(Bloomberg) -- Jefferies Financial Group Inc. said profit dropped 52% in its latest quarter as Wall Street contends with the persistent slump in dealmaking and capital markets activity.
Total investment banking revenue dipped 44% to $681.8 million, the New York-based firm said Wednesday in a statement. While the results topped the $672 million average of analyst estimates compiled by Bloomberg, the firm warned its investment-banking pipelines remain similar to last quarter’s levels and noted “realization remains dependent on market conditions.”
It’s “feeling like a transitional year in our business, but one in which we are making good progress in enhancing our market share,” Chief Executive Officer Richard Handler and President Brian Friedman said in the statement. “We continue to invest toward further growth, most notably in investment banking.”
The firm’s shares slipped 2.3% to $29.05 at 10:20 a.m. in New York after rising as high as $30.41 earlier Thursday. They’ve declined 25% this year, in line with the Dow Jones US Financials Index.
Jefferies traders generated $452 million in revenue during the quarter, a surprise increase compared to the same period a year earlier as equities trading surged. While the firm said fixed-income trading revenue, which dropped 15%, was hindered by “by lower trading volumes, mark-to-market losses on certain mortgage inventory positions and a slowdown in securitization activity,” revenue from its larger equities trading business soared 17%.
Analysts cheered the results, with Goldman Sachs Group Inc. highlighting Jefferies’s traders “outperforming the typical seasonal summer slowdown.” Keefe, Bruyette & Woods analyst Michael Brown said the revenue performance was “decent for a challenging operating environment.”
The results are the first peek at how the recent slump in investment-banking activity could affect the fortunes of the country’s largest banks. Wall Street executives in recent weeks have warned that clients are still spooked by inflation, the Federal Reserve’s interest-rate hikes and the potential for a recession, causing many of them to avoid mergers and creating a slump in capital-markets activities.
Taken together, the results meant firmwide profits dropped to $195 million, or 78 cents a share. Excluding penalties tied to a settlement it reached with regulators over employees’ use of unauthorized messaging channels, per-share profits were $1.10. That compares to the 73-cent average of analyst estimates compiled by Bloomberg.
(Updates with shares, analysts’ comments starting in fourth paragraph.)
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