Jefferies Reports Loss on Trading Slump as CEO `Humbled'

Updated on
  • Revenue tumbled by almost half from year ago to $299 million
  • Trading results down 82% on stock, fixed-income decline

Jefferies Group reported a fiscal first-quarter loss as revenue from trading stocks and bonds tumbled 82 percent, leaving Chief Executive Officer Richard Handler vowing to do better.

The net loss, the firm’s first for a December-to-February period since 2008, was $166.8 million, the New York-based company said Tuesday in a statement. Revenue plunged by almost half from a year earlier to $299 million.

Richard Handler

Photographer: Peter Foley/Bloomberg

“We are humbled by Jefferies’ quarterly loss and will strive to deliver the better results that our shareholders deserve and Jefferies is more than capable of achieving,” Handler, 54, said in the statement. He said trading has improved since early February.

“It appears markets have not only stabilized, but aggressively snapped back,” Handler said, citing record high-yield inflows, stabilizing hedge funds and rebounding equity and commodity markets.

Trading results at Jefferies, which is owned by Leucadia National Corp., are closely watched by Wall Street for signs of how larger investment banks whose quarters end a month later will fare. Firms including JPMorgan Chase & Co. and Citigroup Inc. have been warning investors that markets were difficult at the start of this year. Low interest rates, plunging commodity prices and volatile stock markets have prompted many customers to pull back, hurting banks’ revenue from handling their transactions.

Jefferies’s revenue from trading stocks and bonds dropped to $58.5 million as fixed-income slid 55 percent and equities declined 99 percent in the three months ended Feb. 29.

Shares of Leucadia dropped 2.9 percent to $14.95 at 9:34 a.m. in New York. The stock has declined 14 percent this year.

Revenue in the investment-banking division dropped 15 percent to $230.9 million. Many capital-markets deals were postponed because of what Handler described as “an exceptionally volatile and turbulent market environment during our first fiscal quarter.” Revenue from equity capital markets declined 44 percent to $44 million from a year earlier and debt capital markets dropped 5.9 percent to $57.3 million.

Jefferies “really seems to need the markets to improve to recover its swagger,” David Havens, a debt analyst at Imperial Capital, said Tuesday in a note. “Market conditions really were terrible, and Jefferies was bedeviled by some chunky losses in its equities business.”

Knight Capital

The firm blamed the unprofitable period on mark-to-market losses on its equity position in KCG Holdings Inc., the successor to Knight Capital Group Inc., and another large holding that wasn’t identified in the statement. The positions were the main cause of the decline in equity revenue, Jefferies said.

The value of the positions in the two companies increased by $18 million in the first 10 trading days in March, according to the statement. The size of the unnamed holding declined 38 percent during the first quarter, the firm said.

Jefferies has eliminated about 500 employees since February 2015, leaving around 3,440 at the end of the first quarter. It agreed to sell its futures-trading business, Bache, to Societe Generale SA last year, though it hasn’t disclosed how many people worked at the unit.

— With assistance by Katherine Chiglinsky

(Adds analyst's comment in eighth paragraph.)
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