| NEW YORK
NEW YORK Jefferies Group Inc JEF.N, an investment bank focusing on mid-sized companies, posted a stronger-than-expected increase in quarterly profit, thanks to healthy gains in merger advisory, trading and underwriting revenues.
However, executives were quick to characterize results as company-specific, rather than a trend that can be read across other Wall Street firms, which report results in coming weeks.
Jefferies posted higher revenue across all of its businesses for the first quarter ended February 28, including stock and bond trading, underwriting, and merger advisory.
As the first investment bank to report results, Jefferies is viewed by some investors as a bellwether for larger Wall Street firms. But competitors may have also suffered during March, a month with wild fluctuations in oil prices and the earthquake and tsunami in Japan.
"March started off extremely strong just like the three months prior ended," Jefferies Chief Executive Richard Handler said in an interview with Reuters. "And the last half a dozen days -- with the disaster in Japan on top of the Libyan situation on top of the Middle East in general -- have clearly given people pause. They're trying to figure out exactly what they want to do with their capital. I think it's been a much choppier environment."
Jefferies posted quarterly earnings of $102 million, or 42 cents a share, compared with $76.1 million, or 35 cents a share, for the quarter ended March 31, 2010. Revenue climbed 28.4 percent to $741.9 million.
Analysts had on average expected a profit of 36 cents a share on revenue of $636.8 million, according to Thomson Reuters I/B/E/S.
The company's shares were up 0.2 percent at $24.59 in afternoon trading, paring earlier gains of more than 5 percent.
Competitors were mixed, with bulge bracket brokerage competitors Goldman Sachs Inc (GS.N) and Morgan Stanley (MS.N), as well as Lazard (LAZ.N), trading higher, while stocks of smaller competitors like Piper Jaffray Cos (PJC.N) and Evercore Partners Inc (EVR.N) were down.
Handler said Jefferies has been stealing market share from bigger banks and other mid-size competitors, which helped drive earnings and revenue higher last quarter. According to Thomson Reuters data, the company ranks as No. 17 in the global M&A league table, with $18 billion worth of transactions and 2.5 percent parket share. That's up from 1.8 percent market share for all of 2010.
Jefferies has had particular strength in global energy and power deals this year, moving the needle from 3.6 percent market share in 2010 to 10.5 percent so far in 2011.
Handler said the company has also invested heavily in diversifying its business lines and hiring away talent from other firms.
Jefferies' most recent high-profile hire came earlier this month, when Peter Bacchus left Morgan Stanley to become joint head of Jefferies' European investment banking and global head of metals and mining investment banking.
During a conference call to discuss results on Tuesday morning, Handler said additional hires were being held back by "garden leave policies of some of our competitors" -- an oblique reference to policies recently put in place by Bank of America that have delayed the departure of some talent from the Merrill Lynch division, according to recruiters.
Handler says such investments have helped turn Jefferies into a more serious competitor in trading, asset management and investment banking over the past few years. He pointed out that the company now delivers quarterly revenue that's half of its pre-crisis annual peak and three-quarters of its 2008 trough.
Jefferies' trading revenue climbed 32 percent to $495.5 million. The firm showed particular strength in fixed-income trading, an area in which analysts have warned about weak volumes across Wall Street.
Jefferies' investment banking revenue also climbed much higher, up 20.5 percent versus the year-ago quarter. While debt underwriting revenue declined, healthy gains in advisory and equity underwriting boosted overall investment banking results.
Although it's a relatively small chunk of Jefferies' revenue stream, the firm also saw strength in asset management. Those fees were up more than fourfold to $16.1 million, due to growth in European convertible funds and increases in asset values, Chief Financial Officer Peregrine Broadbent said during the conference call.
"At this point - until the other firms release their numbers - I believe our results reflect increased market share in a not-easy, but not terrible operating environment," said Handler, who emphasized that he had no knowledge of other companies' results.
Sandler O'Neill analyst Jeff Harte described March as "the wild card" for Jefferies' competitors. "Nonetheless," he said, "Jefferies' sequential increase in trading revenue suggests that January and February were better than we expected."
(Reporting by Lauren LaCapra and Dan Wilchins; Editing by Lisa Von Ahn, Dave Zimmerman)