By Saabira Chaudhuri and Everdeen Mason
A 17% slump in first-quarter fixed-income trading revenue at
Jefferies Group LLC could be a harbinger of similarly weak results
at bigger banks.
On Monday, the boutique investment bank reported fixed-income
revenue of $280 million, according to preliminary results for its
fiscal first quarter, which ends Feb. 28. That is down from $336.9
million a year earlier, although up from $212 million reported for
the fourth quarter. The firm plans to publish final results later
this month.
The bank run by veteran trader Richard Handler showed strength
in its investment banking business, where revenue rose 42% from a
year earlier to $410 million, helping Jefferies report revenue and
net income for the quarter that were both higher than the
year-earlier period. Investment banking revenue edged down 1.7%
from the fourth quarter.
Jefferies results come a day after Citigroup Inc. Chief
Financial Officer John Gerspach warned at an industry conference
that the bank's markets revenue would be "down by a high midteens
percentage year-over-year" although these were tracking up from the
fourth quarter. About 80% of Citigroup's markets revenue comes from
fixed income.
Mr. Gerspach also said Citigroup's investment banking revenue
was "tracking lower than the fourth quarter, mostly reflecting the
pull-forward of certain M&A revenues" into the prior quarter.
He expects total expenses to be "modestly higher" than
fourth-quarter levels and for consumer revenue to be "slightly
lower."
In recent days, J.P. Morgan Chase & Co. has also indicated
that its trading revenue has been relatively weak so far. At the
bank's investor day last week Chief Executive James Dimon said
trading revenue had fallen 15% this year, due largely to a slump in
trading activity in fixed-income markets.
Fixed-income trading revenue at the nation's biggest banks has
been hampered in recent quarters by a slow economic recovery, both
at home and abroad, which dampened clients' appetite for more
complex, riskier trades.
Jefferies, which in 2012 agreed to be acquired by Leucadia
National Corp., is often seen as something of a barometer for the
trading and investment banking businesses for rivals like
Citigroup, Goldman Sachs Group Inc. and Morgan Stanley, though its
fiscal quarter ends a month earlier.
While no longer a public company, Jefferies still files
quarterly and annual reports with the Securities and Exchange
Commission separate from those of its owner because it issues
debt.
The bank announced Tuesday's preliminary results in advance of a
conference call involving it and parent company Leucadia.
Overall, Jefferies expects to report net earnings of $105
million and revenue of $875 million. A year earlier in reported
earnings of $85.5 million on revenue of about $803 million for the
first quarter of 2013.
Jefferies also said its holdings in Knight Capital and Harbinger
Group Inc. were marked down by $15 million, hurting its revenues.
The company expects to report its full first-quarter results March
18.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com and
Everdeen Mason at everdeen.mason@wsj.com
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