Jefferies' third-quarter profit falls short of expectations as M&A sputters

Jefferies said it expects around 360 managing directors in its investment banking franchise at the beginning of 2024, up from the 299 that it started this year with. “As long as I’ve been involved in running investment banking firms, the opportunity to hire and grow is best in downturns,” Friedman said.

Jefferies Financial Group reported a smaller-than-expected third-quarter profit on Wednesday as lingering economic uncertainty kept dealmaking in check, but the firm said it was hiring more managing directors for next year. Shares of the New York-based company fell 3.5% after the bell, even as it forecast a more "normal" investment banking environment in 2024.

The biggest hit to earnings came from the asset management unit, where revenue plummeted 97% from last year, which had included results from units Jefferies has since shed. But market conditions are beginning to improve, the bank said, bolstering the view that mergers and acquisitions (M&A) are starting to pick up pace after the Federal Reserve signaled it is nearing the end of its tightening cycle.

Investment banking revenue was $644.6 million, about 2% lower than last year but nearly 28% higher than the prior quarter. "The markets are thawing out and beginning to warm a bit," Jefferies President Brian Friedman said in an interview.

"The market for the services we provide has pretty good demand across the board - it needs to be translated into transactions," he said, citing recent initial public offerings and a pickup in merger discussions. Jefferies said it expects around 360 managing directors in its investment banking franchise at the beginning of 2024, up from the 299 that it started this year with.

"As long as I've been involved in running investment banking firms, the opportunity to hire and grow is best in downturns," Friedman said. "One needs to have the fortitude and the commitment to make the moves that are available in more challenging moments."

The bank's results are often viewed as a prelude to earnings at Wall Street titans such as JPMorgan Chase, Goldman Sachs Group and Morgan Stanley. Jefferies' profit slumped 74% to $51.4 million, or 22 cents per share, for the three months ended Aug. 31, compared to analysts' average estimate of 33 cents per share, according to LSEG data.

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