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Empresas y finanzas

Jefferies Reports Fiscal Third-Quarter 2013 Financial Results


    Jefferies Group LLC today announced financial results for its fiscal third quarter 2013.

    Highlights for the three months ended August 31, 2013:

    • Net revenues of $517 million
    • Net earnings of $12 million
    • Investment banking net revenues of $319 million
    • Equities net revenues of $151 million
    • Fixed Income net revenues of $33 million

    “With the significant change in expectations regarding interest rates, we experienced a very challenging summer in our fixed income businesses due to the rising rate environment, spread widening, redemptions experienced by our client base which heavily muted trading, and related mark-to-market write downs within our inventory (with no single meaningful item). At the same time, we recorded strong results in our investment banking activities and continued improvement in equities. Finally, our European business had a strong third-quarter, with meaningful benefit from our corporate broking effort, Jefferies Hoare Govett. Our investment in Knight Capital was marked down by $16 million in the third-quarter, reflecting the decline in the Knight stock price. The impact of this mark-down is recorded in our Equities net revenues line item,” commented Richard B. Handler, Chairman and Chief Executive Officer of Jefferies.

    “Fixed income markets were most unsettled in June, while July and August were more balanced, but witnessed subdued summer activity levels. Since Labor Day, client flows have been stronger and fixed income performance has markedly improved to more normal levels. Momentum in Investment Banking appears to be building for our fourth-quarter and into 2014, as our backlog is strong and improving,” added Mr. Handler.

    Our revenues, expenses and net earnings for the third-quarter of 2013 are impacted by the following items:

    • Revenues include an additional $27 million of positive net interest income due to the amortization of premiums arising from the one-time fair value adjustment of our long-term debt to fair value as of the date of our merger with Leucadia and the concurrent assumption of our mandatorily redeemable convertible preferred stock by Leucadia.
    • Professional fees include an additional $3.6 million of merger related and other legal fees.
    • Other expenses include the following items aggregating $17 million: $8 million of incremental amortization expense associated with intangible assets and internally developed software recognized upon the merger with Leucadia and approximately $9 million in litigation settlement costs. Our litigation settlement costs include a final judgment awarded on our last outstanding auction-rate securities matter.

    Without these costs, our non-compensation costs would be $180 million.

    Excluding the above revenue items, our compensation ratio would have been 59.5%, consistent with recent periods. Our total headcount at August 31, 2013 was 3,805, an increase of 20 employees compared to May 31, 2013.

    Peregrine C. Broadbent, Chief Financial Officer of Jefferies commented: “As the table below shows, our balance sheet, capital, liquidity and risk metrics continue to demonstrate our continued conservative management philosophy and remain virtually unchanged from prior quarters. At period end, our gross leverage ratio, excluding the impact of the Leucadia purchase accounting, was 9.41 times equity and Level 3 assets were $500 million and remain at about 3% of inventory."

       
    August 31, 2013  
    May 31, 2013
    • Total assets, excluding goodwill and intangibles1
      $ 36.8 billion   $ 37.0 billion
    • Tangible member´s/common shareholders´ equity1
      $ 3.18 billion   $ 3.17 billion
    • Liquidity buffer1
      $ 5.6 billion   $ 5.2 billion
    • Level 3 assets
      $ 500 million   $ 502 million
    • Average VaR2
     

    $ 11.02 million

      $ 8.77 million
    • Average VaR excluding Knight Capital holdings2
      $ 7.24 million   $ 5.77 million          

    The financial tables attached should be read in connection with our Quarterly Report on Form 10-Q for the quarter ended May 31, 2013 and our Annual Report on Form 10-K for the year ended November 30, 2012.

    Jefferies, the 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. The firm provides a full range of investment banking, sales, trading, research and strategy across the spectrum of equities, fixed income, foreign exchange, futures and commodities, and also select asset and wealth management strategies, in the Americas, Europe and Asia. Jefferies Group LLC is a wholly-owned subsidiary of Leucadia National Corporation (NYSE: LUK), a diversified holding company.

    1 This represents a non-GAAP measure. Refer to the Financial Highlights table on page 5 and related footnotes.
    2 This measure is reflected on a period basis.

      JEFFERIES GROUP LLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Amounts in Thousands) (Unaudited)                           Successor   Predecessor     Quarter Ended   Quarter Ended   Quarter Ended     August 31, 2013     May 31, 2013 (A)   August 31, 2012                       Revenues:                     Commissions   $ 138,736     $ 146,848   $ 119,200 Principal transactions     (24,910)       134,571     297,037 Investment banking     309,339       277,134     260,163 Asset management fees and

    investment income from managed funds

        13,549       10,527     3,116

    Interest income

        230,672       258,665     242,625 Other revenues     28,630       26,245     22,911 Total revenues     696,016       853,990     945,052 Interest expense     178,987       211,463     206,114 Net revenues     517,029       642,527     738,938 Interest on mandatorily redeemable preferred interests of

    consolidated subsidiaries

        -       3,368     8,304 Net revenues, less interest on mandatorily redeemable preferred

    interests of consolidated subsidiaries

        517,029       639,159     730,634                       Non-interest expenses:                     Compensation and benefits     293,771       373,880     440,391                       Non-compensation expenses:                     Floor brokerage and clearing fees     34,500       32,991     30,280 Technology and communications     62,266       63,839     58,681 Occupancy and equipment rental     26,205       32,225     24,077 Business development     17,624       22,732     27,736 Professional services     25,269       29,519     14,667 Other     34,012       18,720     12,433 Total non-compensation expenses     199,876       200,026     167,874 Total non-interest expenses     493,647       573,906     608,265 Earnings before income taxes     23,382       65,253     122,369 Income tax expense     8,493       25,007     44,048 Net earnings     14,889       40,246     78,321 Net earnings attributable to noncontrolling interests (B)     3,149       738     8,150 Net earnings attributable to Jefferies Group LLC/ common shareholders   $ 11,740     $ 39,508   $ 70,171                       Compensation and benefits / Net revenues     56.8%       58.2%     59.6%                       Effective tax rate     36.3%       38.3%     36.0%                      

    (A) Our consolidated net income for the three months ended May 31, 2013 reflects a reduction of $2.5 million, after tax, to correct the valuation of the conversion option in our convertible senior debentures. We evaluated the effects of this correction and concluded that it is not material to the previously issued Quarterly Report on Form 10-Q for the three month period ended May 31, 2013. Nevertheless, we have revised our consolidated net income for the three month period ended May 31, 2013 to reflect this correction and appropriately reflected a reduction of $3.9 million in Principal transaction revenues.

    (B) For the quarter ended August 31, 2013, net earnings attributable to third party interests and a Leucadia interest in certain asset management entities and investment vehicles managed by us.

    JEFFERIES GROUP LLC AND SUBSIDIARIES SELECTED STATISTICAL INFORMATION (Amounts in Thousands, Except Other Data) (Unaudited)                   Quarter Ended     Successor   Predecessor     Aug 31,   May 31,   Aug 31,       2013    

    2013 (A)

     

        2012  

    Revenues by Source

                Equities   $ 151,037   $ 141,590     $ 209,980   Fixed income     33,103     213,276       265,679   Total     184,140     354,866       475,659                               Equity     56,482     53,564       39,068   Debt     120,187     133,714       87,894   Capital markets     176,669     187,278       126,962   Advisory     142,670     89,856       133,201   Investment banking     319,339     277,134       260,163                 Asset management fees and investment gain (loss)

    from managed funds:

    Asset management fees     9,579     11,332       8,583   Investment gain (loss) from managed funds     3,971     (805 )     (5,467 ) Total     13,550     10,527       3,116   Net revenues     517,029     642,527       738,938   Interest on mandatorily redeemable preferred interests of consolidated subsidiaries     -     3,368       8,304   Net revenues, less mandatorily redeemable preferred interests of consolidated subsidiaries   $ 517,029   $ 639,159     $ 730,634                

    Other Data

                Number of trading days     64     64       65                 Average firmwide VaR (in millions) (B)   $ 11.02   $ 8.77     $ 10.53   Average firmwide VaR excluding Knight Capital (in millions) (B)   $ 7.24   $ 5.77     $ 8.35                

    (A) Our consolidated net income for the three months ended May 31, 2013 reflects a reduction of $2.5 million, after tax, to correct the valuation of the conversion option in our convertible senior debentures. We evaluated the effects of this correction and concluded that it is not material to the previously issued Quarterly Report on Form 10-Q for the three month period ended May 31, 2013. Nevertheless, we have revised our consolidated net income for the three month period ended May 31, 2013 to reflect this correction and appropriately reflected a reduction of $3.9 million in Principal transaction revenues.

    (B) 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 calcuation 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, 2012.

    JEFFERIES GROUP LLC AND SUBSIDIARIES FINANCIAL HIGHLIGHTS (Amounts in Millions, Except Where Noted) (Unaudited)                   Quarter Ended     Successor   Predecessor     Aug 31,   May 31,   Aug 31,       2013      

    2013 (A)

     

        2012                

    Results:

                Net earnings attributable to Jefferies Group LLC / common shareholders (in thousands)   $ 11,740     $ 39,508     $ 70,171   Pretax operating margin     4.5 %     10.2 %     16.7 % Effective tax rate     36.3 %     38.3 %     36.0 %

     

               

    Financial position:

                Total assets (1)   $ 38,830     $ 38,938     $ 34,407   Average total assets for quarter (1)   $ 45,824     $ 47,150     $ 42,594   Average total assets less goodwill and intangible assets for quarter (1)   $ 43,840     $ 45,157     $ 42,207                 Cash and cash equivalents (1)   $ 4,119     $ 3,403     $ 2,845   Cash and cash equivalents and other sources of liquidity (1) (2)   $ 5,574     $ 5,187     $ 4,229   Cash and cash equivalents and other sources of liquidity - % total assets (1) (2)     14.4 %     13.3 %     12.3 % Cash and cash equivalents and other sources of liquidity - % total assets less goodwill and intangible assets (1) (2)     15.1 %     14.0 %     12.4 %               Financial instruments owned (1)   $ 13,698     $ 15,270     $ 13,917   Goodwill and intangible assets (1)   $ 1,988     $ 1,982     $ 381                 Total equity (including noncontrolling interests)   $ 5,241     $ 5,183     $ 3,707   Total member´s / common stockholders´ equity   $ 5,164     $ 5,147     $ 3,369   Tangible member´s / common stockholders´ equity (3)   $ 3,176     $ 3,165     $ 2,988                

    Level 3 financial instruments:

                Level 3 financial instruments owned (1) (4)   $ 444     $ 447     $ 487   Level 3 financial instruments owned - % total assets (1)     1.1 %     1.1 %     1.4 % Level 3 financial instruments owned - % total financial instruments owned (1)     3.2 %     2.9 %     3.5 % Level 3 financial instruments owned - % tangible member´s / common stockholders´ equity (1)     14.0 %     14.1 %     16.3 %              

    Other data and financial ratios:

                Total capital (1) (5)   $ 11,034     $ 11,271     $ 8,622   Leverage ratio (1) (6)     7.4       7.5       9.3   Adjusted leverage ratio (1) (7)     9.3       9.9       8.8   Tangible gross leverage ratio (1) (8)     11.6       11.7       11.4   Leverage ratio - excluding merger impacts (1) (9)     9.4       9.5       N/A                 Number of trading days     64       64       65                 Average firmwide VaR (10)   $ 11.02     $ 8.77     $ 10.53   Average firmwide VaR excluding Knight Capital (10)   $ 7.24     $ 5.77     $ 8.35                 Number of employees, at quarter end     3,805       3,785       3,814                 Compensation and benefits / Net revenues     56.8 %     58.2 %     59.6 %              

    (A) Our consolidated net income for the three months ended May 31, 2013 reflects a reduction of $2.5 million, after tax, to correct the valuation of the conversion option in our convertible senior debentures. Our Statement of Financial Condition reflects adjustments of $10.2 million to increase total assets and $12.7 million to increase total liabilities as of May 31, 2013, after considering tax effects, for the effect of the option valuation both in connection with the acquisition accounting for our merger with Leucadia on March 1, 2013 and the adjustment to the valuation of the conversion option at May 31, 2013. We evaluated the effects of this correction and concluded that it is not material to the previously issued Quarterly Report on Form 10-Q for the three month period ended May 31, 2013. Nevertheless, we have revised our consolidated net income for the three month period ended May 31, 2013 to correct for the effect of this item and appropriately reflected a reduction of $3.9 million in Principal transaction revenues and revised our balance sheet to appropriately reflect an increase of $5.3 million in Goodwill, an increase of $5.0 million in Other assets for the impact on income taxes and an increase of $12.7 million in Long-term debt.

        Footnotes       (1)   This amount represents 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 period ended August 31, 2013.       (2)   As of August 31, 2013, 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 $1,145 million, in aggregate, and $310 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 and additional funds available under the committed senior secured revolving credit facility available for working capital needs of Jefferies Bache.       (3)   Tangible member´s / common stockholders’ equity (a non-GAAP financial measure) represents total member´s / common stockholders’ equity less goodwill and identifiable intangible assets. We believe that tangible member´s / common stockholders´ equity is meaningful for valuation purposes, as financial companies are often measured as a multiple of tangible member´s / common stockholders´ 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)   As of August 31 and May 31, 2013, total capital includes our long-term debt of $5,793 million and $6,088 million, respectively, and total equity. As of August 31, 2012 total capital includes our long-term debt, mandatorily redeemable convertible preferred stock, mandatorily redeemable preferred interest of consolidated subsidiaries, in aggregate $4,916 million, and total equity. Long-term debt included in total capital is reduced by amounts outstanding under the revolving credit facility and the amount of debt maturing in less than one year, where applicable.       (6)   Leverage ratio equals total assets divided by total equity.       (7)   Adjusted leverage ratio (a non-GAAP fin