Jefferies Profit Drops on Pullback in Deals, Capital Markets

Jefferies Financial Group’s Earnings Slump Amid Uncertainty in Investment Banking and Capital Markets

[NEW YORK] Jefferies Financial Group’s fiscal first-quarter earnings declined due to a drop in investment-banking and capital-markets revenue, with activity hurt by uncertainty around US policy and geopolitics.

Revenue Slips 8.4% to $1.59 Billion

Total revenue fell 8.4% to $1.59 billion in the three months to February, the New York-based firm said on Wednesday (Mar 26). The results mark a reversal from a year ago, when momentum in trading and deals was starting to build.

Asset-Management Revenue Falls 30%

Asset-management revenue fell 30% to $191.7 million, Jefferies said, pointing to a difficult environment for a variety of investment strategies, including long equity bias. This dragged on Jefferies’ first-quarter earnings, which totalled $127.8 million, or 57 US cents a share, down almost 15% from a year earlier.

Investment Banking Revenue Falls 3.6%

Jefferies’ investment-banking revenue fell 3.6% to $700.7 million. Advisory revenue was a bright spot for the quarter, rising 17% to $397.8 million. The firm attributed that strength to market-share gains and an increase in transactions across sectors. Debt underwriting was up 54%, countered by a 39% drop in equity underwriting as overall industry opportunity slowed, Jefferies said.

Capital-Markets Unit Revenue Falls 3.6%

The bank’s capital-markets unit provided $698.3 million of revenue for the quarter, down 3.6% from a year earlier. Jefferies said the decline was due to decreased volumes in the debt business, which fell 18% to $289.2 million on lower volatility. The firm’s equity capital markets business countered that decline, with revenue rising 10% to $409.1 million on "strong global performance" across various products, Jefferies said.

Firm Sees Positive Momentum

While the firm does not give earnings guidance, executives pointed to positive momentum, including a backlog of activity and "strong" dialogue around potential investment-banking transactions.

"We don’t yet have a clear cadence, nor full visibility and confidence, but perhaps some patterns are emerging such that some confidence and visibility may be emerging," Jefferies president Brian Friedman said. "Deals are happening. IPOs are in the hopper that will come out in the next few weeks and test the market’s resilience."

Conclusion

Jefferies’ results indicate that the anticipated uptick in investment returns and turnaround for deals, fueled by demand for investment-banking services, may be further away than projected. The firm’s shares fell as much as 8.8% in post-market trading after the results were announced, and have declined 23% since the start of the year.

Frequently Asked Questions

Q: What caused Jefferies’ revenue to decline?
A: Revenue declined due to a drop in investment-banking and capital-markets revenue, with activity hurt by uncertainty around US policy and geopolitics.

Q: What was the impact of asset-management on Jefferies’ earnings?
A: Asset-management revenue fell 30%, dragging on Jefferies’ earnings.

Q: What was the impact of investment banking on Jefferies’ revenue?
A: Investment banking revenue fell 3.6%, with advisory revenue rising 17% and debt underwriting up 54%.

Q: What is the outlook for Jefferies’ capital-markets unit?
A: The unit’s revenue fell 3.6%, due to decreased volumes in the debt business, but equity capital markets business rose 10%.