Jefferies advanced 2.3 percent to $19.49 at 4:15 p.m. in New York, the biggest increase in the 80-company Standard & Poor’s Midcap Financials Index. (S4FINL) Goldman Sachs rose 1.4 percent and Morgan Stanley gained 1.7 percent.
Revenue from fixed-income trading at Jefferies climbed to $339.1 million in the fiscal first quarter, more than twice the fourth-quarter figure, the New York-based company said today in a statement. Net income for the three months ended Feb. 29 was $77.1 million, or 33 cents a share, 4 cents higher than the average estimate of eight analysts surveyed by Bloomberg.
“We view the stronger-than-expected rebound in trading revenues as a positive for the shares of JEF and its larger-cap investment-bank peers,” Jeff Harte, an analyst at Sandler O’Neill & Partners LP, said in a note, referring to the company by its stock symbol.
Net revenue advanced to a record $780 million in the quarter. Revenue from sales and trading dropped 1.4 percent to $488.5 million, and investment banking rose 20 percent to $285.8 million.
“Market prices have improved throughout fixed income for the quarter,” Chief Executive Officer Richard Handler, 50, said on a conference call with investors. “The large percentage of the gains were due to healthy customer flows and reasonable bid- ask spreads.”
Jefferies battled investor concern in November that its European sovereign-debt holdings would lead to losses after the Oct. 31 bankruptcy of MF Global Holdings Ltd. Handler said in December that the speculation led to a reduction of client flows in November.
Average daily equity trading on major U.S. exchanges was about 6.8 billion shares in the period, a 9.9 percent drop from the same quarter a year earlier, according to data compiled by Bloomberg. The decline helped drive Jefferies’s equity-trading revenue down 23 percent in the quarter to $136.2 million. Handler said equity trading picked up at the end of February.
The jump in investment-banking revenue was driven by increases in the underwriting and advisory businesses. Jefferies booked a 21 percent rise in underwriting stocks and bonds, which rose to $135.9 million, and advisory climbed 19 percent to $149.9 million.
The firm had total assets of $34.6 billion at the end of the quarter, compared with $35 billion as of Nov. 30. The leverage ratio, a measure of total assets divided by stockholders’ equity, was 9.5-to-1, compared with 9.9-to-1 at the end of the fiscal fourth quarter. Handler said the company doesn’t need to expand its leverage ratio to produce returns.
“It’s not likely that their investors are going to give them a lot of credit for earnings generated just through increasing the leverage on their balance sheet,” Joel Jeffrey, an analyst at KBW Inc., said today in a phone interview. “It would be viewed as a risky way to do it.”
Jefferies set aside $446.5 million, or 57 percent of net revenue, for compensation in the period, compared with $442.9 million a year earlier. The firm’s headcount rose to 3,851 from 3,082 in the year-earlier period and fell from 3,898 in the firm’s fiscal fourth quarter.
Handler said in December he and other senior leaders at the firm gave back their bonuses for the year. Jefferies said that month it would claw back 2011 bonuses from any employees who defect to competitors this year. Workers have the option to receive the stock portion of their 2011 bonus in shares or in cash at a 25 percent discount.