Dog Handler

15 December 2015 By Rob Cox

A lot of things are troubling Wall Street. The high-yield bond market is having a rough ride, as is the business of financing leveraged buyouts. Then there’s the continuing slide in energy and commodity prices. Jefferies stumbled on most of these potholes. The securities firm, which reports its quarterly results a month ahead of its too-big-to-fail rivals, offers a preview of their full-year challenges.

Jefferies said on Tuesday that its net revenue for the quarter to November was down 11 percent from the prior three months, mainly because of declines in investment banking and commissions. By hacking away at compensation, the firm led by Rich Handler managed net income of $25 million for the quarter, 10 times its profit in the three months to August. But it was a crummy year overall, in which earnings dropped nearly 40 percent to $100 million.

The waiting game before the Federal Reserve’s critical monetary policy meeting on Wednesday has led to volatility in many of Jefferies’ businesses. The closure of a Third Avenue Management junk-bond fund last week offered a peek into the high-yield market’s ructions as well as what can happen when assets and liabilities are poorly matched.

Then there’s trouble with at least one big leveraged buyout financing. Last month banks including Jefferies pulled a $5.6 billion offering of bonds and loans intended to support Carlyle’s takeover of Symantec’s data-storage unit, Veritas Software. While the deal will probably happen eventually, perhaps soon after the Fed raises rates for the first time in more than nine years, it means no fees yet for Jefferies and its fellow underwriters.

Handler’s firm also suffered from the commodities price slump, exiting expensively from most of the business of brokerage Bache. Jefferies, now a unit of $5.8 billion Leucadia National, pulled back more broadly during the year, taking $6 billion off its balance sheet, reducing its securities inventory, and cutting unsecured long-term debt.

Handler pointed to full-year bright spots in investment banking and equities. But if Jefferies’ Wall Street rivals have traveled the same rough road, being a big diversified financial conglomerate is looking like the safe option. Jefferies’ sale to Leucadia three years ago may have spared it a torrid time at the hands of investors.

 

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