Jefferies Outlook Suggests Firm Will Continue to Expand Headcount

Jefferies & Co.'s top executive sees stronger capital markets continuing to drive transaction growth for the firm, whose staff expanded by 432 people or 18 percent over the past nine months.

Jefferies' headcount increased by 101 last quarter - the third straight period of adding 100 or more employees. The firm set aside $319.8 million for compensation and benefits, or 55 percent of net revenue, in line with the 56 percent compensation ratio recorded for all of last year.

In a conference call following the release of first-quarter results, CEO Richard Handler and other executives pointed to European credit sales and trading, investment banking, cash equities and listed derivatives, and prime brokerage as areas where Jefferies' business is gaining ground. The firm now claims 325 prime brokerage clients, up from 150 two years ago.

Banking Backlog 'Growing Nicely'

For investment banking, "Our backlog for both debt and equity as well as across all investment banking efforts is growing nicely in terms of both quantity and quality," said Brian Friedman, chairman of the executive committee. The first quarter's strongest sectors included energy, health care, and mortgages.

Handler ticked off several reasons for optimism about financial markets and business volume in coming quarters, including pent-up demand among investors and traders, "tremendous cash inflows" into fixed-income that are "starting to trickle" into equity markets, and returning confidence among CEOs in the U.S. and globally.

Fixed-Income Down vs. Fourth Quarter

Fixed-income trading business, the firm's single largest revenue line, amounted to $213.5 million in the first quarter. While up 6.9 percent versus the first quarter of 2009, it declined 4.3 percent compared with last year's fourth quarter. Equities trading revenue of $164.8 million soared 54 percent from the fourth quarter.

In investment banking, both equity and debt underwriting showed substantial gains, while advisory revenue of $62.7 million was 30 percent below the fourth-quarter number, but more than twice last year's first-quarter figure.

Jefferies also announced it's switching to a Nov. 30 fiscal year, starting next quarter. That will place it among the earliest big financial firms to report its results each earnings season.