Jefferies Group's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Jefferies Group (JEF)

Q1 2012 Earnings Call

March 20, 2012 9:00 am ET

Executives

Richard B. Handler - Executive Chairman, Chief Executive Officer, President, Member of Risk Management Committee and Director of Jefferies

Peregrine C. de M. Broadbent - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Member of Risk Management Committee

Brian Paul Friedman - Director, Chairman of Executive Committee, Member of Risk Management Committee and President of Jefferies Capital Partners

Analysts

Patrick J. O'Shaughnessy - Raymond James & Associates, Inc., Research Division

M. Patrick Davitt - BofA Merrill Lynch, Research Division

Joel Jeffrey - Keefe, Bruyette, & Woods, Inc., Research Division

David M. Trone - JMP Securities LLC, Research Division

Christoph M. Kotowski - Oppenheimer & Co. Inc., Research Division

Jeffrey Harte - Sandler O'Neill + Partners, L.P., Research Division

Vera Allain

Meredith Ann Whitney - Meredith Whitney Advisory Group LLC

Unknown Analyst

Presentation

Operator

Welcome to the Jefferies 2012 First Quarter Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. A press release containing Jefferies' 2012 fiscal first quarter financial results was distributed via Business Wire earlier this morning and can be accessed at 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 words 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 January 27, 2012, and Jefferies' Form 8-Ks for discussions of important factors that could cause actual results to differ materially from those projected in these forward-looking statements.

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

Richard B. Handler

Good morning, and thank you for joining our discussion of Jefferies first quarter 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 first quarter ended February 29, 2012, we posted net revenues of $780 million, net income to common shareholders of $77 million and earnings per share of $0.33. Our solid results reflect our continued growth in investment banking and strong results in fixed income. At quarter end, our assets were about $34.6 billion or about 9.5x shareholders' equity, slightly below our 9.9x leverage at the end of November.

During the quarter, we acquired the U.K. corporate broker, Hoare Govett, from RBS. This was another unique opportunity to advance our business with modest operating cost and no real use of capital in a period of challenge and industry consolidation. With a history of serving clients for over 100 years, Hoare Govett is one of the U.K.'s most prominent corporate brokers and is ranked #4 in terms of FTSE clients. This combination affirms our commitment to our U.K. and European investment banking and trading clients. The entire senior Hoare Govett corporate broking team, along with the relevant equity research, sales and capital market professionals who have joined Jefferies, totals 51 employee partners. With these additions, our headcount at March 1 was 3,875, down 23 people from year end.

For the time being, recent backstops of liquidity by the ECB into the European banking system and the Greek debt restructuring appear to have reduced the extreme anxiety surrounding the European sovereign debt and bank risks and consequently appear to have stabilized global credit markets. This more optimistic sentiment translated into increasingly higher fixed income and investment banking activity levels as our first quarter progressed. Equity volumes remained muted for much of the quarter, although we did note a pickup in equity activity toward the end of February. The same broad market trends have continued through the initial few weeks of our second quarter.

Now I'll turn it over to Peg to discuss our results and financial condition in more detail.

Peregrine C. de M. Broadbent

Thank you, Rich. As Rich said, our net revenues for our first fiscal quarter were $780 million. Our net income to common shareholders were $77 million and earnings per share of $0.33 versus $0.42 for the first quarter last year. The difference in EPS for the 2 quarters is largely attributable to an approximately 10% increase in our average shares outstanding due to our $500 million common equity raise in April 2011 and stronger results in Jefferies high-yield trading that shifted income to noncontrolling interests as we will explain below.

Investment banking revenues were $286 million, an increase of 20% over the first quarter of 2011 and 9% over the fourth quarter of 2011. Of the $286 million, capital markets revenues were $136 million and M&A and advisory revenues were $150 million. Fixed income revenues of $339 million were up 141% from last quarter's total of $141 million and 7% above last year's strong first quarter. Equities net revenues for our first quarter were $136 million, lower than the $177 million reported in the comparable quarter last year, but 10% stronger than last year's $124 million. Asset management revenues for the quarter were $6 million, a decrease from the $7 million reported from -- for the fourth quarter last year and the $24 million reported for the year-ago quarter, which included an exceptionally high performance fee accrual.

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