By Daniel Huang And Chelsey Dulaney
Jefferies Group LLC said earnings plunged in its fiscal first
quarter amid a 56% drop in fixed-income trading revenue.
Jefferies, the investment-banking unit of Leucadia National
Corp., said the fiscal year got off to a slow start owing to a
tepid fixed-income trading environment, but revenue increased from
the prior quarter and the firm expressed optimism about its
prospects for the remainder of the year.
Chief Executive Richard Handler and Brian Friedman,
executive-committee chairman, described "an improving environment"
and said in a statement that "fixed income trading markets appear
to have stabilized."
Viewed by some in the industry as a harbinger of results for
other Wall Street firms even though its fiscal period ends a month
earlier than most banks, Jefferies reported Tuesday that its profit
fell to $11.7 million from $112.4 million a year earlier. Revenue
fell 34% to $591.7 million for the quarter ended Feb. 28.
The securities firm may have been affected by uncertainty
surrounding interest rates in the U.S. and Europe, which kept bond
buyers at bay in recent months and pushed down fixed-income trading
activity, said Fitch Ratings in a note.
Shares of Leucadia closed down 2.7%.
The latest results from Jefferies follow a downtrodden fourth
quarter for many of the largest U.S. banks, with four of the six
biggest--J.P. Morgan Chase & Co., Bank of America Corp.,
Citigroup Inc. and Morgan Stanley--missing analysts' estimates. A
surge in volatility last quarter spooked many investors into
pulling out of the market, causing a steep drop in trading revenues
at banks with sizable trading platforms. The big six U.S. banks saw
their first annual profit drop since the financial crisis,
according to SNL Financial.
More recently, some bank executives have said trading has picked
up during the first two months of the year. Goldman Sachs Group
Inc.'s chairman and chief executive, Lloyd Blankfein, said in
February that a confluence of political and economic news had drawn
investors back to the markets, perking up trading businesses.
"We're seeing an uptick in trading activity because the
geopolitical activity creates some opportunity," Mr. Blankfein
said. "People are seeing the need to reform their portfolio" and
"responding to macroeconomic events."
Bank of America's chairman and chief executive, Brian Moynihan,
made similar comments when interviewed in January at the World
Economic Forum in Davos, Switzerland.
Jefferies' latest quarterly results include December, generally
thought to be slow, but doesn't include March. The figures are
considered by some to be indicative of how other Wall Street
investment banks may fare, especially in trading businesses, but
the predictive power varies by quarter.
Some analysts said the slow quarter at Jefferies may not
translate to other banks, due to the firm's unique niche in
high-yield bonds. "I'd be careful extrapolating what's weighing
down [Jefferies] to the larger banks," said Marian Kessler,
portfolio manager at Becker Capital Management, Inc.
Shares of Goldman and Morgan Stanley were down less than 1%
Tuesday.
Jefferies also reported lower investment-banking revenue of $272
million, down 34% from the same period a year earlier. Most of the
decline came from the firm's capital markets business, which
dropped to $139.9 million from $267.8 million a year ago, while
advisory revenue edged down to $132 million, from $146.5
million.
Fixed-income revenue fell to $126 million from $285.9 million.
Equities revenue rose to $203 million from $189 million a year
earlier.
Write to Daniel Huang at daniel.huang3@wsj.com and Chelsey
Dulaney at Chelsey.Dulaney@wsj.com
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