Jefferies Profit Soars as Investment-Banking Momentum Builds

27/06/2024

Jefferies headquarters in New York.

(Bloomberg) -- Jefferies Financial Group Inc.’s earnings climbed as investment-banking revenue surged and debt underwriting more than doubled, adding to signs of brightening prospects for the biggest US banks.

Fiscal second-quarter investment-banking revenue jumped 59% in the three months through May, the New York-based firm said Wednesday in a statement. Earnings totaled $145.7 million, or 64 cents a share, up from $12.4 million or 5 cents, a year earlier.

The results suggest demand for investment-banking services is recovering after geopolitical concerns and stubbornly high interest rates dulled deal activity. Investment banks took a hit last year as dealmaking and sales of new securities remained muted, with many firms forced to cut thousands of jobs.

“We are well beyond green shoots, and we would suggest a broader recovery in capital-markets activity and M&A is underway,” President Brian Friedman said in an interview. “If this is going to get derailed, it will be by something that is not necessarily likely today.”

The firm’s fiscal second-quarter revenue jumped 59% to $1.66 billion, helped by a pickup in deals and strength in equities trading.

The improved performance from investment banking was due in large part to increases in equity and debt underwriting, which rose 68% and 129%, to $249.2 million and $205.5 million, respectively. Revenue from the advisory business rose 12% from a year earlier to $283.9 million.

The gains are expected to continue, with Jefferies feeling “increasingly optimistic about the second half of 2024 and 2025 based on our backlog and trends we observe today,” Chief Executive Officer Rich Handler said in the statement.

The sales and trading team recorded $691.3 million of revenue for the quarter, up 24% from a year earlier. Jefferies attributed the rise to a strong performance in equities, which jumped 46% to $407.1 million, and a modest 2.1% bump from fixed-income sales and trading.

Shares of the company, which rose 14% this year through the close of US markets on Wednesday, initially dipped in late trading and then recovered. While revenue rose from a year earlier, so too did expenses, climbing to $1.43 billion from $1.02 billion.

Jefferies said a challenging landscape in 2023 had cut into its performance. Now, after a flurry of initial public offerings at the start of 2024 and the potential for rate cuts later this year, there’s hope among dealmakers that mergers and acquisitions will rebound.

“A proportionate amount of the strengthening of our results is because of market-share gains on the back of investments we made in our platform,” Friedman said. “We are addressing more clients than we’ve ever addressed, and continuing to gain market position.”

Jefferies’s bigger rivals are scheduled to begin reporting second-quarter results next month.

(Updates description of stock reaction in ninth paragraph.)

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