Jefferies

I’m mesmerized by this JPMorgan research chart showing that big banks shouldn’t be broken up because they lend so much more to businesses and consumers than small banks do. See:

Basically for every dollar of normalized capital, JPMorgan has extended $12 of credit between March 2010 and September 2012, according to this note by JPM’s Michael Cembalest. Whereas the small banks have loaned out only about $2. Get with the program, small banks!

The trick here – besides “normalized capital”1 – is that “credit extended” means (1) “changes in commercial and consumer loan balances” plus (2) syndicated loan, corporate bond, muni bond, etc. underwriting. That is, if you stand between a company looking for money and the market that provides it, you get, um, credit for extending credit, whether you do that standing-between in traditional banking ways (take deposit, make loans) or in traditional investment banking ways (match bond buyer with bond issuer). “See, we’re lending,” says JPMorgan. “We’re just not lending our money.”2

As a rhetorical move, I say: A+. Read more »

  • 29 Jan 2013 at 5:17 PM

Bonus Watch ’13: Jefferies CEOs

Dick Handler ended up doing pretty okay for himself. Read more »

The Journal had an article this morning about how cash equities traders are getting used to having computers as coworkers but I say unto you: can a computer do this?1

52. On March 31, 2010, Customer A, an investment adviser to a private fund, asked Jefferies to find buyers for several MBS, including Lehman XS Trust Series 2007-15N 2A1 (LXS 2007-15N 2A1) and Harborview Mortgage Loan Trust Mortgage Loan Pass-Through Certificates, Series 2006-10 2A1A (HVMLT 2006-10 2A1A). [Jefferies trader Jesse] Litvak approached a representative at AllianceBernstein about buying the MBS.

53. Litvak told the AllianceBernstein representative that the seller had offered to sell the HVMLT MBS at 58-00 and the LXS MBS at 58-8:

Litvak:

he will sell to me 20mm orig of hvmlt 0610 @ 58-00 but he is being harder to knock back on the lxs bonds … said that he thinks that one is much cheaper yada yada yada … he told me he would sell them to me at 58-8 (30mm orig) … I would be fine working skinnier on these 2 … but think you are getting good levels on these …

Representative:

is he paying u or am I?

Litvak:

all the levels I put in this room are levels he wants to sell me … I will work for whatever you want on these …. so to recap levels he is offering to me:
hvmlt 06-10 2a1a (20mm orig) @ 58-00
lxs 40mm orig at 58-8…

Bot em

Representative:

Can u wash the hvmlt and [add] 5 ticks to lxs?…

Litvak:

thats fine.

54. Litvak misrepresented to AllianceBernstein the prices at which Jefferies had acquired the MBS for re-sale. Litvak bought the HVMLT MBS at 57-16 (not the “58-00” he told Alliance Bernstein) and he acquired the LXS MBS at 56-16 (not “58-8” he represented).

55. Litvak also misrepresented the compensation that Jefferies would receive for these trades. AllianceBernstein purchased the $20 million HVMLT MBS at 58 and $40 million of the LXS MBS at 58-13. As a result, on the HVMLT trade, Litvak made 16 ticks for Jefferies; he did not work for free (or “wash” the trade) as he had agreed. And, on the LXS MBS, Litvak made 61 ticks for Jefferies; he did not work for “5 ticks” as agreed.

56. As a result of his misconduct, Litvak made over $600,000 more for Jefferies on the LXS trade and over $50,000 more on the HVMLT trade.

That’s from the SEC’s complaint against former Jefferies trader Jesse Litvak, who apparently made a habit of this sort of thing. He would (allegedly!) tell a potential buyer (seller) of RMBS bonds that he had a seller (buyer), but he would inflate (deflate) the price that he was supposedly getting from the other side in order to inflate his spread. This worked 25 times – that the Feds caught – and allegedly made Jefferies $2.7 million in deceptive profits. This is particularly lovable: Read more »

Rumors began to circulate late last year that Jefferies could be acquired by a large bank, something that would surely result in layoffs. “When banks buy other banks, people lose their jobs,” said Richard Lipstein, managing director at executive search firm Gilbert Tweed Associates. “If you look at a sale of an investment bank, this is as close to perfect as it gets.” Leucadia, often compared to Berkshire Hathaway for its diverse set of holdings, already owns a 28% stake in Jefferies, meaning it intimately knows the firm and its culture, and believes in its direction, Lipstein said…As for layoffs, “there likely won’t be any,” said one headhunter who works with Jefferies and requested anonymity. “Now they’ll have a stronger balance sheet, and the ability to pick up slack where other firms have left off,” said the recruiter. [eF, earlier]

Leucadia National Corp., which EDGAR tells me is in the “Lumber & Wood Products (No Furniture)” business but which also processes beef, drills for oil, owns a Mississipi casino and develops biopharmaceuticals, is getting out of one business:

Leucadia National Corporation (NYSE: LUK) and Jefferies Group, Inc. (NYSE: JEF) today announced that the Boards of Directors of both companies have approved a definitive merger agreement under which Jefferies’ shareholders (other than Leucadia, which currently owns approximately 28.6% of the Jefferies outstanding shares) will receive 0.81 of a share of Leucadia common stock for each share of Jefferies common stock they hold. …

Leucadia will continue to operate in its current form, except that the merger agreement contemplates that Leucadia’s Crimson Wine Group, with a book value of $197 million, will be spun out in a distribution that is intended to be tax-free to current Leucadia shareholders prior to the completion of the merger.

I assumed that the spinoff was driven by some sort of regulatory impediment (alcoholic or financial), though on the analyst call for the merger Jefferies said that Crimson was just “less synergistic” to the combined business than … I guess, than the casino or the slaughterhouse? Still, I like it: you can combine a casino and a wine business, or a casino and an investment bank, but not a wine business and an investment bank. Do you think the investment bankers are prudes, or the winemakers?

What are the investment bankers up to anyway? It makes a lot of sense for a low-investment-grade wee investment bank who recently overcame a near-death experience re: Eurozone sovereign bonds to sell itself to a highly rated financial conglomerate – a “baby Berkshire Hathaway” no less – with a big balance sheet that can provide cheap funding for its bond-market misadventures. But this isn’t that: Leucadia’s rating is 2-3 notches lower than Jefferies’, and its balance sheet is smaller, though Moody’s is talking about upgrading Leucadia on the deal.

Here is Moody’s affirming Jefferies’ Baa3 rating: Read more »

  • 01 Aug 2012 at 4:59 PM

Layoffs Watch ’12: Jefferies

Cuts are said to have down at the best paid bank on Wall Street. Read more »

Jefferies set aside $870 million in the first six months of its fiscal year, enough to pay its 3,809 employees an average of $228,407. Goldman Sachs set aside $225,789 for each of its 32,300 workers. Average pay for the 26,553 people in JPMorgan’s investment bank was $184,989, or at least 18 percent less than Jefferies’s and Goldman Sachs’s reported figures. It was 10 percent less than both in fiscal 2011…Goldman Sachs, run by Chief Executive Officer Lloyd C. Blankfein, 57, includes consultants and temporary staff when reporting headcount. Jefferies, which has been luring talent from larger rivals to expand in the wake of 2008’s credit crisis, tallies only full-time workers in its disclosures. Jefferies’s reported headcount would expand by 10 percent to 15 percent if the firm included temporary workers, said a person with direct knowledge of the figures who requested anonymity because the information isn’t public. While that would place the firm’s average pay per employee below Goldman Sachs’s, it still exceeds JPMorgan’s and Morgan Stanley’s.  [Bloomberg]