Jefferies feels the pain over Fed tapering

 
Michael Bow
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INVESTMENT bank Jefferies yesterday reported an 83 per cent plunge in third quarter profits after being squeezed by this summer’s bond

market nervousness.

The bank, which has London offices on Upper Thames Street, said net income – a measure of profit – fell from $70.2m a year ago to $11.7m for three months ending August.

Revenue from trading securities fell to their lowest levels since the depths of financial crisis in late 2008, as investors reacted badly to hints by the US Federal Reserve it would ease its monetary stimulus programme.

This was driven mainly by an 88 per cent fall in revenue from its fixed income unit to $33.1m.

“We experienced a very challenging summer in our fixed-income businesses due to the rising-rate environment, spread widening, redemptions experienced by our client base which heavily muted trading, and related mark-to-market writedowns within our inventory,” said Jefferies chief executive officer Richard Handler.

It’s revenue from equity trading also fell 28 per cent to $151m versus a year earlier.

The bank was also hit by a $16m mark down in its investment in Knight Capital, which it took a stake in to rescue the stricken broker late last year. This reflected a decline in the Knight stock price, the company said.

However, there were some bright spots to cheer, with investment banking business doing well and its UK and European operations bringing in good revenues thanks to its Jefferies Hoare Govett unit.

Investment banking revenues totalled $319m.

Handler sounded an upbeat note for Jefferies’ next quarter after the difficulties of the last three months.

“Since Labor Day, client flows have been stronger and fixed income performance has markedly improved to more normal levels,” he said.

“Momentum in investment banking appears to be building for our fourth-quarter and into 2014, as our backlog is strong and improving.”

Shares in Jefferies owner Leucadia, a US listed conglomerate, fell only marginally, sinking down to close nearly 0.9 per cent lower.