Sources: Jefferies Rebuttal Letter a "Delaying Tactic"

Yesterday, embattled investment bank and brokerage firm Jefferies

released a rebuttal letter which addressed the market rumors that have been swirling around the firm in the wake of the MF Global bankruptcy and exposure to the European sovereign debt crisis. The letter can be downloaded at the firm's

. The missive, which was reasonably detailed and written in a tone of obvious frustration, hammers at the point that everything is more or less fine at the firm, despite persistent negative rumors and a plunging stock price. In the very near-term, the letter appears to have stabilized JEF shares which have lost nearly 62% in 2011. A full run-down of the rebuttal's content can be found

. According to sources who

, the letter is merely a "delaying tactic," and the writing is on the wall with regard to the firm's future. One investment banking source with knowledge of the company's activities said, "those guys are smart they know there won't be a Jefferies in its current form two years from now," speaking about the firm's management team. A poor trading environment, combined with volatile funding markets, general investor distrust, and the firm's modest size could push Jefferies to seek an acquisition according to a number of informed observers. Fox Business' Charlie Gasparino writes, "selling out to a larger player would be a bitter pill for Handler to swallow since he took pride in Jefferies' independence -- and until recently, success at remaining independent -- but according to people who know him, he is weighing whether a sale to a larger player is inevitable." The real issue here is one of prudent self-preservation. While the firm's solvency may not be at risk right now, the business model being employed by Jefferies is notoriously volatile. A sharp deterioration in market conditions in 2012 could lead to a run on the bank scenario where counter-parties, clients, and funding sources all lose confidence in the firm at the same time - triggering a liquidity crisis. We have seen this phenomenon occur time and again, with brokers such as Lehman Brothers, Bear Stearns and MF Global being the most notable examples. Such an event almost always happens in the blink of an eye and is accompanied by wild market rumors and a plunging stock price. Given that these variables are already present to a large extent at Jefferies, it would seem to make sense that management is at least considering strategic alternatives to protect shareholders. In this case, time may be of the essence. On Tuesday, ratings agency Egan Jones said that Jefferies needs to raise

. This is a massive sum, given that the firm's market cap has dwindled to just over $2 billion. The analysts at Egan Jones also warned that leverage ratios need to come down or they are likely to cut Jefferies credit rating again. The ratings agency downgraded the firm's credit from BBB to BBB- earlier this month.