Jefferies employees must be breathing a collective sigh of relief after the investment bank agreed to be acquired by holding company and minority investor Leucadia. The move should enable Jefferies to continue its aggressive growth without the backing of a competing bank.
The merger, announced early today, ends months of speculation over whether Jefferies could remain independent with its high-risk profile that often stoked investor fears. Jefferies’ balance sheet, some said, couldn’t support its investment in volatile markets, particularly in Europe. Investor fears heightened following the collapse of competitor MF Global and the downgrading of the firm’s credit rating to one notch above junk bond status.
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.
Jefferies sent a note to investors saying that it will continue to “attract and retain outstanding professionals.” Leucadia also noted in a presentation with investors that it will leverage Jefferies’ 700 investment bankers as well as its research and trading platforms.
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.
Jefferies has grown its headcount aggressively since the financial crisis, highlighted by five major appointments to its Asian investment banking business just last week.
Requests for comment from Jefferies went unreturned.
The remaining question for Jefferies and its employees is its negative credit rating, perching its fixed income business on shaky ground. Moody's today affirmed Jefferies' credit rating, noting that the merger “will not add incremental risk to Jefferies” while enabling Leucadia to “deploy its resources to benefit Jefferies from time to time.”