Jefferies Posts 18 Days of Trading Losses, Most Since ’11

Jefferies Group LLC, the investment bank that posted an 88 percent decline in fixed-income trading revenue in the fiscal quarter ended Aug. 31, said it had 18 days of losses in the period, the most since 2011.

The biggest daily trading loss was more than $10 million, New York-based Jefferies said today in a regulatory filing. The company’s traders would have lost money on 11 days without the firm’s August 2012 investment in Knight Capital Group Inc., Jefferies said. Jefferies posted 26 days of trading losses in the fiscal third quarter of 2011, the company said in a filing at the time.

Jefferies, acquired by Leucadia National Corp. in March, reported an 83 percent decline in its fiscal third-quarter profit. Total revenue from buying and selling securities fell to the lowest level since the fourth quarter of 2008.

“We experienced a very challenging summer in our fixed-income businesses due to the rising-rate environment, spread widening, redemptions experienced by our client base which heavily muted trading, and related mark-to-market writedowns within our inventory,” Jefferies Chief Executive Officer Richard Handler, who also runs Leucadia, said in a Sept. 17 statement.

‘Most Unsettled’

Average daily value-at-risk, or VaR, a measure of potential trading losses, was $11 million in the period ended Aug. 31, according to the filing today. That compares with $8.77 million in the quarter ended May 31 and $10.5 million in the same period in 2012. Excluding the Knight investment, VaR was $7.24 million in the fiscal third quarter this year.

Bond markets were “most unsettled” in June and “more balanced” in July and August, Handler said. Client activity strengthened and fixed-income performance improved in September, he said.

Analysts have been cutting their third-quarter profit estimates for the biggest Wall Street banks amid a decline in trading. Brad Hintz, a Sanford C. Bernstein & Co. analyst, trimmed Goldman Sachs Group Inc.’s per-share earnings estimate for the three months ended Sept. 30 by 15 percent and Morgan Stanley’s by 20 percent, according to a Sept. 27 note.

Fixed-income trading revenue at the biggest U.S. banks will probably fall 20 percent in the third quarter from a year earlier amid lower volume, Richard Staite, an analyst at Atlantic Equities LLP, said in a Sept. 23 note. That led him to cut his estimate for Goldman Sachs’s per-share third-quarter earnings by 18 percent and Morgan Stanley’s by 25 percent.

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