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Jefferies Group, Inc. (JEF)

Q1 2010 Earnings Call

April 20, 2010 9:00 am ET


Richard Handler – Chairman, Chief Executive Officer

Brian Friedman - Chairman of our Executive Committee

Peg Broadbent – Chief Financial Officer


Patrick Davitt – Bank of America/Merrill Lynch

Douglas Sipkin – Ticonderoga



Welcome to the Jefferies 2010 first quarter financial results call. A question and answer period will follow management’s prepared remarks. In addition to any previously submitted questions, security industry professionals may ask a question (Operator Instructions).

As a reminder, this call is being recorded. A press release containing Jefferies’ 2010 fourth quarter financial results was distributed via Business Wire before the market opened today and can be accessed at Jefferies website at

Some of the comments made in this conference call may include forward-looking statements. These forward-looking statements may contain statements about management’s current expectations, strategic objectives, growth opportunities, business, and prospects. These forward-looking statements are not statements of historical fact and represent only Jefferies’ belief as to future performance.

They usually include the words continue, will, believe, should, or other similar expressions. Actual results could differ materially from those projected in these forward-looking statements. Please refer to Jefferies annual report on Form 10-K filed with the Securities and Exchange Commission on February 26, 2010 and in Jefferies Forms 10-Q and 8-K for discussion of important factors that could cause actual results to differ materially from those projected in these forward-looking statements.

I would now like to introduce your host for today’s conference, Mr. Richard Handler, Chairman and Chief Executive Officer of Jefferies Group.

Richard Handler

I apologize, some of you may have heard this beginning before and some of you will be hearing this for the first time but let’s just go through it. Good morning and thank you for joining our discussion of Jefferies first Quarter results. I am Rich Handler, CEO of Jefferies, and with me on the call today are Brian Friedman, Chairman of our Executive Committee, and Peg Broadbent, our Chief Financial Officer.

For the first quarter ending March 31, 2010, we posted net revenues of $582 million, net income to common shareholders of $74 million, and earnings per share of $0.36. We are pleased with the strength of our results and in particular with the broad balance of our revenues from every one of our major business lines: equities, fixed income and investment banking.

At this stage, it is important to highlight the meaningful contribution made by our recently expanded international sales and trading businesses. These solid results were achieved in an uneven operating environment, with the month of January and March being strong, while February was choppy and quite challenging as investors and traders seemed to pause due to factors as diverse as concerns and ambiguity surrounding global regulatory reform, including U.S. health care and financial services legislation and the Greek debt crisis. The good news is that March was particularly strong and the momentum has carried into April.

The breadth, strength and congruence of our first quarter performance signify what Jefferies is today: a major, global, full service, investment banking and securities firm focused as one firm delivering quality ideas and top tier execution to our clients. At the same time, we’re a firm built on a rock solid foundation of log term capital, pure liquidity, zero arrogance and entrepreneurial culture that always puts our clients’ needs first. Now, let me turn it over to Peg to discuss our results and financial condition in more detail.

Peg Broadbent

Thank you, Rich. Before we turn to our results, we would like to explain two changes in our reporting format as well as address the change in our fiscal year end that we also announced this morning and our recent change in auditors.

First, we have amalgamated the FICC and high yield revenue lines in our revenues by source statement into one new line, fixed income. As our firm grows and at the same time achieves greater integration across our platform, our high yield and other fixed income businesses are increasingly working together every day. By way of example, as announced last August, we hired New Talent [ph] in London to help expand an integrated European credit effort focused on investment grade, high yield and loan products. Thus, in London, a single team focuses on investment grade and less than investment grade credit products.

Another example of our integration fixed income focus is our placing a 2 billion BA3 and BBB minus split rated bond for [i-com] enterprises in January using both our investment grade and high yield taxable bond sales forces. With sales and trading of mortgages, treasuries, agencies, municipals, emerging markets, corporate high grade, convertibles and high yields we now have a high quality and highly integrated fixed income efforts at Jefferies.

Second, to assist readers in understanding the composition of our capital markets revenues, we will now subdivide capital markets revenues into debt capital markets and equity capital markets in our revenues by source statement.

Now to our change in fiscal year end, since, unlike our primary competitors, we have not found it necessary to become a bank holding company but rather have chosen to remain a securities firm, we have decided to move our year end from December 31. Henceforth, our fiscal year end will now be November 30. Our fiscal 2010, thus, will be an 11 month period running from January first to November 30. Our 2010 second quarter will end May 31 and our third quarter will end August 31. It will not be necessary for us to restate prior year quarters since they are considered comparable. When we report our results for the 3 months ending May 31 we will compare it to last year’s second quarter ended June 30.

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