This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Jefferies Cites New Wall Street Earnings Drag: Charity

Jefferies November merger highlighted some of the concerns overshadowing the investment banking industry, in the wake of the crisis.

Notably, the company's acquisition by a more financially stable Leucadia National begged the question of whether the full-service independent investment banking business model could be sustained, given stricter requirements around capital and harsher assessments from ratings agencies.

In the wake of Jefferies mid-November merger with Leucadia National, KBW analysts called the deal "defensive," and ratings agency Moody's took a wait and see approach on any prospective upgrades. [Interestingly, KBW, a competitor investment bank was subsequently bought by <b>Stifel Financial</b> <span class=" TICKERFLAT">(<a href="/quote/SF.html">SF</a><a class=" arrow" href="/quote/SF.html"><span class=" tickerChange" id="story_SF"></span></a>)</span> for a moderate premium later in November]

In the merger Leucadia National - already a 28.6% shareholder in Jefferies - offered 0.81 of its shares for each outstanding Jefferies share in a stock deal that was valued at roughly $3.6 billion when announced on Nov. 12. In announcing the deal, Jefferies highlighted the importance of finding a strategic, capital rich partner.

A press release announcing the deal keyed in on capital and the $9 billion in shareholder equity that the combined companies will now have. A key part of the deal was the assumption that the ongoing profitability of Jefferies will create the earnings to utilize a large net operating loss held on Leucadia's balance sheet, converting it into capital that could bolster future trading and banking business.

According to Leucadia's third quarter filings with the Securities and Exchange Commission, it would need to generate $4.4 billion in pre-tax income to fully realize the deferred tax asset created its NOL's. Leucadia's financial statements go on to say that its NOL carryforwards will be available until 2029.

After the deal is merger is completed - which is expected in early 2012 - Jefferies chief executive Richard Handler will become CEO of the combined companies and Jefferies will be Leucadia's largest business among a span of operations that give it the moniker of being a mini Berkshire Hathaway (BRK.A).

To CEO Handler's credit, Jefferies partnership with Leucadia deal culminates a remarkable turnaround for the investment bank from where it stood at this time last year. In the wake of late Oct. 2011 collapse of brokerage MF Global as the debt crisis in Europe escalated, some investors and independent rating agencies were all but ready to write Jefferies off.

For more on Jefferies, see why the investment bank and its CEO may turn to a mini Berkshire Hathaway or a bizarre Warren Buffett.

For more on Wall Street and Hurricane Sandy relief work, see why a Barclays saleswoman traded by day and volunteered Hoboken aid by night.

-- Written by Antoine Gara in New York
2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
JEF $0.00 0.00%
C $44.23 0.00%
BAC $14.05 0.00%
GS $159.53 0.00%
JPM $61.24 0.00%


Chart of I:DJI
DOW 17,660.71 +9.45 0.05%
S&P 500 2,050.63 -0.49 -0.02%
NASDAQ 4,717.0940 -8.5450 -0.18%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs