Jefferies Trading Climbs Even With Rivals Predicting a Decline

(Bloomberg) -- One firm is out with positive trading results, but that may mean little for the rest of Wall Street.

Jefferies Financial Group Inc., among the first financial firms to report second-quarter results and often seen as a harbinger for its competitors, said trading revenue jumped 29% from a year earlier. In a statement, Jefferies touted its ability to “continue to take market share in our equities business” and its expanding footprint, with hiring in research, sales and trading in Japan, Hong Kong and elsewhere.

Just don't expect its larger rivals to report similarly cheery results.

Executives from Citigroup Inc. and Morgan Stanley warned last month that a tough start to June had crimped their second-quarter trading and investment-banking revenue. And the biggest Wall Street firms all have fiscal years that match the calendar, meaning the gloomy June will be part of second-quarter results -- something not true of Jefferies, with a quarter that ends in May.

“The swing factor is what's going to happen in June, and we're not getting that data right now on Jefferies,” said Arnold Kakuda, a Bloomberg Intelligence analyst. The company's second-quarter results reflect “Jefferies picking up talent, where everyone else is cutting. This is more firm specific.”

Its biggest competitors, which start announcing earnings mid-month, will be reporting results for a tougher period.

Trade, Brexit

President Donald Trump's trade skirmishes and potential rate-policy changes from the Federal Reserve sparked market swings during the period. Clients also have been spooked by the U.K.'s planned exit from the European Union and escalating tension between the U.S. and Iran, according to Citigroup.

The first two weeks of June were “quite hard,” Morgan Stanley Chief Executive Officer James Gorman warned halfway through the month.

“Up until then, it was solid,” Gorman said on June 11 at an industry conference in New York. “We're not going to have a bad quarter in the securities business, but you've got to be realistic with the environment.”

Read more: Morgan Stanley, Citi sound warning bell on trading slowdown

At Citigroup, fixed-income and equities trading revenue will likely fall by a percentage in the “mid-single-digit range” from a year ago, while investment-banking fees are expected to drop by a percentage in the “mid-teens,” Chief Financial Officer Mark Mason said at the same conference.

Even Jefferies wasn't immune from the quarter's challenges. While equities and fixed-income trading were both up, investment-banking revenue fell 12% from a year earlier to $448 million.

“Investment-banking advisory revenues were held back by the lag effect resulting from capital-markets conditions in December and the U.S. government shutdown in December and January,” CEO Rich Handler and President Brian Friedman said in the statement. “In the third quarter, we believe investment banking will continue to deliver solid results (subject to market conditions), as our transaction backlog is robust.”

Jefferies rose 2.6% to $19.98 at 9:42 a.m. in New York. Its shares have climbed 15% this year, less than the 17% increase in the S&P 500 Financials Index.

--With assistance from Jenny Surane and Sonali Basak.

To contact the reporter on this story: Elizabeth Rembert in New York at erembert@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Daniel Taub, Peter Eichenbaum

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