Jefferies Q3 signals tough times at Goldman, others

Tue Sep 20, 2011 5:43pm EDT

(Reuters) - Jefferies Group Inc's JEF.N quarterly revenue dipped 2 percent, hurt by a tough trading environment, but the mid-sized investment bank raised its buyback program to 20 million shares.

As the first investment bank to report results, Jefferies is often viewed as an indicator for larger Wall Street firms such as Goldman Sachs Group (GS.N) and Morgan Stanley (MS.N).

"There are no surprises in Jefferies numbers relative to what others are going to produce. You don't know how bad it's going to be, all you know is that it's going to be very bad," Richard Bove, analyst with Rochdale Securities told Reuters.

Goldman Sachs and Morgan Stanley are also expected to post lower trading revenues as volatility in the wake of the U.S. rating downgrade and European debt default concerns pushed clients to sit on the sidelines, reducing commission income and lose money on principal investments.

JPMorgan Chase & Co's (JPM.N) trading revenue is running 30 percent lower this quarter than the previous period, while investment banking fees are likely to fall by about 50 percent, a senior executive said last week.

Goldman Sachs may report a $1.6 billion market-to-market loss on its principal investments, an analyst at Atlantic Equities had said last week.

Revenue at Jefferies fell nearly 2 percent to $509.2 million, hurt by a loss of $74 million from trades the bank made on its own account.

For the quarter ended August 31, Jefferies posted a profit for common shareholders of $68.2 million, or 30 cents a share, compared with $44.8 million, or 22 cents a share, a year ago.

Much of the profit came from the company's nearly $500 million buy of Prudential Bache from Prudential Financial Inc (PRU.N).

Excluding the acquisition, Jefferies earned 10 cents a share.

Jefferies has been aggressively courting talent from Wall Street giants for over a year and has hired more than a dozen senior bankers, traders, analysts and strategists from competitors like Morgan Stanley, Wells Fargo & Co (WFC.N), Bank of America Corp (BAC.N), Citigroup (C.N), PIMCO and Blackstone Group LP (BX.N).

"The company is going through a substantial expansion program at a period when the markets are contracting dramatically...if they can't get their revenue to go up because the markets aren't going to go up, their earnings are going to be squeezed terribly (in the future)," Bove said.

Jefferies said its board has approved a new share repurchase program authorizing the repurchase of up to 20 million shares, inclusive of prior authorizations.

Shares climbed as much as 5 percent intra-day on Tuesday on the New York Stock Exchange. They closed down 1 percent at $13.95.

(Reporting by Tanya Agrawal in Bangalore; Editing by Joyjeet Das and Sriraj Kalluvila)

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