Jefferies Reports Fiscal Second Quarter 2017 Financial Results

NEW YORK--()--Jefferies Group LLC today announced financial results for its fiscal second quarter 2017.

Highlights for the three months ended May 31, 2017:

  • Total Net Revenues of $779 million
  • Investment Banking Net Revenues of $352 million
  • Total Equities and Fixed Income Net Revenues of $430 million
  • Earnings Before Income Taxes of $116 million
  • Net Earnings of $70 million (40% tax rate, primarily due to recent state and local tax legislation, which added 6%)

Highlights for the six months ended May 31, 2017:

  • Total Net Revenues of $1.6 billion
  • Investment Banking Net Revenues of $760 million
  • Total Equities and Fixed Income Net Revenues of $809 million
  • Earnings Before Income Taxes of $240 million
  • Net Earnings of $184 million (24% tax rate, primarily due to net foreign tax credits)

Rich Handler, Chairman and Chief Executive Officer, and Brian Friedman, Chairman of the Executive Committee, commented: "Our second quarter results reflect solid results in Investment Banking, with $352 million in revenues, compared to $253 million for the same quarter last year, primarily reflecting an improved environment for debt and equity new issuance. Our Equities revenues were $272 million, including a $96 million mark-to-market gain on our 24% equity ownership of KCG Holdings Inc. This compares to $224 million for our second quarter of last year, which included a markup in our KCG position of $56 million. During the quarter, Virtu Financial agreed to buy KCG for cash in a transaction that is expected to close during the third quarter. Excluding KCG, our core equity sales and trading business enjoyed a solid quarter and, despite quiet market activity and low volatility, our global cash businesses continued to gain market share. Fixed Income revenues were $159 million for the quarter as lower volumes and lower volatility prevailed throughout much of the quarter. Our tax expense for the quarter was $46 million, or about 40% of pre-tax profits. Following recently enacted legislation from New York State and New York City, our tax expense includes a net charge of $7 million that reflects the revaluation of a portion of our net deferred tax asset, which was partially offset by current year reduced state and local tax rates. The impact of this legislation will reduce the income apportioned to these jurisdictions going forward and thereby reduce our effective tax rate."

The attached financial tables should be read in conjunction with our Quarterly Report on Form 10-Q for the quarter ended February 28, 2017 and our Annual Report on Form 10-K for the year ended November 30, 2016. Amounts herein pertaining to May 31, 2017 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 quarter ended May 31, 2017.

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, a global, full-service 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, 2017 February 28, 2017 May 31, 2016
 
Revenues:
Commissions and other fees $ 152,643 $ 145,822 $ 146,157
Principal transactions 287,070 220,957 318,180
Investment banking 351,863 408,021 253,046
Asset management fees and investment
income (loss) from managed funds (2,697 ) 8,926 4,336
Interest 227,804 202,023 220,175
Other 22,272   24,048   (4,977 )
Total revenues 1,038,955 1,009,797 936,917
Interest expense 259,661   214,284   217,509  
Net revenues 779,294   795,513   719,408  
 
Non-interest expenses:
Compensation and benefits 450,522 460,172 415,316
 
Non-compensation expenses:
Floor brokerage and clearing fees 47,494 45,858 43,591
Technology and communications 67,478 65,507 66,499
Occupancy and equipment rental 23,594 25,815 24,926
Business development 26,466 22,632 22,587
Professional services 26,413 32,124 29,526
Other 21,146   19,206   14,366  
Total non-compensation expenses 212,591   211,142   201,495  
Total non-interest expenses 663,113   671,314   616,811  
Earnings before income taxes 116,181 124,199 102,597
Income tax expense 46,391   10,179   48,655  
Net earnings 69,790 114,020 53,942
Net earnings attributable to noncontrolling interests 39   1   44  
Net earnings attributable to Jefferies Group LLC $ 69,751   $ 114,019   $ 53,898  
 
Pretax operating margin 14.9 % 15.6 % 14.3 %
Effective tax rate (1) 39.9 % 8.2 % 47.4 %
 
(1)   The effective tax rate for the three months ended February 28, 2017 reflects a $32 million, or 26%, net tax benefit, which resulted from the repatriation of earnings, along with their associated foreign tax credits, from certain foreign subsidiaries.
 

 
JEFFERIES GROUP LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in Thousands)
(Unaudited)
   
Six Months Ended
May 31, 2017 May 31, 2016
 
Revenues:
Commissions and other fees $ 298,465 $ 301,981
Principal transactions 508,027 214,807
Investment banking 759,884 483,976
Asset management fees and investment
income from managed funds 6,229 13,866
Interest income 429,827 442,120
Other 46,320   (26,728 )
Total revenues 2,048,752 1,430,022
Interest expense 473,945   411,627  
Net revenues 1,574,807   1,018,395  
 
Non-interest expenses:
Compensation and benefits 910,694 765,059
 
Non-compensation expenses:
Floor brokerage and clearing fees 93,352 84,070
Technology and communications 132,985 131,488
Occupancy and equipment rental 49,409 49,511
Business development 49,098 47,441
Professional services 58,537 53,038
Other 40,352   35,067  
Total non-compensation expenses 423,733   400,615  
Total non-interest expenses 1,334,427   1,165,674  
Earnings (loss) before income taxes 240,380 (147,279 )
Income tax expense (benefit) 56,570   (34,452 )
Net earnings (loss) 183,810 (112,827 )
Net earnings attributable to noncontrolling interests 40   88  
Net earnings (loss) attributable to Jefferies Group LLC $ 183,770   $ (112,915 )
 
Pretax operating margin 15.3 % (14.5 )%
Effective tax rate 23.5 % 23.4 %
 

 
JEFFERIES GROUP LLC AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
(Amounts in Thousands, Except Other Data)
(Unaudited)
     
Quarter Ended
May 31, 2017 February 28, 2017 May 31, 2016

Revenues by Source

Equities $ 271,522 $ 156,714 $ 223,540
Fixed income 158,606   221,852   238,486  
Total Equities and Fixed income 430,128   378,566   462,026  
 
Equity 74,902 61,566 60,905
Debt 125,847   162,628   46,124  
Capital markets 200,749 224,194 107,029
Advisory 151,114   183,827   146,017  
Total Investment banking 351,863   408,021   253,046  
 
Asset management fees and investment income (loss) from managed funds:
Asset management fees 4,115 7,981 6,964
Investment income (loss) from managed funds (6,812 ) 945   (2,628 )
Total (2,697 ) 8,926   4,336  
Net revenues $ 779,294   $ 795,513   $ 719,408  
 

Other Data

Number of trading days 64 60 64
Number of trading loss days 3 3 2
Number of trading loss days, excluding KCG 4 3 1
 
Average firmwide VaR (in millions) (1) $ 9.21 $ 10.30 $ 8.25
Average firmwide VaR, excluding KCG (in millions) (1) $ 8.81 $ 8.26 $ 6.04
 
(1)   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, 2016.
 

 
JEFFERIES GROUP LLC AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
(Amounts in Thousands, Except Other Data)
(Unaudited)
   
Six Months Ended
May 31, 2017 May 31, 2016

Revenues by Source

Equities $ 428,236 $ 225,285
Fixed income 380,458   295,268  
Total Equities and Fixed income 808,694   520,553  
 
Equity 136,468 104,904
Debt 288,475   103,397  
Capital markets 424,943 208,301
Advisory 334,941   275,675  
Total investment banking 759,884   483,976  
 
Asset management fees and investment income (loss) from managed funds:
Asset management fees 12,096 18,169
Investment income (loss) from managed funds (5,867 ) (4,303 )
Total 6,229   13,866  
Net revenues $ 1,574,807   $ 1,018,395  
 

Other Data

Number of trading days 124 125
Number of trading loss days 6 19
Number of trading loss days excluding KCG 7 13
 
Average firmwide VaR (in millions) (1) $ 9.74 $ 8.31
Average firmwide VaR excluding KCG (in millions) (1) $ 8.55 $ 6.36
 
(1)   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, 2016.
 

 
JEFFERIES GROUP LLC AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(Amounts in Millions, Except Where Noted)
(Unaudited)
     
Quarter Ended
May 31, 2017 February 28, 2017 May 31, 2016
 

Financial position:

Total assets (1) $ 40,079 $ 37,703 $ 37,120
Average total assets for the period (1) $ 45,650 $ 44,490 $ 43,549
Average total assets less goodwill and intangible assets for the period (1) $ 43,806 $ 42,644 $ 41,678
 
Cash and cash equivalents (1) $ 4,357 $ 4,080 $ 2,839
Cash and cash equivalents and other sources of liquidity (1) (2) $ 5,817 $ 5,886 $ 4,282
Cash and cash equivalents and other sources of liquidity - % total assets (1) (2) 14.5 % 15.6 % 11.5 %
Cash and cash equivalents and other sources of liquidity - % total assets less goodwill and intangible assets (1) (2) 15.2 % 16.4 % 12.1 %
 
Financial instruments owned (1) $ 13,881 $ 13,253 $ 15,119
Goodwill and intangible assets (1) $ 1,844 $ 1,843 $ 1,871
 
Total equity (including noncontrolling interests) $ 5,565 $ 5,472 $ 5,344
Total Jefferies Group LLC member's equity $ 5,565 $ 5,472 $ 5,339
Tangible Jefferies Group LLC member's equity (3) $ 3,721 $ 3,629 $ 3,468
 
 

Level 3 financial instruments:

Level 3 financial instruments owned (1) (4) $ 312 $ 365 $ 436
Level 3 financial instruments owned - % total assets (1) 0.8 % 1.0 % 1.2 %
Level 3 financial instruments owned - % total financial instruments (1) 2.2 % 2.8 % 2.9 %
Level 3 financial instruments owned - % tangible Jefferies Group LLC member's equity (1) 8.4 % 10.1 % 12.6 %
 

Other data and financial ratios:

Total long-term capital (1) (5) $ 10,762 $ 11,388 $ 10,729
Leverage ratio (1) (6) 7.2 6.9 6.9
Adjusted leverage ratio (1) (7) 9.0 8.9 9.0
Tangible gross leverage ratio (1) (8) 10.3 9.9 10.2
 
Number of trading days 64 60 64
Number of trading loss days 3 3 2
Number of trading loss days, excluding KCG 4 3 1
Average firmwide VaR (9) $ 9.21 $ 10.30 $ 8.25
Average firmwide VaR, excluding KCG (9) $ 8.81 $ 8.26 $ 6.04
 
Number of employees, at period end 3,324 3,319 3,279
 

 
JEFFERIES GROUP LLC AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS - FOOTNOTES
 
(1) Amounts pertaining to May 31, 2017 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, 2017.
 
(2) At May 31, 2017, 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 $1,149 million, in aggregate, and $311 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. The corresponding amounts included in other sources of liquidity at February 28, 2017 were $1,308 million and $498 million, respectively, and at May 31, 2016, were $1,096 million and $347 million, respectively. The amounts included in other sources of liquidity at May 31, 2016 have been reduced by $322 million from what was previously disclosed to reflect adjustments for certain securities that have subsequently been identified to have been encumbered.
 
(3) Tangible Jefferies Group LLC member's equity (a non-GAAP financial measure) represents total Jefferies Group LLC member's equity less goodwill and identifiable intangible assets. We believe that tangible Jefferies Group LLC member's equity is meaningful for valuation purposes, as financial companies are often measured as a multiple of tangible Jefferies Group LLC 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, 2017, February 28, 2017 and May 31, 2016, total long-term capital includes our long-term debt of $5,197 million, $5,915 million and $5,385 million, respectively, and total equity. Long-term debt included in total long-term capital is reduced by the amount of debt maturing in less than one year, as 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, which equals 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 (excluding derivative liabilities). At May 31, 2017, February 28, 2017 and May 31, 2016, adjusted assets were $33,634 million, $32,155 million and $31,173 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 Jefferies Group LLC 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, 2016.
 

Contacts

Jefferies Group LLC
Peregrine C. Broadbent, 212-284-2338
Chief Financial Officer

Contacts

Jefferies Group LLC
Peregrine C. Broadbent, 212-284-2338
Chief Financial Officer