Jefferies Financial Group Inc. reported earnings that fell short of Wall Street expectations, as losses from credit investment missteps weighed on overall performance. While the firm's investment banking division recorded its strongest first quarter ever, earnings per share of 70 cents missed the analyst forecast of 87 cents. The results included $17 million in losses tied to recent credit events involving Market Financial Solutions and First Brands Group.
In an interview Wednesday, the firm's president stated that there was some noise in the numbers related to well-known situations, and that efforts were being made to focus market attention on what management considers most important: the strength and health of the business. As the first major U.S. bank to report earnings, Jefferies' results offer a glimpse into how Wall Street navigated challenges including private credit, artificial intelligence, and geopolitical turbulence in the first few months of the year.
The performance suggests that large U.S. banks, scheduled to report next month, may also post growth in investment banking revenue and a boost in trading, even as they disclose their own credit issues. Jefferies said in a statement that revenue rose 26% year-over-year to $2.017 billion, while net profit increased 22% to $155.7 million.
Results benefited from a 45% surge in investment banking revenue, with advisory income climbing due to increased deal volume across multiple sectors. The capital markets division also contributed to profit growth, with equity trading delivering its best first-quarter performance on record. Driven by higher trading volume, divisional revenue reached $558.5 million, a 37% annual increase. This partially offset a 24% decline in fixed income trading revenue, which included mark-to-market losses related to the collapsed UK mortgage lender Market Financial Solutions. The judge overseeing that case cited allegations of fraud and duplicate asset pledging.
The statement also noted that Jefferies recorded a $36 million impairment related to the sale of Tessellis SpA, a telecommunications company within its merchant banking portfolio which is being gradually wound down. The transaction is expected to be completed in the first quarter of next year. Jefferies' asset management business also incurred additional losses linked to credit investments. The firm had previously recognized a $30 million pre-tax loss related to bankrupt auto parts supplier First Brands. After writing off an additional $10 million in the first quarter, the firm's exposure to First Brands has now been reduced to zero.
In a letter to shareholders accompanying the earnings, the CEO and president expressed management's disappointment and full responsibility for the recognized losses and any future losses that may be absorbed as the First Brands situation resolves, but emphasized that these losses remain manageable. Jefferies' stock has declined 36% year-to-date, ranking as the worst performer in the S&P 400 MidCap Index.
The executives noted that despite the credit losses, Jefferies continues to see business momentum persist, even amid uncertainties stemming from conflict in the Middle East. The president added that assuming hostilities in the region are reasonably resolved in the relatively near term, the merger and acquisition market is expected to remain active for the rest of this year and into next, with the IPO market also performing strongly.
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