Jefferies end of year results were out yesterday. They’re quite promising – whether you work for Jefferies or not.
For Jefferies’ own employees, the good news is that Jefferies appears to have increased its pay. For full year 2012, it paid a total of $466k per head, up 22% on last year. In the second place, Jefferies increased net profits 17% and revenues by 16% in 2012. Equities sales and trading revenues rose 42% year-on-year in the final quarter; fixed income sales rose 107% in the same period.
If Jefferies is a proxy for other investment banks, this has therefore been a good year and a good final quarter. Equally promisingly, Brian Friedman, president of Jefferies Capital Partners, said 2013 should be a great year for investment banking revenues. “Looking into next year the first quarter looks better than the fourth quarter and just my personal gut says that the second quarter could already be a very strong M&A period,” said Friedman on yesterday’s call.
There are a few curiosities and anomalies. In the first place, it’s in ‘principal transactions’, which includes both market making and prop trading, that Jefferies really outperformed over the past year. Here, revenues rose 140% versus 2011. By comparison, Jefferies’ investment banking revenues were merely stable. As trading revenues increased, so did Jefferies’ risk taking: in the fourth quarter of 2012, value at risk was 43% higher than in the same period of 2011. Is Jefferies taking more proprietary trading risk to drive its growth?
It’s also worth noting that Jefferies is no longer in hiring mode. In 2012, it reduced headcount by 94 people. And even though Jefferies now looks like the highest paying bank on Wall Street on a per head basis (assuming that other banks continue to accrue at the rate they did during the first three quarters), higher compensation may not be shared among all the bank’s employees. Richard Handler said some of the increased compensation was related to “one time” items – possibly guaranteed bonuses – and that compensation will fall next year.
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