Results at E-Trade, Jefferies Mixed
Diversification pays.
That was the spin Tuesday from brokerages E-Trade Group Inc. and Jefferies Group Inc., which reported first-quarter earnings hurt by the ongoing slump in stock trading but helped by gains in other businesses.
But diversification apparently only goes so far: E-Trade also said it is finalizing a restructuring plan that will involve closing some offices this year, including its four-story financial center in Manhattan, and exiting unprofitable businesses such as online financial advice and stock basket trading.
New York-based Jefferies said earnings fell 20% to $14.2 million, or 50 cents a share, from $17.7 million, or 65 cents, in the first quarter of 2002. Revenue fell 5% to $185.3 million from $195.3 million, due largely to a drop in equity trading income of 16% caused by war jitters and a flat market.
Investment banking income, however, rose 17%. Junk bond underwriting boosted banking revenue, Jefferies said, as did advisory work stemming from the December acquisition of Los Angeles-based Quarterdeck Investment Partners, which specializes in aerospace and defense mergers.
“Industrywide, the equity trading business has been horrendous,” Chairman and Chief Executive Richard Handler said. “The good news is that our investment in the investment banking business is paying off.”
Jefferies helped underwrite nine high-yield debt offerings, including several in the gaming sector, Handler said. The firm, which has 210 employees in Los Angeles, continues to build its name as a leading investment bank for midsize companies, he said.
Shares of Jefferies, whose earnings came out before trading opened and matched analysts’ forecasts, rose 82 cents to $38.86 on the New York Stock Exchange.
E-Trade, based in Menlo Park, Calif., reported after the market closed that earnings were $21 million, or 6 cents a share, contrasted with a loss of $270 million, or 78 cents, in the first quarter of 2002. Revenue fell 2.6%, to $322.2 million from $330.9 million, as brokerage income slid 21%. But banking income surged 36%, due in part to the booming mortgage business.
“Again this quarter we have demonstrated the value of our diversified model,” CEO Mitchell Caplan said.
The company said that its restructuring will slash net income by as much as 20 cents a share in 2003 but will lower costs by 7 cents to 8 cents a share starting in 2004.
“When the equity market returns, we will have that much more operating leverage,” Caplan said.
E-Trade, which saw its stock rise 13 cents to $4.48 on the NYSE in regular trading, also matched analysts’ consensus forecast.
