Jefferies CEO Discusses F3Q2010 Results - Earnings Call Transcript

Jefferies CEO Discusses F3Q2010 Results - Earnings Call Transcript
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Jefferies Group, Inc. (JEF)

F3Q2010 Earnings Call Transcript

September 22, 2010 9:00 am ET

Executives

Rich Handler – Chairman and CEO

Peregrine Broadbent – EVP and CFO

Brian Friedman – Chairman, Executive Committee

Analysts

Patrick Davitt – Bank of America/Merrill Lynch

Meredith Whitney – Meredith Whitney Advisors

Douglas Sipkin – Ticonderoga

Chris Kotowski – Oppenheimer

Lauren Smith – KBW

Presentation

Operator

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Welcome to the Jefferies 2010 fiscal third quarter financial results conference call. A question and answer period will follow management’s prepared remarks.

As a reminder, this conference call is being recorded. A press release containing Jefferies 2010 fiscal third quarter financial results was distributed via Business Wire before the market opened today and can be accessed at Jefferies Web site at www.jefferies.com.

Some of the comments made in this conference call may include forward-looking statements. These forward-looking statements may contain statements about management’s current assumptions, expectations, strategic objectives, growth opportunities, business and prospects. These forward-looking statements are not statements of historical fact and represent only Jefferies belief as to future performance. They usually include the word “continue,” “will,” “believe,” “should,” “estimate,” or other similar expressions.

Actual results could differ materially from those projected in these forward-looking statements. Please refer to Jefferies Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 26th 2010, and in Jefferies Form 10-Qs and 8-Ks for a discussion of important factors that could cause actual results to differ materially from those projected in these forward-looking statements.

I’d now like to introduce your host for today’s call, Mr. Richard Handler, Chairman and CEO of Jefferies. Mr. Handler, you may begin your conference.

Rich Handler

Good morning and thank you for joining our discussion of Jefferies third quarter fiscal results. I am Rich Handler, CEO of Jefferies and with me on the call today are Brian Friedman, Chairman of our Executive Committee and Peg Broadbent, our Chief Financial Officer.

For the three months ended August 31st 2010, Jefferies posted net revenues of $520 million, net income to common shareholders of $46 million, and earnings per share of $0.23.

Our results for the quarter reflects continued momentum in investment banking, but a slowdown across the board in trading markets that persisted throughout June, July, and August.

A summer slowdown is not unusual. However, this appears to have been exacerbated this year by continued concerns over the state of the global economy. This caused investors and traders to pause, thereby reducing secondary trading volumes and opportunities who are client-focused sales and trading businesses.

That said we continue to be excited and motivated by the growth opportunities ahead for all of our businesses, both domestically and globally.

We are conducting this call from our European headquarters in the London, testimony to the increasing importance of our nearly 600 European-based employee partners who are doing their part to deliver global investment banking and trading services to our clients.

To further extend our global platform, we have recently announced the appointment of Mike Alexander as our new Hong Kong-based CEO of Asia and the leader of the Pan-Asian equities business we have begun to build there. We are optimistic about our long-term prospects in that rapidly developing region and we will talk more about later.

As ever, we continue to support our growing businesses with more and adequate levels of long-term and permanent capital. In July, we have further increased our long-term capital base to $6.3 billion by raising $550 million to an 11-year bond offering. The proceeds of this offering are still in our treasury, where we held in excess of $2.1 billion of cash at quarter end.

I will now turn it over to Peg to discuss our results in more detail.

Peg Broadbent

Thank you, Rich. As Rich mentioned, our third quarter net revenues were $520 million versus $670 million last quarter and $700 million for the same quarter a year ago. Net income to common shareholders was $46 million and earnings per share $0.23.

Fixed income revenues were $171 million, down 26% from the more active quarter of 2010 and significantly lower than the unusually robust environment of the third quarter of 2009 which generated revenues of more than $400 million. You may recall that we were very clear back then that Q3 2009 benefited from some exceptional trading opportunities.

Equities net revenues of $102 million were 40% lower than the second quarter and 27% below the third quarter of 2009. Investment banking revenues were $246 million, double the third quarter of 2009 and only 4% lower than our record second quarter 2010.

Asset Management revenues were $1 million compared to $14 million for the second quarter of 2010. The lower revenues resulted largely from weaker results from our domestic hedge funds and our private equity effort.

Non-compensation expenses were $135 million compared to the $138 million last quarter and the $107 million reported in the third quarter of last year.

Brokerage and clearing costs were lower than the second quarter of 2010 due to lower trading volumes. These reductions were partially offset by increased technology and business development costs which reflect the continued investment we are making in our trading businesses and increased investment banking activity, respectively.

Our compensation expense ratio is 59% for the quarter. The reduced level of overall revenues and the changing mix of revenues for the quarter when compared to the first two quarters of the year resulted in the slightly higher compensation ratio. The compensation ratio for the eight months ended August 31, was 58%. During the quarter we repurchased 450,000 shares at an average price of $21.87 per share.

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