By Saabira Chaudhuri And Chelsey Dulaney 

Weak trading revenue in the fourth quarter may drag down results for the nation's biggest banks when they report earnings next month.

After a pickup in client activity during the third quarter that translated into stronger-than-expected trading revenue, banks are again grappling with a challenging trading environment.

Tuesday, Jefferies Group LLC, the investment-banking unit of Leucadia National Corp., reported weak quarterly results. Jefferies reported a 73% slump in fixed-income revenue to $61.4 million in the fourth quarter.

Overall, Jefferies reported it had swung to a loss in the quarter ended Nov. 30 as revenue fell 43.5% from a year earlier. Leucadia shares fell about 0.7% in early-afternoon trading and are now down about 24% for the year so far.

"Heightened volatility from mid-September through mid-November and a tepid trading environment throughout the quarter led to poor fixed-income results, including mark-to-market write-downs in our inventory," said Chief Executive Richard Handler in a statement. Overall, he said, "we experienced a very challenging fourth quarter."

Jefferies also reported softer investment-banking revenue of $316 million, down 24% from a strong year-earlier quarter.

The investment bank's results are considered by some to be a harbinger for how other Wall Street banks, particularly Goldman Sachs Group Inc. and Morgan Stanley, may be faring in trading, mergers and acquisitions, and other businesses. Jefferies's quarter ends one month earlier than the other banks.

Part of Jefferies's fourth-quarter weakness in investment banking comes from the energy sector, which has been pummeled by the recent slide in oil prices, leading companies to delay deals.

Larger firms like Goldman and Morgan Stanley by contrast are more diversified and could report investment banking revenue that is higher than year-earlier levels, some Wall Street analysts predict.

Separately, Jefferies said it is considering strategic options for the commodities and financial-derivatives unit it bought from Prudential Financial Inc. in 2011, which has faced growth and margin challenges.

Jefferies bought the unit, known as Bache, in mid-2011 as part of an effort to grow from a securities-industry boutique focused on trading into a full-service investment bank that helps clients raise money and transfer risks through the use of derivatives contracts. Tuesday, Jefferies said it is in talks with third parties about a potential combination of Bache with a similar business to improve its competitive standing.

Much of Jefferies's decline in fixed-income trading revenue in the fourth quarter came from mark-to-market inventory losses because of what the firm characterized as a "broad selloff in distressed and post-reorganization securities."

While fixed-income revenue is widely expected to be down for the industry, the drop is unlikely to be as steep. Jefferies "is a bit more levered to some of the more distressed and high-yield businesses" than its larger rivals, notes JMP analyst Devin Ryan.

Overall however, Mr. Ryan expects trading results to be lower for the industry this quarter. Jefferies's quarterly results released Tuesday don't include the month of December, a month Mr. Ryan characterizes as "challenging on the trading front with high yield spreads continuing to blow out in recent weeks."

Last week, Bank of America Corp., Citigroup Inc. and J.P. Morgan Chase Co. all offered weak outlooks for trading revenue in the fourth quarter, showing that a burst of activity for trading last quarter may not carry over as much as some investors hope.

Overall, Jefferies posted a loss of $92.4 million, compared with a year-earlier profit of $109.9 million. The results included a $52 million goodwill write-down and an $8 million write-down, both related to the Bache business, as well as a $52 million bad-debt provision tied to Danish fuel-supplier OW Bunker.

Mr. Handler said the prospects for 2015 are "solid, with our investment banking backlog currently robust, and an expectation of more normal trading markets."

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com and Chelsey Dulaney at c helsey.dulaney@wsj.com

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