Tuesday, December 20, 2011

JEF Up 20%

So it's nice to see Jefferies Group (JEF) stock up 20% today to just over $14.00 after dipping below $10.00 at one point in November.

Despite the panic and near-run on JEF due to a faulty report be Egan-Jones, JEF managed to make money in the quarter.  The market is relieved and the stock price is showing it.

I won't get into details on the quarter or yearly earnings announced today, but there was an interesting comment on the conference call:  JEF said that this 'issue' of misinformation and misunderstanding in the quarter really disrupted their business and that if this didn't happen, they might have had yearly earnings of $400 million and revenues of $3 billion or so.

That would have been $1.81/share giving JEF a valuation of less than 8x p/e even at the current price of around $14/share, and an ROE of 11.7% and a return on tangible book value of 13% which is not bad at all in this environment.

Of course, there is no guarantee that that is what JEF would have earned.  I think they just looked at the run rate revenues and earnings up until the panic set in when they had to take measures to shrink the balance sheet and deal with a market where customers fled and counterparties hesitated etc...

Anyway, I don't own JEF but I am still bit shocked at the incompetence and carelessness of Egan-Jones in publishing such a sloppy report and his refusal on live TV to admit the error.  An admission of error would be a blow to the credibility, of  course, to Egan-Jones but his refusal to admit a simple mistake to me is much more enlightening and scarier.

Again, this sort of really explains some of what happened during the upside of the credit bubble, and now these same organizations threaten to cause panics and runs at totally viable institutions.

I am more in favor of restructuring this industry than ever before having been supportive of them over the years (even though I would never depend on their research or opinion of anything).

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