By Peter Rudegeair And Angela Chen
Jefferies Group LLC is trading commodities for currencies.
The investment bank unit of Leucadia National Corp. said on
Thursday that it agreed to sell its Bache commodities and financial
derivatives unit to Société Générale SA. It separately agreed to
purchase Faros Trading LLC, a foreign-exchange brokerage that was
majority-owned by FXCM Inc. Financial terms of the deals weren't
disclosed.
Jefferies's announcements underscore the changes in business mix
that Wall Street banks have made in recent years to adjust to
changes in regulations and market conditions. Jefferies purchased
Bache for about $430 million from Prudential Financial Inc. in 2011
with the aim of expanding its presence in commodities and financial
futures trading, an area dominated by larger rivals like J.P.
Morgan Chase & Co. and Goldman Sachs Group Inc.
Those activities, especially trading in physical commodities
like aluminum, have become more controversial following a November
report from the U.S. Senate Permanent Subcommittee on
Investigations that looked at whether banks unfairly influenced
prices.
Jefferies escaped the level of scrutiny that larger banks faced
in this area, but executives still found it difficult to grow the
business profitably given the regulatory and competitive
environment. The New York firm said in December that was in talks
about a possible sale of the business.
The purchase of the Bache unit, once a storied name on Wall
Street, was part of Jefferies's long transformation from a boutique
focused on stock trading ad high-yield bonds into a full-service
investment bank that helps clients raise money and trade a variety
of securities and derivatives.
The sale of Bache to SocGen is likely to close in the second
quarter and will lead to $66 million in one-time costs. Jefferies
said exiting the business is expected to add to its earnings in the
future.
While commodities trading has lost some of its appeal for
Jefferies, foreign-exchange trading has become a bright spot for
banks in recent quarters as policy changes by central banks around
the world have created more volatility, driving customer activity
and earning banks more in commissions.
Fred Orlan, Jefferies' global head of fixed income, said the
deal to buy FXCM's institutional foreign exchange brokerage is part
of an effort to expand its capabilities in that market, especially
in light of the recent currency volatility. Faros Chief Executive
Ray Kamrath will become global head of foreign exchange at
Jefferies where its existing foreign exchange business and Faros
will operate as a single team.
Leucadia offered a $300 million rescue package to FXCM earlier
this year after a surprise surge in the Swiss franc led to big
client losses following the decision by the Swiss National Bank to
eliminate the cap on the currency. The company said in February
that it has begun to receive payments from FXCM and expects to
recover more than a quarter of its investment within three months
of the deal's closing.
A spokeswoman for FXCM said the sale of Faros was consistent
with the company's strategy to focus on its retail customers.
Leucadia purchased Jefferies two years ago and in January agreed
to pay $70 million to former shareholders to settle claims it
underpaid when it bought the investment bank.
Shares of FXCM and Leucadia were each down less than 1% in
morning trading.
Write to Angela Chen at angela.chen@dowjones.com
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