Jefferies Group LLC today announced financial results for its
fiscal first quarter 2016 and a summary of developments in its
fiscal second quarter to date.
Highlights for the three months ended February 29, 2016:
- Investment Banking Net Revenues of $231
million
- Total Sales and Trading Net Revenues of
$59 million
- Total Net Revenues of $299 million
- Net Loss of $167 million (tax rate
33.3%), primarily attributable to an approximately $90 million
after-tax difference in results this year related to two listed
equity block positions, including KCG, and our share of the results
of our Jefferies Finance joint venture, as compared to our results
from the same items for last year's fiscal first quarter
Early indications for the three months ended May 31, 2016:
- Business conditions improved in late
February and in the first half of March
- Total Sales and Trading Net Revenues
for the first ten trading days are averaging above our recent
periods' mean results
- Investment Banking backlog is above
recent levels
- We have recorded $18 million in markups
so far this quarter in the two listed equity block positions,
including KCG, mentioned above
Rich Handler, Chairman and Chief Executive Officer, and Brian
Friedman, Chairman of the Executive Committee, commented: "Our
overall first quarter results reflect an exceptionally volatile and
turbulent market environment during our first fiscal quarter,
although our core businesses performed reasonably, considering the
environment. A quiet December was followed by an extremely
challenging January and first few weeks of February. Almost every
asset class, including equities and fixed income, suffered
significantly amid concerns about the pace of global economic
growth, outflows from the high yield market, forced selling from
hedge funds, uncertainty over China, a potential Brexit, and an
overall void in liquidity. New issue equity and leveraged finance
capital markets were virtually closed throughout January and
February, which resulted in many of our potential Investment
Banking capital markets transactions being postponed until some
stability returns to the markets. As we have done through many
other turbulent periods in our history, we reduced our already
smaller balance sheet to continue to reduce risk during this
difficult period. We are humbled by Jefferies' quarterly loss and
will strive to deliver the better results that our shareholders
deserve and Jefferies is more than capable of achieving.
While we are early in the second quarter and one can never
predict the future, it appears markets have not only stabilized,
but aggressively snapped back. Bank holding company stocks in the
U.S. and globally have halted their sell-off, high yield inflows
have been at record levels, hedge funds appear to have stabilized,
equity markets have rebounded, and energy/commodity prices have
improved significantly. We are experiencing mark-ups in our block
equity positions and believe there may be potential upside in the
value of the loans held for sale in Jefferies Finance should the
current market tone continue. Our core businesses are performing
well, with total sales and trading net revenues for the first ten
trading days of our second quarter averaging above our recent
periods' mean results, and our investment banking backlog is
stronger.
With our strong financial condition and solid operating
franchise, as well as continuing developments among our competitors
that favor our model, we are optimistic about Jefferies' future.
The recent challenges, together with other issues that are unique
to them, have been causing many of our primary competitors to adapt
their business strategy, shrink aggressively, and focus on their
other core operating businesses, such as retail and commercial
banking. We believe there is a significant long term-opportunity
for Jefferies to be even more relevant and gain further market
share in serving our clients.
Our core equity business performed reasonably well during the
quarter, despite the challenging environment. Although our Equities
revenues declined to $2 million for the quarter from $203 million
for the first quarter of 2015, this was primarily attributable to a
$145 million difference in net revenues related to two listed
equity block positions, including KCG, and our share of the results
of our Jefferies Finance joint venture. The two equity block
positions generated pre-tax, mark to market losses during the
quarter that totaled $82 million, $67 million of which is
unrealized, including KCG, which was written down by $37 million.
This compares to the combined net revenues of the same positions of
positive $30 million during the first quarter of 2015, a
year-on-year decline of $112 million. In the first ten trading days
of March, the same two positions have increased in value by $18
million, 22% of the first quarter's markdowns. Inception to date
net revenues in respect of KCG is $259 million and a loss of $10
million for the other block position. That position was reduced in
size by 38% during the first quarter.
Our share of the results generated by our 50% corporate lending
joint venture with Mass Mutual, Jefferies Finance, which is
recorded in our Equity net revenues line, was a loss of $22 million
for the first quarter of 2016, compared to positive net earnings of
$11 million for the first quarter of 2015, a year-on-year decline
of $33 million. Leverage lending activity and related liquidity was
very muted during the quarter, and two loans Jefferies Finance
closed during the quarter and held for sale as of the end of the
quarter were marked down by a total of $38 million. That is
reflected in our share of Jefferies Finance's results. The two
loans held for sale in Jefferies Finance as of the end of February
2016 were marked at prices believed to be required to clear their
sale, with the potential for gains should markets improve prior to
sell-down. Jefferies Finance's equity is $949 million. Jefferies
Finance is highly liquid and positioned well to serve our
clients in this important business as the market recovers. We
recently strengthened our Leveraged Finance origination team and
expect to grow further our presence in this segment.
Fixed Income net revenues for the first quarter were $57
million, an improvement over the $9 million recorded for last
year’s fourth quarter, despite markdowns in less liquid positions.
We expect continued improvement in our fixed income results in
coming quarters.
Investment banking net revenues for the first quarter were $231
million, compared to $272 million for the first quarter of 2015, a
decline of $41 million. This is substantially a result of Equity
Capital Markets net revenues for the first quarter being $44
million versus $79 million for the comparable quarter in 2015, a
reduction of $35 million. As equity prices fell during the quarter,
a significant portion of equity capital markets activity was
postponed to future periods. Our second quarter backlog is
solid.
Consistent with our strategy, our balance sheet, liquidity and
key risk metrics ended the quarter at even more conservative levels
than after we took aggressive actions in fourth quarter 2015. Our
balance sheet at February 29, 2016 was $35.2 billion, down $3.4
billion from 2015 year-end and $8.6 billion from the year ago
period. We estimate period-end tangible leverage to be 9.8 times.
We continue to have ample excess liquidity. At the end of the first
quarter our liquidity buffer was about $4.3 billion and represented
12.9% of gross tangible assets. We repaid our $350 million March
debt maturity today from cash on hand and have retired a net $784
million of debt in the last six months. Our Level 3 assets
decreased 10% to $489 million, from the year end level of $542
million and represents 3.6% of inventory. Average VaR for the
quarter of $8.4 million was lower by 13%, compared to $9.7 million
for the fourth quarter."
The attached financial tables should be read in conjunction with
our Annual Report on Form 10-K for the year ended November 30,
2015. Amounts herein pertaining to February 29, 2016 represent a
preliminary estimate as of the date of this earnings release and
may be revised in our Quarterly Report on Form 10-Q for the
quarterly period ended February 29, 2016.
This release contains "forward-looking statements" within the
meaning of the safe harbor provisions of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934. Forward-looking statements include statements about
our future results and performance, including our future market
share and expected financial results. It is possible that the
actual results may differ materially from the anticipated results
indicated in these forward-looking statements. Please refer to our
most recent Annual Report on Form 10-K for a discussion of
important factors that could cause actual results to differ
materially from those projected in these forward-looking
statements.
Jefferies, the world's only independent full-service global
investment banking firm focused on serving clients for over 50
years, is a leader in providing insight, expertise and execution to
investors, companies and governments. Our firm provides a full
range of investment banking, sales, trading, research and strategy
across the spectrum of equities, fixed income and foreign exchange,
as well as wealth management, in the Americas, Europe and Asia.
Jefferies Group LLC is a wholly-owned subsidiary of Leucadia
National Corporation (NYSE:LUK), a diversified holding company.
JEFFERIES GROUP LLC AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF EARNINGS (Amounts in Thousands)
(Unaudited) Quarter Ended
February 29,2016
November 30,2015
February 28, 2015
Revenues: Commissions and other fees $ 155,824
$ 146,288 $ 166,922 Principal transactions (103,373 ) (38,534 )
105,477 Investment banking 230,930 372,930 271,995
Asset management fees and investmentincome
(loss) from managed funds
9,530 8,020 (9,837 ) Interest income 221,945 221,962 228,870 Other
revenues (21,751 ) (8,736 ) 19,905
Total revenues 493,105 701,930 783,332 Interest expense
194,118 188,843 191,660 Net
revenues 298,987 513,087 591,672
Non-interest expenses: Compensation and benefits
349,743 284,647 365,215 Non-compensation expenses: Floor
brokerage and clearing fees 40,479 40,680 55,080 Technology and
communications 64,989 78,918 72,387 Occupancy and equipment rental
24,585 26,567 24,184 Business development 24,854 27,098 21,937
Professional services 23,512 27,613 24,256 Other 20,701
18,026 15,729 Total
non-compensation expenses 199,120 218,902
213,573 Total non-interest expenses
548,863 503,549 578,788 Earnings
(loss) before income taxes (249,876 ) 9,538 12,884 Income tax
expense (benefit) (83,107 ) (10,572 ) 331
Net earnings (loss) (166,769 ) 20,110 12,553 Net earnings
attributable to noncontrolling interests 44
148 871 Net earnings (loss) attributable to
Jefferies Group LLC $ (166,813 ) $ 19,962
$ 11,682 Pretax operating margin (83.6 )% 1.9
% 2.2 % Effective tax rate 33.3 % (110.8 )% 2.6 %
JEFFERIES GROUP LLC AND SUBSIDIARIES SELECTED STATISTICAL
INFORMATION (Amounts in Thousands, Except Other Data)
(Unaudited)
Quarter Ended
February 29,2016
November 30,2015
February 28,2015
Revenues by
Source
Equities $ 1,745 $ 122,693 $ 203,479 Fixed income 56,782
9,444 126,035 Total sales and trading 58,527
132,137 329,514 Equity 43,999 93,547 79,071
Debt 57,273 68,705 60,876 Capital markets
101,272 162,252 139,947 Advisory 129,658 210,678
132,048 Total investment banking 230,930 372,930
271,995
Asset management fees and investment
income (loss)from managed funds:
Asset management fees 11,205 5,864 13,985 Investment (loss) income
from managed funds (1,675 ) 2,156 (23,822 ) Total 9,530
8,020 (9,837 )
Net revenues $
298,987 $ 513,087 $
591,672
Other
Data
Number of trading days 61 63 61 Number of trading loss days 17 22
11 Number of trading loss days excluding KCG 12 23 9 Average
firmwide VaR (in millions) (A) $ 8.37 $ 9.72 $ 13.27 Average
firmwide VaR excluding KCG (in millions) (A) $ 6.69 $ 8.46 $ 9.29
(A) VaR estimates the potential loss in value of our
trading positions due to adverse market movements over a one-day
time horizon with a 95% confidence level. For a further discussion
of the calculation of VaR, see "Value at risk" in Part II, Item 7
"Management's Discussion and Analysis" in our Annual Report on Form
10-K for the year ended November 30, 2015.
JEFFERIES GROUP LLC AND SUBSIDIARIES FINANCIAL
HIGHLIGHTS (Amounts in Millions, Except Where Noted)
(Unaudited) Quarter Ended
February 29,2016
November 30, 2015
February 28,2015
Financial
position:
Total assets (1) $ 35,193 $ 38,564 $ 43,785 Average total assets
for the period (1) $ 44,669 $ 48,722 $ 49,862 Average total assets
less goodwill and intangible assets for the period (1) $ 42,796 $
46,835 $ 47,961 Cash and cash equivalents (1) $ 2,600 $
3,510 $ 3,340 Cash and cash equivalents and other sources of
liquidity (1) (2) $ 4,290 $ 5,081 $ 4,647 Cash and cash equivalents
and other sources of liquidity - % total assets (1) (2) 12.2 % 13.2
% 10.6 %
Cash and cash equivalents and other
sources of liquidity - % total assets less goodwilland intangible
assets (1) (2)
12.9 % 13.9 % 11.1 % Financial instruments owned (1) $
13,630 $ 16,559 $ 19,099 Goodwill and intangible assets (1) $ 1,869
$ 1,882 $ 1,900 Total equity (including noncontrolling
interests) $ 5,262 $ 5,509 $ 5,466 Total member's equity $ 5,261 $
5,482 $ 5,427 Tangible member's equity (3) $ 3,392 $ 3,600 $ 3,527
Level 3 financial
instruments:
Level 3 financial instruments owned (1) (4) (5) $ 489 $ 542 $ 540
Level 3 financial instruments owned - % total assets (1) (5) 1.4 %
1.4 % 1.2 % Total Level 3 financial instruments owned - % total
financial instruments (1) (5) 3.6 % 3.3 % 2.8 % Level 3 financial
instruments owned - % tangible member's equity (1) (5) 14.4 % 15.1
% 15.3 %
Other data and
financial ratios:
Total capital (1) (6) $ 10,588 $ 10,797 $ 11,191 Leverage ratio (1)
(7) 6.7 7.0 8.0 Adjusted leverage ratio (1) (8) 8.5 8.7 10.1
Tangible gross leverage ratio (1) (9) 9.8 10.2 11.9 Leverage ratio
- excluding impacts of the Leucadia transaction (1) (10) 8.6 8.8
10.1 Number of trading days 61 63 61 Number of trading loss
days 17 22 11 Number of trading loss days excluding KCG 12 23 9
Average firmwide VaR (11) $ 8.37 $ 9.72 $ 13.27 Average firmwide
VaR excluding KCG (11) $ 6.69 $ 8.46 $ 9.29 Number of
employees, at period end 3,439 3,557 3,936
JEFFERIES GROUP LLC AND SUBSIDIARIES FINANCIAL HIGHLIGHTS
- FOOTNOTES (1) Amounts pertaining to February 29, 2016
represent a preliminary estimate as of the date of this earnings
release and may be revised in our Quarterly Report on Form 10-Q for
the quarterly period ended February 29, 2016. (2) At
February 29, 2016, other sources of liquidity include high quality
sovereign government securities and reverse repurchase agreements
collateralized by U.S. government securities and other high quality
sovereign government securities of $1,061 million, in aggregate,
and $629 million, being the total of the estimated amount of
additional secured financing that could be reasonably expected to
be obtained from our financial instruments that are currently not
pledged at reasonable financing haircuts. At February 28, 2015
amounts also included additional funds that were available under
the committed senior secured revolving credit facility available
for working capital needs of Jefferies Bache. The corresponding
amounts included in other sources of liquidity at November 30, 2015
were $1,266 million and $305 million, respectively, and at February
28, 2015, were $911 million and $396 million, respectively.
(3)
Tangible member's equity (a non-GAAP
financial measure) represents total member's equity less goodwill
and identifiable intangible assets. We believe that tangible
member's equity is meaningful for valuation purposes, as financial
companies are often measured as a multiple of tangible member's
equity, making these ratios meaningful for investors.
(4) Level 3 financial instruments represent those financial
instruments classified as such under Accounting Standards
Codification 820, accounted for at fair value and included within
Financial instruments owned. (5) In May 2015, the Financial
Accounting Standards Board issued Accounting Standards Update No.
2015-07, “Fair Value Measurement (Topic 820) - Disclosures for
Investments in Certain Entities That Calculate Net Asset Value per
Share (or Its Equivalent).” The guidance removes the requirement to
include investments in the fair value hierarchy for which the fair
value is measured at net asset value using the practical expedient
under “Fair Value Measurements and Disclosures (Topic 820).” The
guidance also removes the requirement to make certain disclosures
for all investments that are eligible to be measured at fair value
using the net asset value practical expedient. Rather, those
disclosures are limited to investments for which we have elected to
measure the fair value using that practical expedient. The guidance
is effective retrospectively and we have early adopted this
guidance during the second quarter of fiscal 2015. (6) At
February 29, 2016, November 30, 2015 and February 28, 2015, total
capital includes our long-term debt of $5,326 million, $5,288
million and $5,725 million, respectively, and total equity.
Long-term debt included in total capital is reduced by amounts
outstanding under the revolving credit facility, amounts that are
non-recourse to Jefferies Group LLC and the amount of debt maturing
in less than one year, where applicable. (7) Leverage ratio
equals total assets divided by total equity. (8) Adjusted
leverage ratio (a non-GAAP financial measure) equals adjusted
assets divided by tangible total equity, being total equity less
goodwill and identifiable intangible assets. Adjusted assets (a
non-GAAP financial measure) equals total assets less securities
borrowed, securities purchased under agreements to resell, cash and
securities segregated, goodwill and identifiable intangibles plus
financial instruments sold, not yet purchased (net of derivative
liabilities). At February 29, 2016, November 30, 2015 and February
28, 2015, adjusted assets were $28,920 million, $31,675 million and
$35,976 million, respectively. We believe that adjusted assets is a
meaningful measure as it excludes certain assets that are
considered of lower risk as they are generally self-financed by
customer liabilities through our securities lending activities.
(9) Tangible gross leverage ratio (a non-GAAP financial
measure) equals total assets less goodwill and identifiable
intangible assets divided by tangible member's equity. The tangible
gross leverage ratio is used by rating agencies in assessing our
leverage ratio. (10) Leverage ratio - excluding impacts of
the Leucadia transaction (a non-GAAP financial measure) is
calculated as follows:
February 29, November 30, February 28, $
millions
2016 2015 2015 Total assets $ 35,193
$ 38,564 $ 43,785
Goodwill and acquisition accounting fair
value adjustments on thetransaction with Leucadia
(1,957 ) (1,957 ) (1,957 )
Net amortization to date on asset related
purchase accounting adjustments
128 124 112 Total assets excluding transaction
impacts $ 33,364 $ 36,731 $ 41,940
Total equity $ 5,262 $ 5,509 $ 5,466 Equity arising from
transaction consideration (1,426 ) (1,426 ) (1,426 ) Preferred
stock assumed by Leucadia 125 125 125
Net amortization to date of purchase
accounting adjustments, net of tax
(63 ) (52 ) (20 ) Total equity excluding transaction impacts $
3,898 $ 4,156 $ 4,145 Leverage ratio -
excluding impacts of the Leucadia transaction 8.6 8.8
10.1 (11) VaR estimates the potential loss in
value of our trading positions due to adverse market movements over
a one-day time horizon with a 95% confidence level. For a further
discussion of the calculation of VaR, see "Value at risk" in Part
II, Item 7 "Management's Discussion and Analysis" in our Annual
Report on Form 10-K for the year ended November 30, 2015.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160315005626/en/
Jefferies Group LLCPeregrine C. Broadbent, 212-284-2338Chief
Financial Officer
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