Jefferies Reports Fiscal Third Quarter 2015 Financial Results

Jefferies Group LLC today announced financial results for its fiscal third quarter 2015.

Highlights for the three months ended August 31, 2015, with adjusted amounts excluding the operating results and wind down costs of our Bache business, which reflects a substantial portion of the final wind-down costs and write-offs, and the final period of meaningful operations:

• Investment Banking Net Revenues of $390 million
• Total Sales and Trading Net Revenues of $185 million
• Total Adjusted Net Revenues of $583 million (excluding Bache)
• Adjusted Net Earnings of $47 million (excluding Bache)
• Net Earnings of $2 million (including Bache)

Highlights for the nine months ended August 31, 2015, with adjusted amounts excluding the operating results and wind down costs of our Bache business:

• Investment Banking Net Revenues of $1,066 million
• Total Sales and Trading Net Revenues of $896 million
• Total Adjusted Net Revenues of $1,882 million (excluding Bache)
• Adjusted Net Earnings of $153 million (excluding Bache)
• Net Earnings of $75 million (including Bache)

Richard B. Handler, Chairman and Chief Executive Officer, and Brian P. Friedman, Chairman of the Executive Committee, commented:

“Despite solid results in Investment Banking and Equities, our overall results are disappointing. Our Net Revenues for the quarter were $583 million and our Net Earnings were $47 million, excluding Bache. After a solid second quarter, the third quarter’s sales and trading environment was initially slow due to concerns about a possible Greek exit from the Euro, and then became more volatile and challenging in the second half of the quarter as news of China´s economic growth deceleration led to a further deterioration of trading volumes and continuing declines in global asset prices. A substantial increase in volatility affected almost every asset class globally. This significantly impacted, among other areas, the distressed side of the credit market, most notably in the energy sector.”

“Fixed Income net revenues were negative $14 million for the quarter, reflecting the slow environment and the volatility that resulted in mark-to-market write-downs in our inventory. Trading results of our high yield distressed sales and trading business for the quarter particularly impacted our results negatively. As is the nature of the distressed market making business, Jefferies assumes positions in sectors where the firm´s clients and the market are most active, with mark to market gains and losses recognized on a daily basis. During the last nine months, losses totaling $90 million were recorded across more than 25 distressed energy positions. For the nine month period we recognized negative revenues in respect of the ten largest individual loss-making positions of about $4 million to $19 million each, or an average of about $8 million. These markdowns, combined with lower activity levels and more modest inventory write downs in several other areas of our global fixed income business, accounted for much of the balance of negative pressure on our fixed income results. As one of the leading investment banking platforms serving the energy sector, with meaningful recent involvement in restructurings and financings, we continue to be committed to our energy clients.”

“We believe most of the issues we faced this past quarter in Fixed Income were due to distinct factors that began about a year ago and the largest portion of which relates to the turmoil in the oil and gas industry. For the first nine months of 2015, we have provided liquidity and traded approximately $5 billion in distressed energy securities for our clients. Our exposures in our distressed energy trading business decreased approximately 50% during the quarter and are currently down to $70 million in total net market value. We believe that, with our exposures in distressed securities reduced to current levels, there should be no similar impact on our future results.”

“While adversely affected by the sell-off in the global markets during August, our core Equities business performed reasonably. Equities Net Revenues for the period were $203 million. Jefferies Investment Banking Net Revenues were a very solid $390 million, including our best quarter ever in Equity Capital markets. For the nine months ended August 31, 2015, our fee based investment represented 54% of net revenues, a similar proportion to the comparable period a year ago. Our investment banking backlog remains robust and diverse in terms of products, sectors and regions. Our level 3 assets remain below 3% of our inventory, and all of our balance sheet and liquidity metrics are in line with every one of our historical ranges. We reduced our KCG position during the quarter by tendering 6.5 million shares at $14 per share, realizing $91 million in cash.”

"We have substantially completed the unwind of Bache within our expectations of timing, cost and write-offs. We have transferred virtually all client accounts to Societe Generale and other service providers. No meaningful risk pertaining to this business remained on our books at the end of the third quarter. To put into perspective how the impact Bache has had on our recent results, in 2014 our firmwide net income of $158 million included a net loss of $100 million with respect to Bache. Similarly, for the 2015 full fiscal year, we expect Jefferies will incur the same net loss in respect of Bache as we did in 2014, or about $100 million, including all material final-wind down costs. For the first nine months of 2015, our results include a net loss of $77 million with respect to Bache. These overall results included a write-off of goodwill of $52 million in 2014 and non-cash write-offs of $24 million in 2015 on a pre-tax basis. We are pleased finally to be able to move on.”

“While market dislocations occur from time to time, they typically have allowed us opportunities to take advantage of our unique competitive position as we continue to invest across Jefferies to improve our capabilities to serve our growing client base. We have made key hires this summer in Investment Banking, Equities and Fixed Income, and we expect to continue to grow our market share by serving well our existing and new clients globally.”

“With our business mix simplified and more focused with the unwind of Bache, Jefferies should be able to deliver more consistent and stronger results. Our progress and momentum across the rest of our firm have been offset by the trading losses and sluggish activity of a handful of businesses. Our overriding goal is to deliver results in this fourth quarter and in 2016 that reflect the full earnings power of the Jefferies franchise in Equities, Fixed Income and Investment Banking.”

The attached financial tables should be read in connection with our Quarterly Report on Form 10-Q for the quarter ended May 31, 2015 and our Annual Report on Form 10-K for the year ended November 30, 2014. Amounts pertaining to August 31, 2015 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 August 21, 2015. Adjusted financial measures referenced above are non-GAAP financial measures, which management believes provide meaningful information to enable investors to evaluate the Company´s results in the context of exiting the Bache business. Refer to the Supplemental Schedules on pages 6-8 for a reconciliation of Adjusted measures to the respective direct U.S. GAAP financial measures.

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, expected financial results and unwind costs of Bache. 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 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 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.

(a) Reconciliation of the compensation ratio for U.S. GAAP to Adjusted is a derivation of the reconciliation of the components above.

This presentation of Adjusted financial information is an unaudited non-GAAP financial measure. Adjusted financial information begins with information prepared in accordance with U.S. GAAP and then those results are adjusted to exclude the operations of the Company´s Bache business. The Company believes that the disclosed Adjusted measures and any adjustments thereto, when presented in conjunction with comparable U.S. GAAP measures are useful to investors as they enable investors to evaluate the Company´s results in the context of exiting the Bache business. These measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. GAAP.