Jefferies Fixed Income Revenue Plunges 37% To 2 Year Low

Once upon a time Jefferies was the country's biggest junk bond trading shop, with a small investment banking group on the side. Now, it's the other way around.

in its latest quarter and fiscal year ended November 30, Jefferies - which is the last public company to announce results in the old bank convention with a Nov 30 fiscal year end - reported a record $529 million investment banking advisory revenue for the quarter, up 27% Y/Y, and $1.76BN for the 12 months ended Nov. 30. This was the fourth year in a row that the firm has brought in more revenue from investment banking than from trading.

“Our fourth quarter performance was driven by $529 million in Investment Banking net revenues. These quarterly record Investment Banking results reflect solid contributions from equity and debt capital markets, strong performance in our merger and acquisition advisory business, and broad participation across our industry groups and regional efforts... Our strategy of prioritizing expansion of our investment banking effort continues to succeed and should yield further growth over the next several years" CEO Rich Handler said in the statement.

That was the good news; The bad news is that fixed income trading crashed by a whopping 37%, and far more than the 10-15% comps previewed by Jefferies' bigger banking peers.

Commenting on the sharp drop in fixed income revenues, which dropped to the lowest since the first quarter of 2016 when global capital markets were turmoiling, Dick Handler sayd that "our Fixed Income net revenues of $95 million are reflective of a period of lighter volumes, particularly in November, and narrower bid - offer spreads”  Equity trading in Q4 rose modestly by 10% to $194, the smallest increase this year.

While hinted at by JPM, Citi and BofA, the severity of Jefferies' 37%  fixed income revenue plunge took many by surprise. As such, the bank, which is seen as a harbinger of upcoming results by the big banks, is suggesting that the final trading revenues may be well worse than corporate CFOs have warned in recent weeks.

Bigger banks have already telegraphed that the fourth quarter’s rising volatility won’t provide any redemption. Executives at JPMorgan Chase & Co. and Bank of America Corp. earlier this month forecast that trading revenues will be down at least 15 percent compared with the same period a year ago. Most of the large banks report fourth-quarter results next month.

Meanwhile, as Bloomberg notes, investment bankers across Wall Street are outperforming traders in growth of both revenue generated and the size of their bonuses. And courtesy of central banks, there is no end in sight to this shift: weak volatility and sluggish volumes across markets are expected to crimp incentive pay for traders, according to executives and recruiters.

Indeed, the i-banking heavy Jefferies - which is owned by Leucadia National Corp - has benefited from this, and compensation to Jefferies staff rose to $1.83 billion, a 17% gain from a year ago and the highest since at least 2009. The firm employed 3,450 as of Nov. 30, compared with 3,438 people three months earlier.

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