Jefferies Group Inc. (JEF) jumped 23 percent, the most in three years, after fiscal fourth-quarter profit beat analysts’ estimates and Egan-Jones Ratings Co. said the firm may not need to raise more equity.
The stock rose $2.70 to $14.50 in New York, the biggest increase since Nov. 24, 2008. Earnings per share excluding some items amounted to 17 cents for the three months ended Nov. 30, compared with the 14-cent average estimate of eight analysts surveyed by Bloomberg. Net income fell 23 percent to $48.4 million from the year-earlier period, the New York-based firm said in a statement.
The company’s shares have fallen 46 percent this year as Wall Street banks struggle to maintain trading revenue and as MF Global Holdings Ltd. (MF)’s Oct. 31 bankruptcy fueled what Jefferies called unfounded speculation it may be toppled by Europe’s debt crisis. Fixed-income trading revenue surged to $140.7 million from $33.1 million in the third quarter.
The firm “successfully navigated an extremely challenging fourth quarter that included continuing global volatility compounded by a November filled with a barrage of misinformation about Jefferies,” Chief Executive Officer Richard Handler, 50, said in the statement.
Jefferies cut total assets to $35 billion from $45.1 billion at the end of the third quarter. It reduced sovereign securities holdings last month after Egan-Jones Ratings said it may face losses tied to the region’s debt crisis. Fitch Ratings said on Dec. 6 that Jefferies has sufficient liquidity to “weather challenging markets” and on Dec. 15 affirmed the company’s BBB rating. Jefferies reduced its leverage ratio to 9.9-to-1 from 12.9-to-1, according to the statement.
Jefferies “overperformed” in asset reductions, which means Egan-Jones can back off from its assertion that the investment bank might need to raise $1 billion, Sean Egan said today on CNBC.
“They’re doing the right thing on the balance sheet, bringing their leverage down,” Brad Hintz, an analyst for Sanford C. Bernstein & Co., said today on Bloomberg Television’s “In The Loop.” “They’re pulling in their horns, they’re battening down the hatches, just like we’re seeing with the big commercial banks.”
Hintz said he wasn’t “worried” about Jefferies’s European debt. The firm has $123 million in net short positions in European debt, Chief Financial Officer Peregrine Broadbent said today on a conference call to discuss results.
Net Revenue Falls
Net income included a $12 million after-tax gain on debt extinguishment linked to trading in the firm’s own bonds and $2 million in expenses related to the company’s acquisition of Prudential Bache. Excluding those items, net income was $39 million.
Net revenue, including the one-time gains, fell 19 percent from the year-earlier period to $554 million. Revenue from sales and trading fell 25 percent to $286.1 million, and investment- banking revenue decreased 10 percent to $261.3 million.
While revenue from fixed-income trading rose from the third quarter, a period Handler called “brutal” in September, it was down 38 percent from $227.9 million in the same period last year. Revenue from trading equities fell to $124.3 million from $155.1 million a year earlier.
Trading revenue was “impacted by significantly curtailed business activity caused by the misinformation we experienced throughout November,” Handler said today on the call. Jefferies made a “modest” cut in its equities staff since the end of the fourth quarter, Broadbent said today. Jefferies now employs 3,851 people, compared with 3,898 at Nov. 30 and 3,842 as of Aug. 31, he said.
The decrease in investment-banking revenue was led by a decline from capital markets, which fell 34 percent to $89 million.
Jefferies repurchased 5.1 million shares during its fiscal fourth quarter at an average price of $10.89 per share, Broadbent said today on the call. The firm’s board approved repurchasing an additional 14.9 million shares, he said.
Jefferies set aside $308.1 million, or 56 percent of net revenue, in compensation expense for the three months ended Nov. 30, compared with $405.4 million, or 60 percent, a year earlier.
Jefferies said Dec. 13 it will claw back 2011 bonuses from employees who join competitors next year. The firm will award discretionary cash bonuses with one-year restrictions, requiring them to be repaid if workers join a rival firm.
“We believe this approach assures that our year-end compensation pool will only accrue to the benefit of those who are committed to the long-term success of our firm,” Handler and Brian Friedman, chairman of Jefferies’s executive committee, wrote in an internal memo to employees.
Handler Declines Bonus
Handler and Friedman have declined to receive cash bonuses for 2011, the CEO said on the call today.
“We recognize our shareholders had a tough year -- we’re shareholders, and we’re getting zero bonus,” Handler said.
Total non-interest expense fell to $485.9 million in the three months ended Nov. 30 from $541.3 million last year.
Net revenue for the 12 months ended Nov. 30 was $2.55 billion, compared with $2.19 billion for the 11 months ended Nov. 30 last year. Jefferies last year changed its fiscal year- end to Nov. 30 from Dec. 31.