Jefferies Posts Solid Results with a Trimmer Balance Sheet

Jefferies

announced its financial results for the quarter ending on February 20, 2012. The company announced record net quarterly revenue of $280 million, a net income to common shareholders of $77 million and earnings per share of 33 cents. EPS was down 9 cents year-over year, but 4 cents above average analysts estimates. The year-over-year decline was affected by an increase of approximately 10 percent in shares outstanding coming from a $500 million common equity raise. Stronger results in high yield trading, which shifted more income to non-controlling interests, CFO Peg Broadbent said, reduced EPS by a further 4 cents. The company's investment banking division saw a 20 percent improvement on revenues for the quarter, at $286 million versus $239 million a year ago. Investment banking revenue was also up 9 percent on the preceding quarter, 4Q11. Fixed income also posted a near-7% improvement at $339 million for the quarter versus $318 million last year, driven by healthy customer flows as well as favorable bid-to-ask spread. CEO Richard B. Handler attributed this to the significant easing of anxiety related to the situation in Europe following back-stopped liquidity into the European banking system from the ECB, as well as the restructuring of the Greek Debt deal. Jefferies reported a trimmed balance sheet, which at $34.6 billion, is 9.5 times estimated shareholder equity outstanding. This represented further reduction from the significantly reduced 2011-end balance sheet of $34.9 billion, 9.9 times outstanding equity at year's end. The company had acted in the fourth quarter to address criticism of its near-13-times leverage ratio on the back of the MF Global bankruptcy. On the significantly reduced leverage ration, CEO Richard B. Handler noted that the company would continue to be mindful of a macro environment that has just started to be regarded as healthy, and would thus maintain a reasonable balance sheet. He did not see the company's reduced balance sheet as a barrier to continued a reasonable growth in earnings, or market share. Handler noted that a large balance sheet is advantageous only in conditions of tight spreads due to high participation in markets. In the current market situation, this has not been the case, with would-be global players retracing to their home markets in order to satisfy regulatory hurdles. Earnings are being received well from investors so far. JEF is currently trading at $19.61, up 3 percent on yesterday's close.