NEW YORK--(BUSINESS WIRE)--Jefferies Group LLC today announced financial results for its fiscal second quarter 2016.
Highlights for the three months ended May 31, 2016:
- Total Sales and Trading Net Revenues of $462 million
- Investment Banking Net Revenues of $253 million
- Total Net Revenues of $719 million
- Earnings Before Income Taxes of $103 million
- Net Earnings of $54 million (tax rate 47.4%)
Rich Handler, Chairman and Chief Executive Officer, and Brian Friedman, Chairman of the Executive Committee, commented: “We are pleased to report quarterly results at a more normal level, reflecting better equity and fixed income secondary trading conditions, although new issue capital markets activity remained somewhat muted. Our equity net revenues were $224 million, compared to $228 million for the second quarter of last year. The two listed equity block positions, including KCG, that were marked down during the first quarter by $82 million, were marked back up during the second quarter by a total of $60 million. Fixed Income net revenues were $238 million for the quarter, with virtually all our fixed income business lines across all regions delivering improved performance. We are particularly pleased with these results as the trading environment was merely stable versus robust, and our performance shows the continued opportunity and potential of our business after a significant bottoms up rightsizing and strengthening, and an overall reduction in risk. Investment banking net revenues for the second quarter were $253 million, reflecting solid advisory revenue, but continued slow activity both in the new issue equity capital markets and in leveraged finance. Our third quarter investment banking backlog is showing encouraging improvement.
We believe our industry is experiencing yet another fundamental and strategic inflection point. We expect this will lead to further consolidation of market share and we are all working hard to ensure that Jefferies is a major beneficiary. To this end, we are particularly focused on continuing to expand our investment banking footprint in the U.S. and Europe, and are meeting and hiring talented individuals who we believe will enhance our ability to serve our clients.”
The attached financial tables should be read in conjunction with our Quarterly Report on Form 10-Q for the quarter ended February 29, 2016 and our Annual Report on Form 10-K for the year ended November 30, 2015. Amounts herein pertaining to May 31, 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 May 31, 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 | ||||||||||||||||
|
May 31, 2016 |
February 29, 2016 |
May 31, 2015 |
||||||||||||||
| Revenues: | ||||||||||||||||
| Commissions and other fees | $ | 146,157 | $ | 155,824 | $ | 173,508 | ||||||||||
| Principal transactions | 318,180 | (103,373 | ) | 155,962 | ||||||||||||
| Investment banking | 253,046 | 230,930 | 404,262 | |||||||||||||
| Asset management fees and investment | ||||||||||||||||
| income from managed funds | 4,336 | 9,530 | 5,650 | |||||||||||||
| Interest income | 220,175 | 221,945 | 240,552 | |||||||||||||
| Other revenues | (4,977 | ) | (21,751 | ) | 28,576 | |||||||||||
| Total revenues | 936,917 | 493,105 | 1,008,510 | |||||||||||||
| Interest expense | 217,509 | 194,118 | 216,956 | |||||||||||||
| Net revenues | 719,408 | 298,987 | 791,554 | |||||||||||||
| Non-interest expenses: | ||||||||||||||||
| Compensation and benefits | 415,316 | 349,743 | 480,770 | |||||||||||||
| Non-compensation expenses: | ||||||||||||||||
| Floor brokerage and clearing fees | 43,591 | 40,479 | 58,713 | |||||||||||||
| Technology and communications | 66,499 | 64,989 | 72,361 | |||||||||||||
| Occupancy and equipment rental | 24,926 | 24,585 | 24,420 | |||||||||||||
| Business development | 22,587 | 24,854 | 26,401 | |||||||||||||
| Professional services | 29,526 | 23,512 | 27,419 | |||||||||||||
| Other | 14,366 | 20,701 | 16,758 | |||||||||||||
| Total non-compensation expenses | 201,495 | 199,120 | 226,072 | |||||||||||||
| Total non-interest expenses | 616,811 | 548,863 | 706,842 | |||||||||||||
| Earnings (loss) before income taxes | 102,597 | (249,876 | ) | 84,712 | ||||||||||||
| Income tax expense (benefit) | 48,655 | (83,107 | ) | 24,530 | ||||||||||||
| Net earnings (loss) | 53,942 | (166,769 | ) | 60,182 | ||||||||||||
| Net earnings attributable to noncontrolling interests | 44 | 44 | 349 | |||||||||||||
| Net earnings (loss) attributable to Jefferies Group LLC | $ | 53,898 | $ | (166,813 | ) | $ | 59,833 | |||||||||
| Pretax operating margin | 14.3 | % |
(83.6) |
% |
10.7 | % | ||||||||||
| Effective tax rate | 47.4 | % | 33.3 | % | 29.0 | % | ||||||||||
| JEFFERIES GROUP LLC AND SUBSIDIARIES | |||||||||||
| CONSOLIDATED STATEMENTS OF EARNINGS | |||||||||||
| (Amounts in Thousands) | |||||||||||
| (Unaudited) | |||||||||||
| Six Months Ended | |||||||||||
| May 31, 2016 | May 31, 2015 | ||||||||||
| Revenues: | |||||||||||
| Commissions and other fees | $ | 301,981 | $ | 340,430 | |||||||
| Principal transactions | 214,807 | 261,439 | |||||||||
| Investment banking | 483,976 | 676,257 | |||||||||
| Asset management fees and investment | |||||||||||
| income (loss) from managed funds | 13,866 | (4,187 | ) | ||||||||
| Interest income | 442,120 | 469,422 | |||||||||
| Other revenues | (26,728 | ) | 48,481 | ||||||||
| Total revenues | 1,430,022 | 1,791,842 | |||||||||
| Interest expense | 411,627 | 408,616 | |||||||||
| Net revenues | 1,018,395 | 1,383,226 | |||||||||
| Non-interest expenses: | |||||||||||
| Compensation and benefits | 765,059 | 845,985 | |||||||||
| Non-compensation expenses: | |||||||||||
| Floor brokerage and clearing fees | 84,070 | 113,793 | |||||||||
| Technology and communications | 131,488 | 144,748 | |||||||||
| Occupancy and equipment rental | 49,511 | 48,604 | |||||||||
| Business development | 47,441 | 48,338 | |||||||||
| Professional services | 53,038 | 51,675 | |||||||||
| Other | 35,067 | 32,487 | |||||||||
| Total non-compensation expenses | 400,615 | 439,645 | |||||||||
| Total non-interest expenses | 1,165,674 | 1,285,630 | |||||||||
| Earnings (loss) before income taxes | (147,279 | ) | 97,596 | ||||||||
| Income tax expense (benefit) | (34,452 | ) | 24,861 | ||||||||
| Net earnings (loss) | (112,827 | ) | 72,735 | ||||||||
| Net earnings attributable to noncontrolling interests | 88 | 1,220 | |||||||||
| Net earnings (loss) attributable to Jefferies Group LLC | $ | (112,915 | ) | $ | 71,515 | ||||||
| Pretax operating margin | (14.5 | )% | 7.1 | % | |||||||
| Effective tax rate | 23.4 | % | 25.5 | % | |||||||
| JEFFERIES GROUP LLC AND SUBSIDIARIES | ||||||||||||||||
| SELECTED STATISTICAL INFORMATION | ||||||||||||||||
| (Amounts in Thousands, Except Other Data) | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| Quarter Ended | ||||||||||||||||
| May 31, 2016 | February 29, 2016 | May 31, 2015 | ||||||||||||||
|
Revenues by Source |
||||||||||||||||
| Equities | $ | 223,540 | $ | 1,745 | $ | 228,198 | ||||||||||
| Fixed income (1) | 238,486 | 56,782 | 153,444 | |||||||||||||
| Total sales and trading | 462,026 | 58,527 | 381,642 | |||||||||||||
| Equity | 60,905 | 43,999 | 108,805 | |||||||||||||
| Debt | 46,124 | 57,273 | 154,670 | |||||||||||||
| Capital markets | 107,029 | 101,272 | 263,475 | |||||||||||||
| Advisory | 146,017 | 129,658 | 140,787 | |||||||||||||
| Total investment banking | 253,046 | 230,930 | 404,262 | |||||||||||||
|
Asset management fees and investment income (losses) |
||||||||||||||||
| from managed funds: | ||||||||||||||||
| Asset management fees | 6,964 | 11,205 | 4,903 | |||||||||||||
| Investment income (losses) from managed funds | (2,628 | ) | (1,675 | ) | 747 | |||||||||||
| Total | 4,336 | 9,530 | 5,650 | |||||||||||||
| Net revenues | $ | 719,408 | $ | 298,987 | $ | 791,554 | ||||||||||
|
Other Data |
||||||||||||||||
| Number of trading days | 64 | 61 | 63 | |||||||||||||
| Number of trading loss days | 2 | 17 | 10 | |||||||||||||
| Number of trading loss days excluding KCG | 1 | 12 | 5 | |||||||||||||
| Average firmwide VaR (in millions) (2) | $ | 8.25 | $ | 8.37 | $ | 12.80 | ||||||||||
| Average firmwide VaR excluding KCG (in millions) (2) | $ | 6.04 | $ | 6.69 | $ | 9.86 | ||||||||||
|
|
||||||||||||||||
| (1) | The results in the quarter ended May 31, 2015 include $35.7 million of net revenues globally from the Bache business. At May 31, 2016, we have transferred all of our client accounts to Société Générale S.A. and other brokers and completed the exit of the Bache business. | ||
| (2) | 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 | ||||||||||||
| SELECTED STATISTICAL INFORMATION | ||||||||||||
| (Amounts in Thousands, Except Other Data) | ||||||||||||
| (Unaudited) | ||||||||||||
| Six Months Ended | ||||||||||||
| May 31, 2016 | May 31, 2015 | |||||||||||
|
Revenues by Source |
||||||||||||
| Equities | $ | 225,285 | $ | 431,677 | ||||||||
| Fixed income (1) | 295,268 | 279,479 | ||||||||||
| Total sales and trading | 520,553 | 711,156 | ||||||||||
| Equity | 104,904 | 187,876 | ||||||||||
| Debt | 103,397 | 215,546 | ||||||||||
| Capital markets | 208,301 | 403,422 | ||||||||||
| Advisory | 275,675 | 272,835 | ||||||||||
| Total investment banking | 483,976 | 676,257 | ||||||||||
| Asset management fees and investment losses from managed funds: | ||||||||||||
| Asset management fees | 18,169 | 18,888 | ||||||||||
| Investment losses from managed funds | (4,303 | ) | (23,075 | ) | ||||||||
| Total | 13,866 | (4,187 | ) | |||||||||
| Net revenues | $ | 1,018,395 | $ | 1,383,226 | ||||||||
|
Other Data |
||||||||||||
| Number of trading days | 125 | 124 | ||||||||||
| Number of trading loss days | 19 | 21 | ||||||||||
| Number of trading loss days excluding KCG | 13 | 14 | ||||||||||
| Average firmwide VaR (in millions) (2) | $ | 8.31 | $ | 13.03 | ||||||||
| Average firmwide VaR excluding KCG (in millions) (2) | $ | 6.36 | $ | 9.58 | ||||||||
|
|
||||||||||||
| (1) | The results in the six months ended May 31, 2015 include $84.9 million of net revenues globally from the Bache business. At May 31, 2016, we have transferred all of our client accounts to Société Générale S.A. and other brokers and completed the exit of the Bache business. | ||
| (2) | 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 | |||||||||||||||||
| May 31, 2016 | February 29, 2016 | May 31, 2015 | |||||||||||||||
|
Financial position: |
|||||||||||||||||
| Total assets (1) | $ | 37,120 | $ | 35,193 | $ | 44,140 | |||||||||||
| Average total assets for the period (1) | $ | 43,549 | $ | 44,669 | $ | 51,013 | |||||||||||
| Average total assets less goodwill and intangible assets for the period (1) | $ | 41,678 | $ | 42,796 | $ | 49,118 | |||||||||||
| Cash and cash equivalents (1) | $ | 2,839 | $ | 2,600 | $ | 3,289 | |||||||||||
| Cash and cash equivalents and other sources of liquidity (1) (2) | $ | 4,603 | $ | 4,290 | $ | 4,951 | |||||||||||
| Cash and cash equivalents and other sources of liquidity - % total assets (1) (2) | 12.4 | % | 12.2 | % | 11.2 | % | |||||||||||
|
Cash and cash equivalents and other sources of liquidity - % total assets less |
|||||||||||||||||
|
goodwill and intangible assets (1) (2) |
13.1 | % | 12.9 | % | 11.7 | % | |||||||||||
| Financial instruments owned (1) | $ | 15,119 | $ | 13,630 | $ | 18,843 | |||||||||||
| Goodwill and intangible assets (1) | $ | 1,871 | $ | 1,869 | $ | 1,895 | |||||||||||
| Total equity (including noncontrolling interests) | $ | 5,344 | $ | 5,262 | $ | 5,520 | |||||||||||
| Total member's equity | $ | 5,339 | $ | 5,261 | $ | 5,480 | |||||||||||
| Tangible member's equity (3) | $ | 3,468 | $ | 3,392 | $ | 3,584 | |||||||||||
|
Level 3 financial instruments: |
|||||||||||||||||
| Level 3 financial instruments owned (1) (4) | $ | 436 | $ | 489 | $ | 540 | |||||||||||
| Level 3 financial instruments owned - % total assets (1) | 1.2 | % | 1.4 | % | 1.2 | % | |||||||||||
| Level 3 financial instruments owned - % total financial instruments (1) | 2.9 | % | 3.6 | % | 2.9 | % | |||||||||||
| Level 3 financial instruments owned - % tangible member's equity (1) | 12.6 | % | 14.4 | % | 15.1 | % | |||||||||||
|
Other data and financial ratios: |
|||||||||||||||||
| Total capital (1) (5) | $ | 10,729 | $ | 10,588 | $ | 10,858 | |||||||||||
| Leverage ratio (1) (6) | 6.9 | 6.7 | 8.0 | ||||||||||||||
| Adjusted leverage ratio (1) (7) | 9.0 | 8.5 | 10.3 | ||||||||||||||
| Tangible gross leverage ratio (1) (8) | 10.2 | 9.8 | 11.8 | ||||||||||||||
| Number of trading days | 64 | 61 | 63 | ||||||||||||||
| Number of trading loss days | 2 | 17 | 10 | ||||||||||||||
| Number of trading loss days excluding KCG | 1 | 12 | 5 | ||||||||||||||
| Average firmwide VaR (9) | $ | 8.25 | $ | 8.37 | $ | 12.80 | |||||||||||
| Average firmwide VaR excluding KCG (9) | $ | 6.04 | $ | 6.69 | $ | 9.86 | |||||||||||
| Number of employees, at period end | 3,279 | 3,439 | 3,830 | ||||||||||||||
| JEFFERIES GROUP LLC AND SUBSIDIARIES | |||
| FINANCIAL HIGHLIGHTS - FOOTNOTES | |||
| (1) | Amounts pertaining to May 31, 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 May 31, 2016. | ||
| (2) | At May 31, 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 $1,096 million, in aggregate, and $669 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 May 31, 2015 amounts also included additional funds that were available under the committed senior secured revolving credit facility available for the working capital needs of Jefferies Bache. The corresponding amounts included in other sources of liquidity at February 29, 2016 were $1,061 million and $630 million, respectively, and at May 31, 2015, were $1,136 million and $527 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 members' 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) | At May 31, 2016, February 29, 2016 and May 31, 2015, total capital includes our long-term debt of $5,385 million, $5,326 million and $5,339 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. | ||
| (6) | Leverage ratio equals total assets divided by total equity. | ||
| (7) | 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 May 31, 2016, February 29, 2016 and May 31, 2015, adjusted assets were $31,173 million, $28,920 million and $37,171 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. | ||
| (8) | 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. | ||
| (9) | 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. | ||
