Jefferies Group Profit Rises 55% - Update

By Saabira Chaudhuri and Tess Stynes 

Jefferies Group LLC's fiscal second-quarter earnings rose 55% as the firm reported strong results in its investment-banking and equities-trading units, outweighing a drop in fixed income trading revenue.

The investment bank's results, often seen as a barometer for results to follow from larger rivals, come after J.P. Morgan Chase & Co. and Citigroup Inc. in recent weeks warned that second-quarter trading revenue would be down sharply on continued weakness in fixed income, currencies and commodities trading.

For the period ended May 31, the Leucadia National Corp.-owned securities firm reported a profit of $61.3 million, up from $39.5 million. Net revenue increased 9.8% to $723 million.

Trading revenue increased 6.5% to $394.9 million, as Jefferies offset a 5% drop in revenue from its fixed income unit with a 25% jump in its smaller equities-trading business.

Jefferies Chairman and Chief Executive Richard B. Handler said the bank's strong results reflect market share gains but noted clients during the second quarter were "cautious and generally less active in trading due to the unsettled markets."

Investment banking net revenue jumped 19% to $331.1 million, driven by gains in equity and debt capital markets as well as advisory revenue.

Capital markets revenue climbed 23% to $230.7 million, while advisory revenue was up 12% to $100.4 million. In a statement, Mr. Handler said Jefferies is continuing to add staff to its investment banking team.

Jefferies's results indicate that big banks possibly could report strong investment-banking results in the second quarter, helping offset what undoubtedly will be a weak quarter in fixed income. Wall Street's trading businesses, a major source of profits for big banks, have been muddling through a difficult slump.

Last month, Citigroup said its trading revenue likely would drop 20% to 25% in the second quarter from the year earlier. Separately, J.P. Morgan said it expects its own markets revenue to drop 20% in the second quarter, while the bank's investment banking head, Daniel Pinto, has noted that volatility levels are at 10- to 15-year lows.

Also on Tuesday, Jefferies reported negative revenue for its asset management business, as the bank logged an $8 million investment loss from managed funds. Overall, asset management revenue was negative $3.1 million, compared with revenue of $10.5 million a year earlier.

Write to Saabira Chaudhuri at [e-mail] and Tess Stynes at [e-mail]

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