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Jefferies Cites New Wall Street Earnings Drag: Charity

NEW YORK ( TheStreet) -- Since the financial crisis, investors and reporters reading Wall Street earnings have grown used to adjustments that take into account so-called onetime legal settlements, regulatory penalties, asset writedowns and a quarterly exercise in backing out accounting gains and losses from an investment bank's debt costs.

In reporting record full-year revenue and a near 50% fourth quarter profitability surge on Tuesday morning, Jefferies (JEF) added a new twist to Wall Street's earnings bungle: charity.

On Tuesday, Jefferies had to adjust for charity, and specifically, donations made to help a battered East Coast recover from a Hurricane Sandy, a late-October storm that destroyed thousands of homes and left millions without power.

On the second line of Jefferies earnings release, the investment bank pegs its quarterly net income at $72 million, but highlights the number would have been $81 million had it not been for donations made in the wake of Hurricane Sandy and unnamed costs associated with its acquisition by financial holding company Leucadia National (LUK - Get Report).

Earnings per share, excluding Sandy-related donations and M&A expense was 35 cent a share, and 31 cents a share on a GAAP-basis.

In a supplement to earnings, Jefferies states it paid $4.1 million in Hurricane Sandy donations. A financial supplement notes, adjusted revenue and EPS figures "[reflect] amortization of intangible assets recognized in connection with the acquisitions of Hoare Govett and the Bache entities, donations to Hurricane Sandy relief of $4.1 million and transaction costs (primarily professional fees) associated with the announced merger with Leucadia National Corporation of $4.2 million."

Jefferies is the first of a host of publicly traded investment banks to report fourth quarter earnings that could include a new type of earnings adjustment -- prospective Hurricane Sandy related aid.

Goldman Sachs (GS - Get Report), Morgan Stanley (MS - Get Report), JPMorgan (JPM - Get Report), Bank of America Merrill Lynch (BAC - Get Report) and Citigroup (C - Get Report) all report fourth quarter earnings in the New Year, but have publicly disclosed multi-million dollar commitments to Hurricane Sandy relief.

Even with the visible Sandy-related adjustments, it was a banner quarter and year for Jefferies. Overall, fourth quarter earnings increased 48% and revenue rose nearly 39%. Meanwhile full-year revenue $3 billion was a record for the firm, even if overall profits fell slightly for the year to $282 million.

The bank's fourth quarter earning surge was a result of strong trading gains and flat investment banking advisory and underwriting revenue. Fixed Income net revenues of $1.2 billion were a 66% increase from 2011 levels, while $1.13 billion in investment banking revenue represented no year-over-year change.

Jefferies shares rose over 3% in Tuesday trading to $18.80, adding to 30%-plus year-to-date gains.
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JEF $0.00 0.00%
BAC $14.77 1.40%
C $46.67 0.84%
GS $166.22 1.30%
JPM $63.79 0.93%


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