Jefferies profit rises on capital-markets strength, deal rebound

JEFFERIES Financial Group’s earnings rose in its fiscal first quarter on strength in capital markets and renewed activity in the investment-banking business.

Revenue jumped 35 per cent to US$1.74 billion in the three months to February on improved debt and equity underwriting, the New York-based firm said on Wednesday (Mar 27), as concerns about inflation and interest rates started to stabilise. The company’s capital-markets business had its third-best quarter on record, helping lift profit, while investment-banking revenue increased 31 per cent to US$739.7 million in a sign of a possible return of dealmaking.

“Market activity picked up across the board, and that bodes pretty well for the rest of the year,” chief executive officer Richard Handler said. “It feels to us, while no one knows for sure, that activity should keep increasing on a quarterly basis based upon volumes and our backlog with clients.”

The bank’s sales and trading team recorded US$711.6 million of revenue for the quarter, up 8.8 per cent from a year earlier, driven by stronger performance in equities due to higher volumes and more favourable trading opportunities, according to the statement.

Earnings totalled US$149.6 million, or 66 US cents a share, up 12 per cent from a year earlier.

Jefferies shares gained 2 per cent to US$46.13 in regular New York trading, and have climbed 14 per cent this year.

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The results offer a first glimpse into how Wall Street’s biggest banks navigated the first three months of the year amid high interest rates and continued geopolitical concerns that have damped deal activity. Last year, investment banks took a hit as corporate dealmaking and sales of new securities remained muted, with many firms forced to cut thousands of jobs. Jefferies said the challenging landscape had cut into its 2023 performance.

Now, with the potential for future rate cuts and a flurry of initial public offerings at the beginning of 2024, there’s a renewed sense of optimism, with hopes for mergers and acquisitions (M&A) to come off of lows.

“The M&A market is solid,” Handler said on Tuesday. “Private equity firms are under pressure to return capital to their limited partners, but there’s also a lot of dry powder, so we see more people show up at auctions, and there’s a readily available financing market.”

Still, global political risks and questions around inflation could change the outcome of future quarters, which Handler said the firm is prepared to handle. Even in periods of market downturns, Jefferies has invested in the business, hiring senior bankers in hopes of a rebound, he said.

“No one knows when it is going to be full force, but it feels like we are headed in that direction,” Handler said.

The biggest Wall Street banks are set to report first-quarter results next month. Investors also will be listening for forecasts for the remainder of 2024. While Jefferies does not give guidance, handler and president Brian Friedman said they expect the momentum in investment banking and market-share gains across its advisory, equity-underwriting and leveraged-finance units will build as the business matures.

“The momentum is continuing on,” Handler said. “What started in the first quarter, while we’re still early in the second quarter, feels pretty good.” BLOOMBERG