Jefferies posts lower quarterly profit as dealmaking falters

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Still, investment banking revenue saw their second-best year and was substantially above 2019 levels, chief executive officer Richard Handler and president Brian Friedman said.

The New York-based financial institution’s results are often viewed as a prelude to earnings at Wall Street titans such as JPMorgan Chase & Co (NYSE:JPM), Goldman Sachs Group Inc (NYSE:GS) and Morgan Stanley (NYSE:MS), since the bank reports ahead of its rivals.

Investment banks are buckling under pressure from a dearth of deals as companies refrain from M&A activity due to higher borrowing costs and geopolitical uncertainties such as the fallout from the Ukraine war.

Jefferies’ total net revenue was down 18% at $1.44 billion, dragged lower by a 35% decline in investment banking and capital markets revenue.

The bank reported a profit of 57 cents a share in the three months ended Nov. 30, compared with $1.20 a year earlier.

Jefferies began reducing the size of its merchant banking portfolio last year, in an effort to sharpen its focus on its key businesses. Revenue was more than double this quarter from a year earlier.

The unit, which includes Jefferies’ investments in real estate, oil and gas and others, is one of the last remaining holdings of former conglomerate Leucadia National (NYSE:JEF) that bought the bank a decade ago.

Leucadia later sold most of its non-financial assets to double down on investment banking.

The merchant banking asset sale boost helped Jefferies weather a market downturn that led to a decline in investment banking and capital markets revenue as elevated interest rates and recession fears slowed dealmaking.