group’s bankruptcy.

Rich Handler’s comments came as investors dumped US regional bank stocks over worries about credit quality. The KBW regional bank index shed 6 per cent on Thursday, before recovering slightly by Friday afternoon.

The collapse of First Brands and car lender Tricolor, combined with the disclosure in recent days that Western Alliance and Zions Bank have identified allegedly fraudulent activity by borrowers, have prompted concerns about lax lending standards during a credit boom.

The Vix index — known as the “fear gauge”, which tracks volatility — reached its highest level since April on Friday morning before easing.

“I’ll just say, this is us personally, we believe we were defrauded, OK”, Handler said, after fielding several questions on First Brands at the bank’s investor day on Thursday; the comments were published in a regulatory filing on Friday.

Jefferies’ shares have fallen more than 25 per cent over the past month, as it grapples with its exposure to First Brands and the reputational damage from having helped the company raise billions of dollars in debt from other investors. The shares were up more than 4 per cent by early afternoon on Friday.

One investor said the $715mn of exposure of Jefferies’ Point Bonita fund to First Brands seemed to be “a risk management 101 failure”.

Ian Lapey, a portfolio manager at investment firm Gabelli, added it appeared more difficult to cast the First Brands debacle as “idiosyncratic” given other recent incidents, such as the Jefferies hedge fund that took a hit from an investment in an alleged Ponzi scheme.

Jefferies’ president Brian Friedman said in response that Point Bonita’s exposures were largely to First Brands’ investment grade-rated customers, describing that as a “meaningful risk mitigant”.

While Point Bonita, a private credit vehicle that invested in invoice-related debt, is heavily exposed, Jefferies’ own balance sheet is far less exposed, because it only owned a small portion of the equity backing the fund.

Handler, who at one point joked that an analyst’s questions were “giving my general counsel a heart attack”, insisted the unravelling of First Brands had not inflicted significant damage on the bank’s core business.

“We’re basically having a good — can I say we’re having a good quarter? Allowed to? Can I say that?” Handler said.

Friedman added: “If this was fraud and we don’t know, there’s been suggestions, there’s going to be a knockdown process of a bankruptcy court and we’re going to see what’s learned and we’re going to see what the resolution is going to be.”

Jefferies’ leveraged finance business has also faced scrutiny for helping First Brands raise money from loan investors on numerous occasions. This included an attempted $6bn deal that was ultimately postponed in August as questions grew around the company’s finances.

Handler and Friedman on Sunday said they were “aware of nine other banks being involved in acquisitions or loan arrangements for First Brands”.

Handler noted at Thursday’s investor day that Jefferies’ mergers and acquisitions team often advised First Brands’ takeover targets, rather than the company itself.

“So, it wasn’t like [we] were in cahoots with them as they were accumulating this,” Handler said. “We were actually helping clients sell their companies and they were the buyer.”

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US regional banks sought to reassure investors on Friday, with Truist Bank, Regions, Fifth Third, Comerica, Ally Bank and State Street reporting third-quarter earnings.

Truist chief executive Bill Rogers described to analysts recent loan losses as “idiosyncratic and uncorrelated events” and said overall credit quality was strong.

The failures of First Brands and Tricolor have led to a war of words over whether banks or private credit firms are to blame for propping up troubled businesses.

Handler said: “I think there’s a fight going on right now between the banks and direct lenders who each want to point fingers at each other and say, it’s your fault, no, it’s your fault.”

Jefferies declined to comment. First Brands and its founder Patrick James did not immediately respond to requests for comment.

A spokesperson for James told the Financial Times earlier this week that the Malaysian-born businessman “has not been accused of any wrongdoing” and was confident that an independent investigation as part of First Brands’ bankruptcy “will vindicate him”.

Additional reporting by Joshua Franklin and Akila Quinio