Jefferies Weathers Brexit With Surge in Trading Revenue

  • Fixed-income division posts second straight quarterly gain
  • CEO Handler says market conditions were steady during quarter

Jefferies Group, the investment bank owned by Leucadia National Corp., said trading revenue surged 86 percent, a sign volatile markets following the U.K. vote to leave the European Union may not have harmed Wall Street’s bottom line.

Total revenue from sales and trading climbed to $343.6 million in the fiscal third quarter ended Aug. 31 from $184.9 million a year earlier, the New York-based investment bank said Tuesday in a statement. Fixed income posted a second consecutive quarterly increase, while equities revenue fell. Net income rose to $41.2 million from $2.48 million.

“Aside from a volatile two-week period following the unexpected outcome of the U.K. ‘Brexit’ referendum in June, fixed-income and equity secondary market conditions remained reasonably steady for much of the third quarter,” Chief Executive Officer Richard Handler said in the statement. “However, new issue activity continued to be slow industrywide for most of the period.”

Investors watch results at Jefferies for clues about the performance of Wall Street’s biggest investment banks, which report results next month. Citigroup Inc. has said third-quarter markets revenue will be up in the “mid-single-digits” range, while Bank of America Corp. said it’s seen an increase in mergers and acquisitions in recent months, along with improvements in leveraged finance.

Bond Trading

Revenue from the fixed-income business led by Fred Orlan was $195.3 million, compared with negative $18.2 million a year earlier. That extends the gains from the fiscal second quarter, when fixed income surged 55 percent. Handler said mortgages, corporate bonds, leveraged finance and emerging markets all performed well.

Revenue from equities trading, overseen by global head Peter Forlenza, declined 27 percent from a year earlier to $148.3 million, with much of the difference explained by the valuations of two large holdings, according to the statement. That’s still better than the first quarter, when revenue from the division was just $1.7 million. Since then, Jefferies cut some of its highest-paid executives in equities, reassigned accounts and pushed some staff to help sell products outside their normal area of focus, people familiar with the matter said in August.

Fees generated by the investment bank, run by Ben Lorello, declined 24 percent to $294.9 million. The division has been adding senior bankers this year. It hired Storm Duncan, a former head of tech banking at Credit Suisse Group AG, five other tech bankers, and six members of Deutsche Bank AG’s U.S. metals and mining investment banking team. The division’s backlog of business is the largest it’s been this year, Handler said.

Leucadia shares climbed 9 percent this year through Monday, compared with a decline of less than 1 percent for the S&P 500 Financials Index.

    Before it's here, it's on the Bloomberg Terminal.