Jefferies Profit Beats Estimates as Trading Revenue Surges

Tuesday, 18 Dec 2012 11:55 AM

 

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Jefferies Group Inc. reported a higher-than-expected adjusted quarterly profit as the investment bank benefited from higher earnings from its fixed-income unit, and said its business expansion in Asia has started delivering.

The midsized investment bank has been expanding in China and India and recently poached bankers from the Royal Bank of Scotland to expand its business in China.

Jefferies said it also benefited from a pickup in trading across the board in September thanks to fresh stimulus plans from the U.S. Federal Reserve, and that it was gaining market share from larger rivals. The Fed had unveiled a program to purchase $40 billion in mortgage bonds.

The company saw its trading revenue more than double to $293 million from $141 million a year earlier.

"Our competitive position is very strong so across the products within fixed income I think we're gaining market share," Chief Executive Richard Handler said on a post-earnings conference call.

As the first investment bank to report earnings, Jefferies is often viewed as an indicator for larger Wall Street banks such as Goldman Sachs Group and Morgan Stanley.

Jefferies, founded in 1962 in Los Angeles to trade large stock orders away from the New York Stock Exchange, agreed last month to be bought by top shareholder Leucadia National Corp. for $2.76 billion in stock.

"Combining our company with an extremely well-capitalized parent will allow us to continue to aggressively add value to our clients," Jefferies said in a statement on Tuesday.

Compensation costs at the company remained high with the company paying 59.9 percent of net revenue to employees, in line with previous periods but higher than the 50 percent industry peers generally target.

Net income rose to $72 million, or 31 cents per share, in the fourth quarter from $48 million, or 21 cents per share, a year earlier.

On an adjusted basis, earnings were 35 cents per share.

Analysts had expected the company to earn 32 cents per share, according to Thomson Reuters I/B/E/S.

Revenue for the quarter rose 39 percent to $769 million, above estimates of $722.6 million. Investment banking revenue rose 8 percent to $283 million.

Jefferies shares, which have risen 12 percent since the Leucadia deal was announced in mid-November, was trading up 2.5 percent at $18.70 on the New York Stock Exchange on Tuesday.

© 2014 Thomson/Reuters. All rights reserved.

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