Total underwriting revenue at Jefferies was down by 62% as banks face tougher conditions.
Amir Hamja/Bloomberg
Wall Street just got a taste of what to expect when investment banks post second-quarter earnings next month and it isn’t happy.
Jefferies Financial (ticker: JEF) posted results for its fiscal quarter ending May 31 and saw revenue slide 30% year-over-year to $1.37 billion amid a challenging capital markets climate. Earnings came in at 45 cents a share, missing the 51 cents per share analysts surveyed by FactSet had anticipated. Not only did the bank miss expectations, it also saw a 65% decrease in earnings per share from the year-ago quarter.
“Our second quarter results are reasonable in the face of an extremely challenging capital markets environment, with some markets being all but shut to new issues,” Jefferies Chief Executive Richard Handler and President Brian Friedman said in a joint statement Monday.
Because Jefferies is on a different fiscal calendar than many of its financial peers, it posts results roughly three weeks before peers do for the calendar quarter. Its results are seen as an indicator for what rival banks such as Goldman Sachs (GS) and Morgan Stanley (MS) will report next month.
So far, the outlook is gloomy.
For much of the last two years, investment banks could count on strong trading and capital markets activity to boost earnings but recent recession worries have made markets more volatile, making companies less likely to go public. In addition to volatility, a rising interest rate environment has made it challenging for deals to get done as companies are reluctant to take on debt. Total underwriting revenue at Jefferies was down by 62%.
Still, Jefferies contends that its advisory activity remains “strong” and that the bank is well-positioned for when market conditions normalize.
“Our backlog is consistent with last quarter’s strong levels but execution remains dependent on market conditions. Based on our ongoing dialogues with our clients, we believe that M&A and capital markets activity will pick up when stability and visibility improve,” the company said Monday.
Wall Street was less sure, as Jefferies shares slid 4.5% in after-hours trading Monday.
Write to Carleton English at [email protected]
