Benzinga  10 hrs ago  Comment 
Jefferies initiated coverage on three software technology companies earlier this month: Zendesk Inc. (NYSE: ZEN), ServiceNow Inc. (NYSE: NOW) and HubSpot Inc. (NYSE: HUBS). The Analyst Samad Samana initiated coverage with a Buy rating for...
Benzinga  Oct 5  Comment 
Competition from Praxair, Inc. (NYSE: PX) has rattled Mallinckrodt PLC (NYSE: MNK) investors, but Jefferies' bullish thesis remains intact.  The Analyst Jeffries analyst Anthony Petrone reiterated a Buy on Mallinckrodt with a $35 price...
Benzinga  Oct 3  Comment 
Shares of alcohol beverage maker Constellation Brands, Inc. (NYSE: STZ) have lost 7 percent year-to-date and the steep discount versus its peers makes it Jefferies' top large-cap growth idea. The Analyst Kevin Grundy maintains a Buy rating on...
Financial Times  Oct 2  Comment 
Switch to Nestlé as Unilever heads into choppier waters, says Jefferies
MarketWatch  Oct 1  Comment 
Freelancer recruitment company Upwork Inc. set terms for its planned initial public offering on Monday, saying in a regulatory filing that it plans to offer 12.3 million shares priced at $12 to $14 each. The company would raise $160 million at the...


Jefferies Group, Inc. (NYSE: JEF) is a full-service investment bank and asset management firm focused on growth and middle-market companies--those with revenues between $25 million and $1 billion. The firm advises its clients on merging with or acquiring other companies, assists in raising capital, facilitates client equity and fixed income trading, and manages assets for institutional investors. Since Jefferies works mainly with middle-market firms, its transactions are typically smaller in value and more U.S.-centric than those of larger competitors such as Goldman Sachs Group (GS) or Morgan Stanley (MS). However, unlike boutique investment banks which often specialize in a specific area, Jefferies offers a full range of services to its smaller clients.

The company has further strengthened its service offering by building its industry focused advisory groups through the acquisition of various boutique investment banks, including Quarterdeck for Aerospace, Defense, and CleanTech, Randall & Dewey for Energy, Financial & Business Services, and Broadview for Technology and Transportation, Oil Service & Infrastructure.[1]

Business Overview

Jefferies Group, Inc. and its subsidiaries operate as global securities and investment banking firm serving companies and their investors. The Company provides investors fundamental research and trade execution in equity, equity-linked and fixed income securities, including investment grade corporate bonds, high yield and distressed securities, government and agency securities, mortgage- and asset-backed securities, municipal securities, bank loans, leveraged loans, and emerging markets debt, as well as derivatives and engage in securities financing and commodities derivative trading activities. It offers capital markets, merger and acquisition, restructuring and other financial advisory services. The Company operates in two business segments: Capital Markets and Asset Management. On March 27, 2009, the Company completed the acquisition of the membership interests of Depfa First Albany Securities LLC.

Business and Financial Metrics

First Quarter 2010 Results (ended March 31, 2010)[2]

Jefferies reported net revenues of $583 million, a 71% increase versus $342 million in the first quarter of the prior year. Net income to common shareholders increased 93% to $74 million versus $38 million in the prior year. Net earnings per common share (diluted) increased 89% to $0.36 versus $0.19 in the prior year.

Business Segments

Capital Markets

The Capital Markets division provides corporations and institutional investors with sales, trading, and research. [3] Capital Markets activity includes securities execution activities, including sales, trading and research in equities, equity-linked, and fixed income securities, including investment grade corporate bonds, high yield and distressed securities, government and agency securities, mortgage- and asset-backed securities, municipal securities, bank loans, leveraged loans, and emerging markets debt. Additionally, Jefferies provides prime brokerage services, and investment banking advisory services, which includes debt, equity, and equity-linked capital raising services and advisory services with respect to merger, acquisition and restructuring transactions and fund placement activities. In addition, Capital Markets activities include securities financing and certain limited proprietary trading activities, as well as commodities derivative trading.

  • Investment Banking

The Investment Banking Division offers a full range of financial advisory services, as well as debt and equity underwriting. The advisory division works with senior management on middle-market companies and advises them on mergers and acquisitions, restructurings, and other transactions. The Investment Banking Division also assists clients in raising money through debt and equity.

  • Sales, Trading, and Research

The clients for this part of the firm include domestic and international investors such as investment advisors, banks, mutual funds, insurance companies, and hedge funds. Jefferies helps these clients purchase and sell a variety of securities.

Asset Management

Jefferies also provides investment management services and products to various private investment funds through Jefferies Asset Management (“JAM”). It operates several private investment funds including Victoria Falls CLO, Summit Lake CLO, Diamond Lake CLO, Jefferies RTS Fund, Jefferies Paragon Fund and Jefferies Buckeye Fund[4].

Revenue Sources


Jefferies derives a portion of its revenues from customer commissions and commission equivalents. The company charges fees for assisting domestic and international clients with purchasing and selling securities and other similar products.

Principal Transactions

Jefferies takes securities positions as a market maker to facilitate customer transactions and for proprietary risk trading. Trading profits or losses and changes in the fair value of trading inventory are recorded as Principal transactions revenues.

Investment Banking

Investment banking revenues are generated by fees from underwriting revenues and capital markets activities, which include debt, equity, and equity-linked underwriting and placement services, and fees from financial advisory services including advisory assignments on mergers and acquisitions and restructuring transactions.


Jefferies derives a substantial portion of interest revenues in connection with securities borrowed / securities lending and repo activity. Jefferies also earns interest on its securities portfolio, on its operating and segregated balances, on its margin lending activity and on certain investments, including investments in short-term bond funds.

Trends and Forces

After a hiatus in M&A activity, the market is heating up

Jefferies is highly impacted by both global and US economic conditions. During periods of rapid economic growth, companies typically pursue more mergers and acquisitions, leading to greater demand for Jefferies’ Mergers and Acquisitions advisory services. Also, the stock markets typically move in the same direction as the overall economy. If the market is up, then the demand and performance of Jefferies' sales and trading operations, as well as its asset management services will likely increase. Conversely, if the economy is depressed, demand for the firm's Mergers and Acquisitions advisory services can decrease substantially and the value or performance of the sales and trading division and the assets in the asset management business could also be affected adversely.

M&A activity in 2009 was down 86% from the prior year to the 2008 Financial Crisis. Fortunately, most of the M&A deals in 2009 year came from the middle market and smaller firms, Jefferies' target market. However, Jefferies did see decreases in M&A activity as a result of the economic slowdown. Amid rebounding stock prices and business trends, the general market conditions for deals have improved. Companies across several sectors are feeling more comfortable about putting cash and stock into deals again, and they have found it easier to access the debt market to raise additional funds. "M&A activity has been picking up mainly because of the credit markets' having been in the repair period," Miller Tabak analyst David Joyce said.[5]

Subprime Lending

Subprime lending refers to the practice of extending credit or loans to borrowers who fail qualify for prime or market rates due to their less than optimal credit scores. For the past decade, the interest rates associated with subprime mortgages have been about 2% higher than those associated with prime loans; the rationale is that borrowers with lower credit scores carry a higher risk of default and must therefore pay a considerable risk premium. Subprime borrowers can be extremely sensitive to interest rates. As rates rise, these borrowers, many of whom have adjustable-rate mortgages, find themselves unable to meet their debt obligations.

Jefferies is affected by the impact that worries about subprime lending are having on the overall market. In particular, the subprime fallout has scared banks, who are afraid that it is symptomatic of a broader deterioration in credit quality. As a result, lending standards were raised in 2007, causing the funding of M&A transactions to be more challenging - this can have an adverse effect on Jefferies' advisory business. Additionally, Jefferies has exposure to junk bond and collateralized loan obligation (CLO) markets, which were disrupted by the subprime problems. On top of this, as many financial services firms have reported losses regarding subprime mortgages, the overall equity markets have been depressed, which has an adverse effect on the firm's sales and trading and asset management business.


Jefferies faces strong competition from many investment banks. On the advisory side of the firm, it competes with other leading middle-market investment banks, including Houlihan Lokey Howard & Zukin, William Blair & Co, Thomas Weisel Partners, and others. On many transactions, it also competes against larger investment banks,with substantially greater capital and resources[6],such as:

  • Goldman Sachs Group (GS) - ranked number one in mergers and acquisitions advisory for the last 8 years running. GS is also a big player in the trading, principal investing, and asset management functions.
  • Morgan Stanley (MS) - typically ranked number two in global mergers and acquisitions advisory, behind Goldman Sachs.
  • J P Morgan Chase (JPM) - one of the largest financial institutions, with operations in Investment Banking, Commercial Banking, Treasury, Asset Management, Credit Cards, and Retail financial services.


  1. JEF 2006 10k, Item I, Pg. 3
  3. JEF 2006 10k, Item I, Pg. 2
  4. JEF 2006 10k, Item I, Pg. 6
  5. THR: "Mergers and acquisitions activity heating up" June 20, 2010
  6. JEF 2006 10k, Item I, Pg. 7
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