Jefferies Posts Mixed Q2 as Investment Banking Momentum Builds Amid Market Uncertainty

Jay's InsightThursday, Jun 26, 2025 8:32 am ET
3min read

Jefferies Financial Group reported fiscal second-quarter results that reflected both resilience and strain, offering a complex early read on the state of investment banking ahead of earnings from

and later this summer. Despite topping revenue expectations with $1.63 billion in net revenue, missed on the bottom line, posting EPS of $0.40 versus consensus of $0.44. The firm’s leadership acknowledged a sluggish start to the quarter due to policy and geopolitical headwinds but expressed growing optimism for a rebound in the second half of 2025. Shares fell about 2.5% in response to the release.

The quarter unfolded against a backdrop of heightened uncertainty, including volatile equity markets, widening credit spreads, and renewed trade tensions. CEO Richard Handler and President Brian Friedman noted that “net revenues of $1.63 billion for the second quarter reflect a resilient full-service investment banking and capital markets business against a backdrop of significant uncertainty related to U.S. policy and geopolitical events which meaningfully slowed activity levels for the first two months of the quarter.” Despite the rocky start, management said clarity began to emerge in May, fueling a pick-up in activity that they believe could carry into the second half of the year.

Investment Banking was a relative bright spot. Net revenue from advisory, equity underwriting, and debt underwriting totaled $786 million, a 6% increase from the year-ago quarter. Advisory revenue rose 61% year-over-year to $458 million, a signal of market share gains and robust M&A activity across sectors. However, that strength was offset by a 51% decline in equity underwriting revenue, which management attributed to muted market activity in March and April. Debt underwriting was essentially flat year-over-year. Executives cited a “strengthening market position” and growing client engagement, supporting a bullish outlook for upcoming quarters.

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Capital Markets performance was more mixed. Net revenue from capital markets came in at $704 million, down slightly from last year. Within that, equities revenue stood out with a 24% year-over-year gain to $526 million, supported by strength in global trading volumes, corporate derivatives, and performance across European and Asian equity desks. In contrast, fixed income trading revenue dropped 37% to $178 million, hampered by lower global activity, wider credit spreads, and challenges in distressed debt, securitized products, and emerging markets. These figures may foreshadow a similar tone when

Sachs and Morgan Stanley update on their trading businesses next month.

Asset Management revenue totaled $154.6 million, down from both the prior quarter and year-ago levels. However, the fee and investment return portion of that revenue rose 43% year-over-year to $71 million, helped by improved performance across several investment strategies. The segment continues to be subject to volatility, with returns tied to third-party alternatives and susceptible to markdowns.

Jefferies reported net earnings attributable to common shareholders of $88 million, down from $145 million a year earlier, translating to a return on adjusted tangible equity of just 5.5%. That compares to double-digit returns posted by larger peers and reflects margin compression from higher compensation and operating costs. The firm’s compensation ratio ticked up slightly to 52.3%, as hiring and integration of new MDs continues to weigh on profitability. Non-compensation expenses also rose due to higher brokerage, clearing, and technology-related costs.

Management remains confident that operating leverage will improve as deal activity returns. “We expect margins to normalize as the business environment improves and our operating leverage takes effect,” Handler and Friedman said. The firm has made significant front-loaded investments in talent, with MD headcount up over 70% since 2019. While this has pressured margins, analysts suggest that Jefferies may gain share as those hires ramp in productivity.

While Jefferies' performance is company-specific, it often serves as a bellwether for the broader investment banking landscape. The strong advisory performance and rebound in equity trading suggest that M&A and equities desks at Goldman Sachs and Morgan Stanley could also see improving trends. However, Jefferies’ weak fixed income performance highlights ongoing headwinds in credit and rates businesses—areas where larger peers with more macro-driven franchises may fare better.

From a macro perspective, the firm’s mixed results mirror a broader economy in transition—balancing between resilient corporate fundamentals and episodic disruptions from policy shifts, geopolitical tensions, and shifting capital flows. Jefferies' commentary hinted at a thaw in client sentiment, potentially setting the stage for a more constructive second half for dealmaking and capital markets.

Looking ahead, Jefferies maintained its quarterly dividend of $0.40 per share and reported adjusted tangible book value of $32.84, up from $31.27 a year ago. The firm sees strength in its deal backlog and an uptick in client engagement around capital formation. While risks remain—from tariffs to rates to global elections—Jefferies is betting that the worst of the uncertainty has passed.

With Goldman and Morgan Stanley set to report in the coming weeks, investors will be watching closely to see whether Jefferies’ signs of stabilization extend across Wall Street—or whether it remains a lone green shoot in a still-murky capital markets environment.

Ask Aime: How does Jefferies Financial's Q2 performance reflect the current market conditions?