Jefferies profit rises on dealmaking but misses estimates from losses on First Brands, MFS

[BENGALURU] Jefferies Financial missed analysts’ estimates on Wednesday (Mar 25) after its profit jumped 22 per cent in the first quarter that was buoyed by investment banking, but marred by losses on loans to collapsed companies.

The investment bank said that it had US$17 million in losses related to collapsed British lender Market Financial Solutions (MFS) and bankrupt US auto-parts supplier First Brands after adjusting for compensation and taxes, with exposure to First Brands now amounting to zero.

Wall Street executives are betting on a strong 2026 for mergers and acquisitions despite disruption from the ongoing conflict in the Middle East, as investments in artificial intelligence and a friendlier regulatory environment in the US are expected to spur dealmaking.

“Assuming a reasonable end to hostilities in the Middle East, we should continue to have an increasingly strong M&A environment as well as an active IPO market,” Jefferies president Brian Friedman said.

Jefferies has offices in the United Arab Emirates, Saudi Arabia, and Israel. It has relocated some staff from the Middle East, while others have chosen to stay and work from home. Trading operations are relatively normal, Friedman said.

More than US$1 trillion worth of deals has been announced so far this year, 27 per cent more than this time last year, according to data compiled by Dealogic.

Jefferies’ investment banking net revenues in the quarter rose 45 per cent to US$1 billion from a year earlier, while total revenues climbed to US$2.02 billion.

Jefferies’ adjusted per-share profit for the quarter was 85 US cents, missing Wall Street estimates of 96 US cents per share, according to data compiled by LSEG.

The bank also took a non-cash after-tax write-down of US$36 million related to goodwill, linked with the sale of its stake in Italian telecommunications firm Tessellis.

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Sean Dunlop, banking analyst at Morningstar, said that the compensation expense also came in a bit higher than he had expected, but he added the results were solid otherwise.

The firm, which served as a lead underwriter on several sizeable initial public offerings in the first quarter, including those of York Space and Forgent, increased its share buyback authorisation to US$250 million.

The results kick off a closely watched earnings season for Wall Street’s biggest banks, with the likes of JPMorgan Chase, Goldman Sachs and Morgan Stanley set to report over the next few weeks.

Buyout talks

Jefferies was in the spotlight on Tuesday after the Financial Times reported that Japan’s Sumitomo Mitsui Financial Group (SMFG) was planning a potential takeover of the investment bank.

Other media reports rebuffed the news, saying Japan’s second-largest lender was not engaged in acquisition talks and the Wall Street investment bank was not interested in selling at this point.

SMFG, which already has a board seat at Jefferies, first picked up a stake in the company in 2021. In September, SMFG said that it would invest a further 135 billion yen (S$1.1 billion), which will increase its stake to up to 20 per cent from 14.5 per cent.

The firms said at the time that they would set up a joint venture in Japan to consolidate their wholesale Japanese equities businesses.

“We have great ambition for that joint venture. We have lots of other initiatives and activity that we are jointly pursuing in accordance with our alliance,” Friedman said, while declining to comment if SMFG was planning a takeover of the firm.

Investor scrutiny

Jefferies has been under intense investor scrutiny over its exposure to Market Financial Solutions and losses related to First Brands. Its shares are down about 35 per cent this year.

“Management is disappointed and takes full responsibility for the losses already recognised and that may be absorbed over time in respect of First Brands, all of which are manageable,” the company said on Wednesday. REUTERS