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Wall St. bellwether Jefferies confirms business is booming at the banks

Jefferies CEO Rich Handler

Investment bank Jefferies, a bellwether for Wall Street, reported its first quarter results on Tuesday, marking the firm’s fourth consecutive quarter of improving results.

For the quarter ended February 28, Jefferies saw net earnings come in at $114 million compared to a net loss of $167 million in the prior year’s first quarter. Total net revenues jumped more than 166%, coming in at $796 million versus $299 million in the same period a year ago.

Investment banking net revenues came in at $408 million versus $231 million a year ago, a 78% jump. Meanwhile, revenue from trading stocks and bonds climbed to $379 million compared to $59 million a year prior, a 542% increase.

“The overall tone of the market is solid. Every capital market is open, and CEO confidence is strong. Companies are looking to play offense but want to do so in a smart and measured way,” Jefferies CEO Richard Handler told Yahoo Finance.

Importantly, Handler highlighted what’s expected to be an environment of rising interest rates, which is usually bullish for bank profitability.

“The market is very accepting [of] and embracing [a] gradual return to normalcy in interest rates,” Handler said. “A year ago there was outright fear about this process but no longer. Normal interest rates are good with for our clients who invest in specific companies versus baskets of securities as the days of everything correlating should diminish when the risk-free capital rate is zero. It is also good for companies as well managed ones will be rewarded, and poorly managed ones will be penalized. This is a healthy return to normalized capitalism. We were where we were for good reason as the financial world was close to the abyss in 2008. Finally, it feels like we are putting the crises behind us.”

He noted that “there are always new surprises that come in the financial markets, so companies will stay strongly capitalized, regardless of the more optimistic tone.”

Jefferies, whose parent company is Leucadia National (LUK), the holding company that’s often referred to as a “Baby Berkshire Hathaway,” is often considered a bellwether for other Wall Street banks. That’s because Jefferies reports on a slightly different fiscal quarter that’s a month before the other banks.

Shares of Jefferies’ parent company, Leucadia, have gained more than 40% since the election. The stock is up 13% since the beginning of the year. Across the board, financial stocks, including Goldman Sachs (GS), Bank of America (BAC), JPMorgan (JPM), Morgan Stanley (MS), and Citigroup (C), saw their share prices climb following the election.

In regards to Jefferies results, Handler explained that investment banking revenues were up because a year ago the debt markets “were basically closed” and M&A was on pause because of volatility.

“We are seeing healthy banking backlogs, and there is a very positive tone to this market. We also played a lot of offense this past year by hiring many key bankers and teams, which should continue to serve our clients and gain market share,” Handler said.

Trading activity also saw an increase.

“Our trading was up because the environment is healthy. Many of our competitors (mostly European) have reduced their commitment, and we were able to hire a bunch of top people across the the board who have complemented our existing team. We have done all this these past 12 months with a much-reduced balance sheet and risk profile,” he said.

Handler, who is active on Twitter and Instagram, is one of the longest-tenured CEOs on Wall Street. He’s also generous in giving credit where credit’s due.

“Our success at Jefferies is driven entirely by one thing: our people. Human capital is our most precious asset, and we will never forget it or take it for granted. Our company has a great culture that we are very proud of, and we are committed to our clients, long term versus short term success,  and our belief that teamwork, integrity, and hard work will always win.”

Julia La Roche is a finance reporter at Yahoo Finance. Follow her on Twitter.

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