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Jefferies Reports Fiscal Fourth Quarter 2015 Financial Results


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

    Highlights for the three months ended November 30, 2015, with adjusted amounts excluding the operating results and wind down costs of our Bache business:

    • Investment Banking Net Revenues of $373 million
    • Total Sales and Trading Net Revenues of $132 million
    • Total Adjusted Net Revenues of $513 million (excluding Bache)
    • Adjusted Net Earnings of $37 million (excluding Bache)
    • Net Earnings of $25 million (including Bache)

    Highlights for the year ended November 30, 2015, with adjusted amounts excluding the operating results and wind down costs of our Bache business:

    • Investment Banking Net Revenues of $1,439 million
    • Total Sales and Trading Net Revenues of $1,028 million
    • Total Adjusted Net Revenues of $2,395 million (excluding Bache)
    • Adjusted Net Earnings of $189 million (excluding Bache)
    • Net Earnings of $100 million (including Bache)

    Rich Handler, Chairman and Chief Executive Officer, and Brian Friedman, Chairman of the Executive Committee, commented: “Our full year results did not meet our expectations and we have made significant changes and are committed to improving our performance in 2016. On the positive side, our diversification and depth of capability came through in the form of solid full year results in Investment Banking and Equities, despite market challenges. We reported strong Investment Banking Net Revenues for the year of $1.4 billion that included record Net Revenue years in both Equity Capital Markets and Advisory of $408 million and $632 million, respectively, offsetting a market driven slowdown in our leveraged finance and energy investment banking businesses in both of which we have leading market positions. We continued to gain market share in our Equities sales and trading business. Despite the challenges experienced by most of our Fixed Income credit businesses, we saw solid Net Revenues recorded by our U.S. and International rates businesses, as well as our U.S. investment grade corporate credit business.”

    "Fixed Income, which has been a solid to excellent business for Jefferies in prior years, did not perform well in 2015. Almost all our Fixed Income credit businesses were impacted by the prolonged anticipation of the lift-off in Federal Reserve rate-setting, the collapse in the global energy markets (where we have long been an active adviser, capital raiser and trader), reduced originations in leveraged finance and meaningfully reduced liquidity. There were a number of periods of extreme volatility, which were followed by periods of low trading volume."

    “As discussed during our Leucadia Investor Day in October, we conducted a detailed review and analysis of all our businesses and support areas during 2015, and, as promised, have now implemented reductions in our commitments of risk, balance sheet and capital that are consistent with the market environment and opportunity we currently envision. In addition, we have been aligning our overall resource commitments to achieve further operating efficiencies and to better match our expectations for 2016. At the same time, we recruited new leadership in certain areas of our Fixed Income and Equities businesses to strengthen both our client offering and our results, and continue to selectively add accomplished senior professionals to our Investment Banking effort. In Fixed Income particularly, we expect these efforts to return our business to more normal profitability in 2016. We have methodically implemented a range of changes which we believe will result in less volatility and risk, greater efficiency and better returns, all with no meaningful impact to our clients or our ability to generate revenues.”

    “Our balance sheet at November 30, 2015 was $38.5 billion, down $4.2 billion from three months prior and $6.0 billion from the end of fiscal 2014. Leverage (excluding the impact of the Leucadia transaction, which added significant goodwill and a corresponding increase in equity from the transaction´s consideration) was less than nine times, its lowest level in about seven years. In addition to the absolute reduction in our balance sheet, our long securities inventory was $16.5 billion at November 30, 2015, down $2.4 billion from August 31, 2015, and down $2.1 billion from November 30, 2014. These reductions were substantially effected during our fourth quarter and, while the impact was to reduce our quarterly Fixed Income Net Revenues and profitability due to the challenge of liquidating positions in a volatile and less liquid environment, we believe this will best position Jefferies to succeed in 2016 and beyond. In this connection, we note that our net distressed trading energy exposure was $39 million at year-end. At the same time, the assets associated with our Prime Securities business, comprised primarily of securities held on behalf of clients, increased to $3.9 billion from $3.3 billion at the end of the prior quarter and $3.2 billion at the end of 2014. Separately, Jefferies Finance, our 50%-owned corporate lending joint venture with MassMutual, completed the syndication of a number of its committed financings during the quarter and, at year-end, our outstanding commitments were about 29% lower than the average of commitments outstanding at quarter-ends over the last two years and 33% lower when compared to the end of 2014. We remain actively involved serving our sponsor and corporate clients with leveraged finance solutions."

    "Our unsecured long-term debt has been reduced by $700 million to $5.6 billion at year-end 2015 from $6.3 billion one year ago. We plan to repay our $350 million March debt maturity from cash on hand. The reductions in our balance sheet are reflected in proportionate reductions in our risk and capital commitments, and should collectively dampen our volatility and downside in 2016, although one can never fully anticipate market conditions. As we reduced our balance sheet, our Level 3 assets remained at about 3% of our inventory, our liquidity buffer remained at $5.1 billion, despite the repayment of a $500 million debt maturity during the quarter, and our liquidity ratio increased to 13.2%. Average VaR for the quarter of $10 million was lower by 40% compared to $14 million for the third quarter.”

    “These significant changes to our Fixed Income business follow our decision to exit our Bache futures and commodities business, which removes a significant drag on Jefferies profitability. In 2015 we incurred pre-tax losses of $135 million and a net operating loss, including wind down costs, of $90 million with respect to Bache. All client accounts have now been transferred to Société Générale or other service providers. Total final costs in 2016 should be less than $5 million in aggregate.”

    “Our management team has navigated challenging periods at Jefferies before as 1990, 1994, 1998, 2001-02, 2008-09, 2011 and now 2015 each delivered unique dislocation. Each of these periods was also followed by similarly unique growth opportunities and a yet better competitive position for our firm. After all of the challenges and with the hard work and commitment of all our team, we believe we are now well positioned in our Investment Banking, Equities, and Fixed Income businesses. In addition, our tangible equity, total capital and liquidity profile are stronger than at the end of any of those prior periods of stress. During this year of challenges, we remained profitable every quarter, and were able to analyze, change and adapt our operating businesses, while we continued to serve our clients. In 2016, we will continue to focus on our clients, be relentless in finding areas where we can continue to improve our operating results, hire new quality partners, prudently manage our risk, and never stop appreciating our employee-partners whose hard work and dedication are the backbone and most important assets of Jefferies.”

    The attached financial tables should be read in connection with our Quarterly Report on Form 10-Q for the quarter ended August 31, 2015 and our Annual Report on Form 10-K for the year ended November 30, 2014. Amounts pertaining to November 30, 2015 represent a preliminary estimate as of the date of this earnings release and may be revised in our Annual Report on Form 10-K for the year ended November 30, 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 expectations for our Fixed Income business and overall positioning and performance for fiscal year 2016. 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.

      JEFFERIES GROUP LLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Amounts in Thousands) (Unaudited)           Quarter Ended     November 30, 2015     August 31, 2015     November 30, 2014                         Revenues:                       Commissions     $ 146,288         $ 172,284         $ 180,275   Principal transactions     (38,525 )       (50,297 )       (33,841 ) Investment banking     372,930         389,820         316,012   Asset management fees and investment income from

    managed funds

        8,020         4,182         1,728   Interest income     221,962         230,805         237,911   Other revenues     (8,736 )       34,329         20,919   Total revenues     701,939         781,123         723,004   Interest expense     188,843         202,195         198,195   Net revenues     513,096         578,928         524,809                           Non-interest expenses:                       Compensation and benefits     284,647         336,499         308,487                           Non-compensation expenses:                       Floor brokerage and clearing fees     40,932         45,307         55,829   Technology and communications     78,918         89,378         66,363   Occupancy and equipment rental     26,567         25,967         26,115   Business development     27,098         30,527         27,791   Professional services     27,613         24,684         28,206   Bad debt provision     (5,483 )       5,158         50,772   Goodwill impairment     —         —         54,000   Other     15,693         14,315         21,266   Total non-compensation expenses     211,338         235,336         330,342   Total non-interest expenses     495,985         571,835         638,829   Earnings (loss) before income taxes     17,111         7,093         (114,020 ) Income tax expense (benefit)     (7,546 )       4,609         (13,901 ) Net earnings (loss)     24,657         2,484         (100,119 ) Net earnings (loss) attributable to noncontrolling

    interests

        148         427         (360 ) Net earnings (loss) attributable to Jefferies Group LLC     $ 24,509         $ 2,057         $ (99,759 )                         Pretax operating margin     3.3 %       1.2 %       (21.7 )% Effective tax rate     (44.1 )%       65.0 %       12.2 %                              

     

    JEFFERIES GROUP LLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Amounts in Thousands) (Unaudited)           Year Ended     November 30, 2015     November 30, 2014                 Revenues:               Commissions     $ 659,002         $ 668,801   Principal transactions     172,617         532,292   Investment banking     1,439,007         1,529,274   Asset management fees and investment income from managed

    funds

        8,015         17,047   Interest income     922,189         1,019,970   Other revenues     74,074         78,881   Total revenues     3,274,904         3,846,265   Interest expense     799,654         856,127   Net revenues     2,475,250         2,990,138                   Non-interest expenses:               Compensation and benefits     1,467,131         1,698,530                   Non-compensation expenses:               Floor brokerage and clearing fees     200,032         215,329   Technology and communications     313,044         268,212   Occupancy and equipment rental     101,138         107,767   Business development     105,963         106,984   Professional services     103,972         109,601   Bad debt provision     (396 )       55,355   Goodwill impairment     —         54,000   Other     62,566         71,339   Total non-compensation expenses     886,319         988,587   Total non-interest expenses     2,353,450         2,687,117   Earnings before income taxes     121,800         303,021   Income tax expense     21,924         142,061   Net earnings     99,876         160,960   Net earnings attributable to noncontrolling interests     1,795         3,400   Net earnings attributable to Jefferies Group LLC     $ 98,081         $ 157,560                   Pretax operating margin     4.9 %       10.1 % Effective tax rate     18.0 %       46.9 %                    

     

    JEFFERIES GROUP LLC AND SUBSIDIARIES CONSOLIDATED ADJUSTED SELECTED FINANCIAL DATA (Amounts in Thousands) (Unaudited)                     Quarter Ended November 30, 2015   GAAP   Adjustments   Adjusted                   Net revenues   $ 513,096       $ (363 ) (1)   $ 513,459                     Non-interest expenses:                 Compensation and benefits   284,647       7,111   (2)   277,536   Non-compensation expenses   211,338       12,327   (3)   199,011   Total non-interest expenses   495,985       19,438   (4)   476,547                     Operating income (loss)   $ 17,111       $ (19,801 )     $ 36,912   Net earnings (loss)   $ 24,657       $ (12,165 )     $ 36,822                     Compensation ratio (a)   55.5 %           54.1 %                     Quarter Ended August 31, 2015   GAAP   Adjustments   Adjusted                   Net revenues   $ 578,928       $ (4,289 ) (1)   $ 583,217                     Non-interest expenses:                 Compensation and benefits   336,499       22,117   (2)   314,382   Non-compensation expenses   235,336       37,708   (3)   197,628   Total non-interest expenses   571,835       59,825       512,010                     Operating income (loss)   $ 7,093       $ (64,114 )     $ 71,207   Net earnings (loss)   $ 2,484       $ (44,318 )     $ 46,802                     Compensation ratio (a)   58.1 %           53.9 %                     Quarter Ended November 30, 2014   GAAP   Adjustments   Adjusted                   Net revenues   $ 524,809       $ 54,907   (1)   $ 469,902                     Non-interest expenses:                 Compensation and benefits   308,487       21,794   (2)   286,693   Non-compensation expenses   330,342       145,075   (3)   185,267   Total non-interest expenses   638,829       166,869       471,960                     Operating income (loss)   $ (114,020 )     $ (111,962 )     $ (2,058 ) Net earnings (loss)   $ (100,119 )     $ (82,338 )     $ (17,781 )                   Compensation ratio (a)   58.8 %           61.0 %                  

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