Jefferies Beats Morgan Stanley, JPMorgan on Trading-Loss Days

Jefferies Group Inc. (JEF), the investment bank that’s 1/28th the size of Goldman Sachs Group Inc., is more effectively avoiding trading losses this year than larger Wall Street firms.

Jefferies said it had a trading loss on one day in the three months ended Aug. 31, bringing the total to three days for the first nine months of its fiscal year, according to regulatory filings from the New York-based bank. That compares with 29 days of trading losses at JPMorgan Chase & Co. (JPM) in the first six months of the year, 19 days at Morgan Stanley (MS) and seven days for Goldman Sachs.

Jefferies has cut its total assets by 24 percent since last year’s third quarter amid investor concern about its holdings in European debt. The firm’s shares declined 14 percent in November 2011 following the collapse of futures brokerage MF Global Holdings Ltd. (MFGLQ) Moody’s Investors Service, which is reviewing Jefferies’s credit for a possible downgrade, said last month the firm’s management is demonstrating “risk discipline” by maintaining a “liquid, less complex” balance sheet.

The firm is showing its “historical track record of not overleveraging or overextending our company, our lack of concentration,” Handler said on a conference call last month. “We’ve had real-life stress test as an independent company that has not been bailed out by anybody or taken taxpayer dollars over the course of the last five years. We have a very strong story to tell and we’ll do our best.”

Knight Capital

Jefferies’s average daily value-at-risk, a measure of how much the company estimates it could lose in the securities market in a single day, increased to $10.53 million from $8.83 million in the second quarter, mainly because of an investment in Knight Capital Group Inc. (KCG), the firm said. Excluding that investment, average VaR fell to $8.35 million, it said.

“Our VaR on a relative basis is particularly low,” Handler said on the call. “Over the course of the last year, we’ve shrunk our balance sheet. Our inventories are very light. So I don’t think the increase in VaR due to Knight is really material to overall organization.”

The first nine months of Jefferies’s fiscal year ended Aug. 31, and its full year concludes Nov. 30. Bigger rivals, whose third quarters ended Sept. 30, are scheduled to report third- quarter earnings this month.

Jefferies reported total assets of $34.4 billion as of Aug. 31, compared with $2.29 trillion for JPMorgan on June 30, $948.6 billion (GS) for Goldman Sachs and $748.5 billion for Morgan Stanley.

To contact the reporter on this story: Laura Marcinek in New York at lmarcinek3@bloomberg.net.

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.

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