Jefferies has just released its results for the second quarter of 2018. If you work for a bank, their message is mixed.
1. Good times for fixed income traders did not last
Firstly, it turns out that the great first quarter for fixed income traders may have been no more than that: the second quarter took a distinct turn for the worse.
In Q1, Jefferies' fixed income revenues more than doubled on the final three months of 2017, going from $101m to $213m. In Q2, however, Jefferies' fixed income revenues shriveled nearly back to where they started at $119m. To add insult to injury, they were also 23% lower than the second quarter of 2017.
Fixed income traders who thought their time had come may have to rethink.
2. Given half an excuse, banks will cut pay
Jefferies' 3,348 employees have had a pay cut. Last year, they each averaged $274k in salaries and bonuses for the first half. This year, they're down to $262k.
The fall in pay follows the addition of 114 people in the past year. It also comes as Jefferies booked a provisional tax charge of $160m as a result of the Tax Cuts and Jobs Act which all but wiped out its first-quarter post-tax profits.
3. Equities trading revenues are weirdly steady
If fixed income trading revenues are shrinking back to their previous lows, at Jefferies at least, equities revenues are holding up. They were $175m in Q218 compared to $174m a year earlier.
4. Bankers are resurgent and hiring senior investment bankers makes good sense
As Bloomberg notes, Jefferies' Q2 results help confirm Jefferies' transformation from a trading house to an advisory and capital markets house. While trading revenues were weak to flat in the second quarter, investment banking division revenues rose significantly (up 43% in M&A and equity capital markets and up 40% in debt capital markets).
This follows years of M&A banker hiring by Jefferies which has helped propel the firm up the league tables. Who said senior bankers don't perform when they're transplanted to other firms?
5. Traders are finding it harder to turn a profit
Lastly, Jefferies results suggest a whiff of desperation on the trading floor. While the bank's combined fixed income and equities trading revenues were down 12% year-on-year in the second quarter, the number of trading days on which Jefferies made a loss tripled from three to nine.
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