By Rebecca Ungarino

Shareholders of banks like Goldman Sachs Group and JPMorgan Chase got some welcome news on Wednesday when Jefferies Financial Group reported its earnings. The investment bank's results could point to a solid earnings season for U.S. financial institutions -- even though the market punished its stock as part of a broader selloff on Friday.

Jefferies' profits rose by some 212% to $205.7 million, or 91 cents a share, from a year earlier, missing analysts' forecasts for $245 million and 97 cents, respectively. Revenue jumped 63% to $1.96 billion, though, surpassing analyst estimates for $1.8 billion.

All things considered, it was a good harbinger for Jefferies' larger competitors. Strong performance in its investment banking business -- quarterly revenue of $596.7 million from advisory work for clients marked a record -- drove the results, the bank said. Overall investment banking revenue totaled $3.4 billion in 2024, its second-highest annual figure.

Management was pleased: Jefferies "begins 2025 in the best position ever in our firm's 62-year history," CEO Richard Handler and President Brian Friedman wrote in their annual letter to shareholders. Revenue of some $2.8 billion from capital markets in 2024 was up 24% from a year earlier. The firm said on Wednesday that it was increasing its quarterly dividend by about 14% to 40 cents per share.

Yet the stock dropped 11% on Friday, the first day of trading following the results -- its largest drop in five years. That's likely due to the stronger-than-expected payrolls report, which suggests the Fed may be done cutting interest rates -- bad news for banks steeped in the M&A business. Still, shares have nearly doubled over the past year, easily surpassing the S&P 500's 24% rise.

Jefferies typically releases results earlier than banks such as JPMorgan, Goldman, and Morgan Stanley, among others, offering both a window into how its larger rivals might perform and a pulse check on the industry's health. Investors and analysts are watching for how hauls from investment banking assignments fare as dealmaking starts to return. Following a period of ultralow borrowing costs and a banner run for investment bankers, higher interest rates had prompted a downturn for initial public offerings, mergers, and acquisitions.

Even after the odds of Fed rate cuts fell on Friday, the environment is still better for companies in search of big deals than it was when rates were higher. The economy has remained on a strong footing, and consumers continue to spend. Finance executives are predicting a wave of new dealmaking in 2025, anticipating a friendlier approach from regulators on antitrust issues that can set back or kill mergers.

JPMorgan, Wells Fargo, Citigroup, and Goldman all report this coming Wednesday. Across the board, analysts expect higher profits from a year ago. Given that JPMorgan has gained 40% over the past 12 months and Goldman has risen 47% to near records, investors might be worried about high expectations.

If Jefferies is anything to go by -- even after a brutal day for the stock -- they should be just fine.

Write to Rebecca Ungarino at rebecca.ungarino@barrons.com

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(END) Dow Jones Newswires

January 10, 2025 21:30 ET (02:30 GMT)

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