Jefferies Group LLC today announced financial results for its fiscal second quarter 2017.
Highlights for the three months ended May 31, 2017:
- Total Net Revenues of $779 million
- Investment Banking Net Revenues of $352 million
- Total Equities and Fixed Income Net Revenues of $430 million
- Earnings Before Income Taxes of $116 million
- Net Earnings of $70 million (40% tax rate, primarily due to recent state and local tax legislation, which added 6%)
Highlights for the six months ended May 31, 2017:
- Total Net Revenues of $1.6 billion
- Investment Banking Net Revenues of $760 million
- Total Equities and Fixed Income Net Revenues of $809 million
- Earnings Before Income Taxes of $240 million
- Net Earnings of $184 million (24% tax rate, primarily due to net foreign tax credits)
Rich Handler, Chairman and Chief Executive Officer, and Brian Friedman, Chairman of the Executive Committee, commented: "Our second quarter results reflect solid results in Investment Banking, with $352 million in revenues, compared to $253 million for the same quarter last year, primarily reflecting an improved environment for debt and equity new issuance. Our Equities revenues were $272 million, including a $96 million mark-to-market gain on our 24% equity ownership of KCG Holdings Inc. This compares to $224 million for our second quarter of last year, which included a markup in our KCG position of $56 million. During the quarter, Virtu Financial agreed to buy KCG for cash in a transaction that is expected to close during the third quarter. Excluding KCG, our core equity sales and trading business enjoyed a solid quarter and, despite quiet market activity and low volatility, our global cash businesses continued to gain market share. Fixed Income revenues were $159 million for the quarter as lower volumes and lower volatility prevailed throughout much of the quarter. Our tax expense for the quarter was $46 million, or about 40% of pre-tax profits. Following recently enacted legislation from New York State and New York City, our tax expense includes a net charge of $7 million that reflects the revaluation of a portion of our net deferred tax asset, which was partially offset by current year reduced state and local tax rates. The impact of this legislation will reduce the income apportioned to these jurisdictions going forward and thereby reduce our effective tax rate."
The attached financial tables should be read in conjunction with our Quarterly Report on Form 10-Q for the quarter ended February 28, 2017 and our Annual Report on Form 10-K for the year ended November 30, 2016. Amounts herein pertaining to May 31, 2017 represent a preliminary estimate as of the date of this earnings release and may be revised in our Quarterly Report on Form 10-Q for the quarter ended May 31, 2017.
This release contains "forward-looking statements" within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include statements about our future results and performance, including our future market share and expected financial results. It is possible that the actual results may differ materially from the anticipated results indicated in these forward-looking statements. Please refer to our most recent Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from those projected in these forward-looking statements.
Jefferies, a global, full-service investment banking firm focused on serving clients for over 50 years, is a leader in providing insight, expertise and execution to investors, companies and governments. Our firm provides a full range of investment banking, sales, trading, research and strategy across the spectrum of equities, fixed income and foreign exchange, as well as wealth management, in the Americas, Europe and Asia. Jefferies Group LLC is a wholly-owned subsidiary of Leucadia National Corporation (NYSE:LUK), a diversified holding company.
| JEFFERIES GROUP LLC AND SUBSIDIARIES | ||||||||||||
| CONSOLIDATED STATEMENTS OF EARNINGS | ||||||||||||
| (Amounts in Thousands) | ||||||||||||
| (Unaudited) | ||||||||||||
| Quarter Ended | ||||||||||||
| May 31, 2017 | February 28, 2017 | May 31, 2016 | ||||||||||
| Revenues: | ||||||||||||
| Commissions and other fees | $ | 152,643 | $ | 145,822 | $ | 146,157 | ||||||
| Principal transactions | 287,070 | 220,957 | 318,180 | |||||||||
| Investment banking | 351,863 | 408,021 | 253,046 | |||||||||
| Asset management fees and investment | ||||||||||||
| income (loss) from managed funds | (2,697 | ) | 8,926 | 4,336 | ||||||||
| Interest | 227,804 | 202,023 | 220,175 | |||||||||
| Other | 22,272 | 24,048 | (4,977 | ) | ||||||||
| Total revenues | 1,038,955 | 1,009,797 | 936,917 | |||||||||
| Interest expense | 259,661 | 214,284 | 217,509 | |||||||||
| Net revenues | 779,294 | 795,513 | 719,408 | |||||||||
| Non-interest expenses: | ||||||||||||
| Compensation and benefits | 450,522 | 460,172 | 415,316 | |||||||||
| Non-compensation expenses: | ||||||||||||
| Floor brokerage and clearing fees | 47,494 | 45,858 | 43,591 | |||||||||
| Technology and communications | 67,478 | 65,507 | 66,499 | |||||||||
| Occupancy and equipment rental | 23,594 | 25,815 | 24,926 | |||||||||
| Business development | 26,466 | 22,632 | 22,587 | |||||||||
| Professional services | 26,413 | 32,124 | 29,526 | |||||||||
| Other | 21,146 | 19,206 | 14,366 | |||||||||
| Total non-compensation expenses | 212,591 | 211,142 | 201,495 | |||||||||
| Total non-interest expenses | 663,113 | 671,314 | 616,811 | |||||||||
| Earnings before income taxes | 116,181 | 124,199 | 102,597 | |||||||||
| Income tax expense | 46,391 | 10,179 | 48,655 | |||||||||
| Net earnings | 69,790 | 114,020 | 53,942 | |||||||||
| Net earnings attributable to noncontrolling interests | 39 | 1 | 44 | |||||||||
| Net earnings attributable to Jefferies Group LLC | $ | 69,751 | $ | 114,019 | $ | 53,898 | ||||||
| Pretax operating margin | 14.9 | % | 15.6 | % | 14.3 | % | ||||||
| Effective tax rate (1) | 39.9 | % | 8.2 | % | 47.4 | % | ||||||
| (1) | The effective tax rate for the three months ended February 28, 2017 reflects a $32 million, or 26%, net tax benefit, which resulted from the repatriation of earnings, along with their associated foreign tax credits, from certain foreign subsidiaries. | |
| JEFFERIES GROUP LLC AND SUBSIDIARIES | ||||||||
| CONSOLIDATED STATEMENTS OF EARNINGS | ||||||||
| (Amounts in Thousands) | ||||||||
| (Unaudited) | ||||||||
| Six Months Ended | ||||||||
| May 31, 2017 | May 31, 2016 | |||||||
| Revenues: | ||||||||
| Commissions and other fees | $ | 298,465 | $ | 301,981 | ||||
| Principal transactions | 508,027 | 214,807 | ||||||
| Investment banking | 759,884 | 483,976 | ||||||
| Asset management fees and investment | ||||||||
| income from managed funds | 6,229 | 13,866 | ||||||
| Interest income | 429,827 | 442,120 | ||||||
| Other | 46,320 | (26,728 | ) | |||||
| Total revenues | 2,048,752 | 1,430,022 | ||||||
| Interest expense | 473,945 | 411,627 | ||||||
| Net revenues | 1,574,807 | 1,018,395 | ||||||
| Non-interest expenses: | ||||||||
| Compensation and benefits | 910,694 | 765,059 | ||||||
| Non-compensation expenses: | ||||||||
| Floor brokerage and clearing fees | 93,352 | 84,070 | ||||||
| Technology and communications | 132,985 | 131,488 | ||||||
| Occupancy and equipment rental | 49,409 | 49,511 | ||||||
| Business development | 49,098 | 47,441 | ||||||
| Professional services | 58,537 | 53,038 | ||||||
| Other | 40,352 | 35,067 | ||||||
| Total non-compensation expenses | 423,733 | 400,615 | ||||||
| Total non-interest expenses | 1,334,427 | 1,165,674 | ||||||
| Earnings (loss) before income taxes | 240,380 | (147,279 | ) | |||||
| Income tax expense (benefit) | 56,570 | (34,452 | ) | |||||
| Net earnings (loss) | 183,810 | (112,827 | ) | |||||
| Net earnings attributable to noncontrolling interests | 40 | 88 | ||||||
| Net earnings (loss) attributable to Jefferies Group LLC | $ | 183,770 | $ | (112,915 | ) | |||
| Pretax operating margin | 15.3 | % | (14.5 | )% | ||||
| Effective tax rate | 23.5 | % | 23.4 | % | ||||
| JEFFERIES GROUP LLC AND SUBSIDIARIES | ||||||||||||
| SELECTED STATISTICAL INFORMATION | ||||||||||||
| (Amounts in Thousands, Except Other Data) | ||||||||||||
| (Unaudited) | ||||||||||||
| Quarter Ended | ||||||||||||
| May 31, 2017 | February 28, 2017 | May 31, 2016 | ||||||||||
Revenues by Source | ||||||||||||
| Equities | $ | 271,522 | $ | 156,714 | $ | 223,540 | ||||||
| Fixed income | 158,606 | 221,852 | 238,486 | |||||||||
| Total Equities and Fixed income | 430,128 | 378,566 | 462,026 | |||||||||
| Equity | 74,902 | 61,566 | 60,905 | |||||||||
| Debt | 125,847 | 162,628 | 46,124 | |||||||||
| Capital markets | 200,749 | 224,194 | 107,029 | |||||||||
| Advisory | 151,114 | 183,827 | 146,017 | |||||||||
| Total Investment banking | 351,863 | 408,021 | 253,046 | |||||||||
| Asset management fees and investment income (loss) from managed funds: | ||||||||||||
| Asset management fees | 4,115 | 7,981 | 6,964 | |||||||||
| Investment income (loss) from managed funds | (6,812 | ) | 945 | (2,628 | ) | |||||||
| Total | (2,697 | ) | 8,926 | 4,336 | ||||||||
| Net revenues | $ | 779,294 | $ | 795,513 | $ | 719,408 | ||||||
Other Data | ||||||||||||
| Number of trading days | 64 | 60 | 64 | |||||||||
| Number of trading loss days | 3 | 3 | 2 | |||||||||
| Number of trading loss days, excluding KCG | 4 | 3 | 1 | |||||||||
| Average firmwide VaR (in millions) (1) | $ | 9.21 | $ | 10.30 | $ | 8.25 | ||||||
| Average firmwide VaR, excluding KCG (in millions) (1) | $ | 8.81 | $ | 8.26 | $ | 6.04 | ||||||
| (1) | VaR estimates the potential loss in value of our trading positions due to adverse market movements over a one-day time horizon with a 95% confidence level. For a further discussion of the calculation of VaR, see "Value-at-Risk" in Part II, Item 7 "Management's Discussion and Analysis" in our Annual Report on Form 10-K for the year ended November 30, 2016. | |
| JEFFERIES GROUP LLC AND SUBSIDIARIES | ||||||||
| SELECTED STATISTICAL INFORMATION | ||||||||
| (Amounts in Thousands, Except Other Data) | ||||||||
| (Unaudited) | ||||||||
| Six Months Ended | ||||||||
| May 31, 2017 | May 31, 2016 | |||||||
Revenues by Source | ||||||||
| Equities | $ | 428,236 | $ | 225,285 | ||||
| Fixed income | 380,458 | 295,268 | ||||||
| Total Equities and Fixed income | 808,694 | 520,553 | ||||||
| Equity | 136,468 | 104,904 | ||||||
| Debt | 288,475 | 103,397 | ||||||
| Capital markets | 424,943 | 208,301 | ||||||
| Advisory | 334,941 | 275,675 | ||||||
| Total investment banking | 759,884 | 483,976 | ||||||
| Asset management fees and investment income (loss) from managed funds: | ||||||||
| Asset management fees | 12,096 | 18,169 | ||||||
| Investment income (loss) from managed funds | (5,867 | ) | (4,303 | ) | ||||
| Total | 6,229 | 13,866 | ||||||
| Net revenues | $ | 1,574,807 | $ | 1,018,395 | ||||
Other Data | ||||||||
| Number of trading days | 124 | 125 | ||||||
| Number of trading loss days | 6 | 19 | ||||||
| Number of trading loss days excluding KCG | 7 | 13 | ||||||
| Average firmwide VaR (in millions) (1) | $ | 9.74 | $ | 8.31 | ||||
| Average firmwide VaR excluding KCG (in millions) (1) | $ | 8.55 | $ | 6.36 | ||||
| (1) | VaR estimates the potential loss in value of our trading positions due to adverse market movements over a one-day time horizon with a 95% confidence level. For a further discussion of the calculation of VaR, see "Value-at-Risk" in Part II, Item 7 "Management's Discussion and Analysis" in our Annual Report on Form 10-K for the year ended November 30, 2016. | |
| JEFFERIES GROUP LLC AND SUBSIDIARIES | ||||||||||||
| FINANCIAL HIGHLIGHTS | ||||||||||||
| (Amounts in Millions, Except Where Noted) | ||||||||||||
| (Unaudited) | ||||||||||||
| Quarter Ended | ||||||||||||
| May 31, 2017 | February 28, 2017 | May 31, 2016 | ||||||||||
Financial position: | ||||||||||||
| Total assets (1) | $ | 40,079 | $ | 37,703 | $ | 37,120 | ||||||
| Average total assets for the period (1) | $ | 45,650 | $ | 44,490 | $ | 43,549 | ||||||
| Average total assets less goodwill and intangible assets for the period (1) | $ | 43,806 | $ | 42,644 | $ | 41,678 | ||||||
| Cash and cash equivalents (1) | $ | 4,357 | $ | 4,080 | $ | 2,839 | ||||||
| Cash and cash equivalents and other sources of liquidity (1) (2) | $ | 5,817 | $ | 5,886 | $ | 4,282 | ||||||
| Cash and cash equivalents and other sources of liquidity - % total assets (1) (2) | 14.5 | % | 15.6 | % | 11.5 | % | ||||||
| Cash and cash equivalents and other sources of liquidity - % total assets less goodwill and intangible assets (1) (2) | 15.2 | % | 16.4 | % | 12.1 | % | ||||||
| Financial instruments owned (1) | $ | 13,881 | $ | 13,253 | $ | 15,119 | ||||||
| Goodwill and intangible assets (1) | $ | 1,844 | $ | 1,843 | $ | 1,871 | ||||||
| Total equity (including noncontrolling interests) | $ | 5,565 | $ | 5,472 | $ | 5,344 | ||||||
| Total Jefferies Group LLC member's equity | $ | 5,565 | $ | 5,472 | $ | 5,339 | ||||||
| Tangible Jefferies Group LLC member's equity (3) | $ | 3,721 | $ | 3,629 | $ | 3,468 | ||||||
Level 3 financial instruments: | ||||||||||||
| Level 3 financial instruments owned (1) (4) | $ | 312 | $ | 365 | $ | 436 | ||||||
| Level 3 financial instruments owned - % total assets (1) | 0.8 | % | 1.0 | % | 1.2 | % | ||||||
| Level 3 financial instruments owned - % total financial instruments (1) | 2.2 | % | 2.8 | % | 2.9 | % | ||||||
| Level 3 financial instruments owned - % tangible Jefferies Group LLC member's equity (1) | 8.4 | % | 10.1 | % | 12.6 | % | ||||||
Other data and financial ratios: | ||||||||||||
| Total long-term capital (1) (5) | $ | 10,762 | $ | 11,388 | $ | 10,729 | ||||||
| Leverage ratio (1) (6) | 7.2 | 6.9 | 6.9 | |||||||||
| Adjusted leverage ratio (1) (7) | 9.0 | 8.9 | 9.0 | |||||||||
| Tangible gross leverage ratio (1) (8) | 10.3 | 9.9 | 10.2 | |||||||||
| Number of trading days | 64 | 60 | 64 | |||||||||
| Number of trading loss days | 3 | 3 | 2 | |||||||||
| Number of trading loss days, excluding KCG | 4 | 3 | 1 | |||||||||
| Average firmwide VaR (9) | $ | 9.21 | $ | 10.30 | $ | 8.25 | ||||||
| Average firmwide VaR, excluding KCG (9) | $ | 8.81 | $ | 8.26 | $ | 6.04 | ||||||
| Number of employees, at period end | 3,324 | 3,319 | 3,279 | |||||||||
| JEFFERIES GROUP LLC AND SUBSIDIARIES | ||
| FINANCIAL HIGHLIGHTS - FOOTNOTES | ||
| (1) | Amounts pertaining to May 31, 2017 represent a preliminary estimate as of the date of this earnings release and may be revised in our Quarterly Report on Form 10-Q for the quarterly period ended May 31, 2017. | |
| (2) | At May 31, 2017, other sources of liquidity include high quality sovereign government securities and reverse repurchase agreements collateralized by U.S. government securities and other high quality sovereign government securities of $1,149 million, in aggregate, and $311 million, being the total of the estimated amount of additional secured financing that could be reasonably expected to be obtained from our financial instruments that are currently not pledged at reasonable financing haircuts. The corresponding amounts included in other sources of liquidity at February 28, 2017 were $1,308 million and $498 million, respectively, and at May 31, 2016, were $1,096 million and $347 million, respectively. The amounts included in other sources of liquidity at May 31, 2016 have been reduced by $322 million from what was previously disclosed to reflect adjustments for certain securities that have subsequently been identified to have been encumbered. | |
| (3) | Tangible Jefferies Group LLC member's equity (a non-GAAP financial measure) represents total Jefferies Group LLC member's equity less goodwill and identifiable intangible assets. We believe that tangible Jefferies Group LLC member's equity is meaningful for valuation purposes, as financial companies are often measured as a multiple of tangible Jefferies Group LLC member's equity, making these ratios meaningful for investors. | |
| (4) | Level 3 financial instruments represent those financial instruments classified as such under Accounting Standards Codification 820, accounted for at fair value and included within Financial instruments owned. | |
| (5) | At May 31, 2017, February 28, 2017 and May 31, 2016, total long-term capital includes our long-term debt of $5,197 million, $5,915 million and $5,385 million, respectively, and total equity. Long-term debt included in total long-term capital is reduced by the amount of debt maturing in less than one year, as applicable. | |
| (6) | Leverage ratio equals total assets divided by total equity. | |
| (7) | Adjusted leverage ratio (a non-GAAP financial measure) equals adjusted assets divided by tangible total equity, which equals total equity less goodwill and identifiable intangible assets. Adjusted assets (a non-GAAP financial measure) equals total assets less securities borrowed, securities purchased under agreements to resell, cash and securities segregated, goodwill and identifiable intangibles plus financial instruments sold, not yet purchased (excluding derivative liabilities). At May 31, 2017, February 28, 2017 and May 31, 2016, adjusted assets were $33,634 million, $32,155 million and $31,173 million, respectively. We believe that adjusted assets is a meaningful measure as it excludes certain assets that are considered of lower risk as they are generally self-financed by customer liabilities through our securities lending activities. | |
| (8) | Tangible gross leverage ratio (a non-GAAP financial measure) equals total assets less goodwill and identifiable intangible assets divided by tangible Jefferies Group LLC member's equity. The tangible gross leverage ratio is used by rating agencies in assessing our leverage ratio. | |
| (9) | VaR estimates the potential loss in value of our trading positions due to adverse market movements over a one-day time horizon with a 95% confidence level. For a further discussion of the calculation of VaR, see "Value-at-Risk" in Part II, Item 7 "Management's Discussion and Analysis" in our Annual Report on Form 10-K for the year ended November 30, 2016. | |
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Contacts:
Peregrine C. Broadbent, 212-284-2338
Chief
Financial Officer
