NEW YORK (AP) — Jefferies Group, struck by market volatility and rumors about its exposure to the European debt crisis, said Tuesday that its net income slid 23 percent during the fourth quarter. Still, the investment group topped expectations for a very rough quarter and shares spiked 19 percent in early trading.
Following speculation that the company might be in line suffer the same fate as MF Global, the disgraced firm led by Jon Corzine, Jefferies undertook radical measures to counter that perception, in essence opening its books to quash any doubts.
MF Global used massive leverage to build up positions in European debt. When ratings agencies questioned that strategy as the European crisis worsened, lenders began to demand more collateral, dooming the firm. As MF Global collapsed, some perceived that Jefferies was in danger as well.
Jefferies slashed debt and sold off a big chunk of its balance sheet after the rumors began to circulate in November that it could be the next to fall. Executives said in a letter that the company had been the target of an orchestrated campaign of "malicious lies and false rumors."
The company lost a third of its value in the ensuing sell-off.
On Tuesday, shares jumped $2.30 to $14.10
"We were on the way to having a reasonable quarter with operating everyday business. And November occurred," said CEO Richard Handler during a conference call. "So, as a result, we wound up being proactive and dramatically reducing some of our exposures and inventory and reducing our balance sheet.
For the quarter ended Nov. 30, the investment bank posted a profit attributable to common shareholders of $48.4 million, or 21 cents per share, down from $62.7 million, or 31 cents per share, in the same quarter last year.
The recent quarter's results included which a $12 million after-tax gain related to debt extinguishment and $2 million in expenses stemming from the company's acquisition of Prudential Bache's global commodities group.
Excluding those items, Jefferies said it posted an adjusted profit of $39 million, or 17 cents per share.
Analysts, on average, expected a profit of 16 cents per share, according to a FactSet poll.
Total revenue fell 6.2 percent to $798.7 million from $851.9 million. Interest expenses jumped 42 percent to $244.8 million from $172.1 million. Excluding those expenses, net revenue fell 19 percent to $554 million from $679.8 million.
Investment banking revenue fell 10 percent to $261.3 million, while revenue from principal transactions tumbled more than 80 percent to $36.6 million.
For the full fiscal year, Jefferies earned $284.8 million, or $1.28 per share, up from $223.7 million, or $1.09 per share, in fiscal 2010.
Also on Tuesday, Jefferies Group Inc. declared a quarterly dividend of 7.5 cents. The dividend will be paid on Feb. 15 to shareholders of record as of Jan. 17.