JEFFERIES Financial profit soared as a pickup in mergers and acquisitions (M&A) helped the firm notch a record, a sign the long-awaited rebound in dealmaking is taking hold.
Fiscal third-quarter investment-banking revenue rose 47 per cent, the New York-based firm said on Wednesday (Sep 25). Earnings totalled US$167.1 million, or 75 US cents a share, in the three months to August, up from US$51.4 million, or 22 US cents, a year earlier. Advisory revenue jumped 77 per cent jump to US$592 million, making it the firm’s best quarter ever.
The results indicate that demand for investment-banking services remains elevated from a year ago, when high interest rates and geopolitical concerns dulled deal activity. Investment banks have been hurt over the past two years by a slowdown in dealmaking and sales of new securities, spurring many firms to trim thousands of jobs.
“The results reflect the continued growth in our capabilities and our relationships, and represents increased market share as well as an improved market,” president Brian Friedman said.
The firm’s fiscal third-quarter revenue jumped 42 per cent to US$1.68 billion, buoyed by a pickup in deals and continued strength in equities trading. The improved performance in investment banking was due in large part to a surge in advisory activity, which Jefferies attributes to market-share gains and increased global M&A activity.
The growth is expected to continue, with the investment-banking pipeline looking “strong heading into year-end and momentum across all of our business lines” continuing, chief executive officer Rich Handler said. The firm is positioned well “in a backdrop of declining interest rates and increasing activity driven by pent-up demand for capital markets and advisory deal flow”.
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Jefferies’ capital markets unit recorded US$670.6 million of revenue for the quarter, up 28 per cent from a year earlier. The firm said the bump was due to strength in the equities business, which rose 42 per cent to US$381.4 million, attributed to “increased volumes and more favourable trading opportunities”. The firm’s debt capital markets also gained, climbing 13 per cent to US$289.2 million on stronger results across Jefferies’ credit-trading businesses.
‘Greater share’
While trading has benefited from activity in equity and debt capital markets, “there is an independent opportunity we are pursuing to gain a greater share of secondary activities in equities as well as credit products”, Friedman said. The firm is investing in its research capabilities to cover more companies and improve offerings such as electronic trading to capture more activity, he said.
Last year, Jefferies referenced a challenging landscape that cut into its overall performance for 2023, which it called a “trough year”. The firm has since reported earnings growth for three straight quarters amid improved market conditions and a rebound in deal activity.
Friedman also attributed the performance to investments the firm has made in its workforce and technology. Jefferies expanded its managing director headcount to 360 from 210 in four years, he said.
“That 70 per cent growth is meaningfully fuelling our gain in market position,” Friedman said.
The firm will continue to develop talent internally and identify lateral opportunities to expand, according to Friedman. “I would expect us to continue to grow our human-capital investment, but not necessarily at the same rate” as recent periods of dislocation, when competitors were pulling back and cutting staff, he said.
Friedman said Jefferies is optimistic about future growth.
“Absent an unforeseen event or meaningful change in direction, activity levels in M&A and equity capital markets should be higher and stronger in 2025,” he said.
Jefferies’ bigger rivals are scheduled to begin reporting their third-quarter results next month. BLOOMBERG
