mcliu Posted June 26, 2013 Share Posted June 26, 2013 Have you guys taken a look at the 10-Q for Q1? I was wondering, how do you separate the Jefferies assets from the Leucadia assets? Specifically, there's $2.3B in available-for-sale fixed income securities. Is that part of Jefferies' trading book or is that part of Leucadia's investment portfolio? Also, the $3.1B in cash, is that part of Leucadia's portfolio? Link to comment Share on other sites More sharing options...
scorpioncapital Posted June 26, 2013 Share Posted June 26, 2013 I believe they said they are going to publish a "look through" balance sheet of LUK owning JEF, but I'm not sure if that's in Q2 or a supplementary... Link to comment Share on other sites More sharing options...
Grenville Posted June 26, 2013 Share Posted June 26, 2013 Have you guys taken a look at the 10-Q for Q1? I was wondering, how do you separate the Jefferies assets from the Leucadia assets? Specifically, there's $2.3B in available-for-sale fixed income securities. Is that part of Jefferies' trading book or is that part of Leucadia's investment portfolio? Also, the $3.1B in cash, is that part of Leucadia's portfolio? Just compare JEF Q1 10Q with LUK Q1 10Q and you can subtract out the JEF BS to get the LUK BS ex JEF. For example, the cash at LUK is 122,463. The AFS portfolio is all LUK, trading assets is JEF. Hope that helps. Link to comment Share on other sites More sharing options...
giofranchi Posted June 26, 2013 Share Posted June 26, 2013 From reading the letter it sure looks like Steinberg & Cummings have done a good job of picking their successors and one will still be involved in being there for advice. Ron, I am a romantic! And I have no problem at all to admit that I enjoyed the letter immensely… and that I even shed a tear! :'( But… when it comes to understand a business, I suddenly become as unemotional and detached as possible. That is the way I am done, and I like stories, but I find them of little use. Sincerely, I had hoped I would have found out more about the future of LUK than about its past… This was supposed to be the missive with which Mr. Cumming and Mr. Steinberg officially introduced Mr. Handler and Mr. Friedman to LUK’s shareholders. Though, in the first two pages of the letter they write about Jefferies, there is very little we didn’t already know… Then, we are left with 8 pages of “memorabilia”… don’t get me wrong: 8 wonderful pages!… But, unfortunately, not very useful (with the possible exception of “A Major Future Opportunity”). Though I would sentimentally like to say that I feel more confident now about LUK’s future prospects, I must acknowledge that it would not be based upon any new substantial piece of information… Very interesting price right now: no doubt about that, and I am sure a lot of you are buying! But I must wait. Because I require conviction first, then I look at the price! Otherwise, I know I will make mistakes. giofranchi Link to comment Share on other sites More sharing options...
WhoIsWarren Posted June 26, 2013 Share Posted June 26, 2013 gio, You are right. There was not a lot of new information in the letter, though I at least learned that C&S first came across Handler in 1987, whereas I had thought they first started their relationship in 2000 with the setting up of the Jefferies Partners Opportunity Fund. I take a huge amount of comfort from their long, long association. However, your main disappointment appears to be that "I had hoped I would have found out more about the future of LUK". Was this a realistic expectation? Is it right to think that they should paint the canvas of their successors? Or, given that C&S know and trust their successors -- and we know and trust C&S -- shouldn't they seal their lips and let the new maestros do their thing? Link to comment Share on other sites More sharing options...
giofranchi Posted June 26, 2013 Share Posted June 26, 2013 However, your main disappointment appears to be that "I had hoped I would have found out more about the future of LUK". Was this a realistic expectation? Is it right to think that they should paint the canvas of their successors? Or, given that C&S know and trust their successors -- and we know and trust C&S -- shouldn't they seal their lips and let the new maestros do their thing? Hi WhoIsWarren, maybe you are right… and mine was too selfish a wish! Anyway, what can I say? I am like a spoiled kid, and very difficult to satisfy! ;D Probably, that’s why the more I study and research, the more my “circle of competence” tends to shrink, instead of getting larger… Very few new businesses get inside, while many are thrown out! Like it is now happening with LUK… although only temporarily, I hope! ;) giofranchi Link to comment Share on other sites More sharing options...
WhoIsWarren Posted June 26, 2013 Share Posted June 26, 2013 Probably, that’s why the more I study and research, the more my “circle of competence” tends to shrink, instead of getting larger… Very few new businesses get inside, while many are thrown out! giofranchi Oh, I definitely find that problem too! ;D ;D For now, Leucadia is still in the circle, but I am very conscious that they have changed leadership at the same time as they have radically changed the nature of the business (an investment / merchant bank). As I said earlier, I trust C&S and they trust H&F, so I have a high level of (but not full) trust in H&F. Link to comment Share on other sites More sharing options...
Packer16 Posted June 26, 2013 Share Posted June 26, 2013 How have folks gotten comfortable with inherent conflicts that occur when you are both a principal ( distressed investor) and an agent (an investment bank)? As a principal, LUK previously, it was pretty clear what the focus was. Now what is it? How do I-bank customers get comfortable that their interests versus the banks come first. Will this become like a GS type company? Will the firm provide capital back to shareholders when there is excess as in the past or will the capital be trapped in the i-bank for regulatory reasons? Has this model been successful for other firms in terms of growing BV/share? Packer Link to comment Share on other sites More sharing options...
Sportgamma Posted June 26, 2013 Share Posted June 26, 2013 How have folks gotten comfortable with inherent conflicts that occur when you are both a principal ( distressed investor) and an agent (an investment bank)? As a principal, LUK previously, it was pretty clear what the focus was. Now what is it? How do I-bank customers get comfortable that their interests versus the banks come first. Will this become like a GS type company? Will the firm provide capital back to shareholders when there is excess as in the past or will the capital be trapped in the i-bank for regulatory reasons? Has this model been successful for other firms in terms of growing BV/share? Packer Exactly my concerns as well. It seems like such a clear cut conflict of interest. Link to comment Share on other sites More sharing options...
Shane Posted June 26, 2013 Share Posted June 26, 2013 FWIW, I've met a number of analysts/brokers who used to work at Jeffries but are now are larger shops... All of them said something along the lines of 'Chandler is outstanding/incredible'. The conflict is concerning, however, I do trust they have thought this through. Link to comment Share on other sites More sharing options...
Kraven Posted June 26, 2013 Share Posted June 26, 2013 On Wall Street there are no conflicts of interest unless someone loses money. Then conflicts are rampant and everyone knew it (or was hoodwinked) and can't believe the matter went forward. Hilarity ensues. Link to comment Share on other sites More sharing options...
jay21 Posted June 26, 2013 Share Posted June 26, 2013 The wildcard is Handler. From what we know, since he took over management of Jefferies in 1990, he has compounded book value at 22% per year. This is "Buffet" territory returns. I am wondering what the future holds for LUK and his plans. Obviously, investment banking is only one of two major pillars. The other one is investing the large amounts of capital and equity that LUK has into investments that give good returns. In this respect, we don't know his experience outside of investment banking. Another possibility is bolt-on aquisitions in investment banking as opposed to the more electic investing in stocks, and "unrelated" businesses. This is not true imo. Handler was instrumental in Fortescue and his work with Knight Capital was great. Combined with how he handled the bear attack, I think he has shown himself to be quite capable. How have folks gotten comfortable with inherent conflicts that occur when you are both a principal ( distressed investor) and an agent (an investment bank)? As a principal, LUK previously, it was pretty clear what the focus was. Now what is it? How do I-bank customers get comfortable that their interests versus the banks come first. Will this become like a GS type company? Will the firm provide capital back to shareholders when there is excess as in the past or will the capital be trapped in the i-bank for regulatory reasons? Has this model been successful for other firms in terms of growing BV/share? Packer It is somewhat concerning but IBs can act as a principal or agent anyways. Was them retaining a big investment in Knight a conflict of interest? I wonder if Handler et al. will continue the tradition of picking up NOLs from companies to achieve the tax benefits? It's possible. However, they were trying to build a "Fortress Leucadia" so it may be less likely. Maybe they will take a Buffett approach and look for companies that are tax advantaged such as railroads and utilities. Link to comment Share on other sites More sharing options...
jay21 Posted June 26, 2013 Share Posted June 26, 2013 Some highlights: "They didn’t want to sell Jefferies at the bottom of a cycle; a stock for stock deal enabled them to do well by their shareholders while providing increased protection for their bondholders and creating long term stability for their employees and clients. Leucadia shareholders picked up a great asset at a fortuitous time for both companies and we solved our succession challenge. Combined, we have a world class investment banking firm, with a merchant banking focus, tax efficiency and a pile of cash." They think that JEF is worth much more than when the transaction went through. The primary assets of the combined company are JEF and cash (and probably National Beef). JEF will help them use their NOL much faster, which increases the value of the NOL. "We recently started a new auto finance company, Foursight Capital, which is financing customers of our auto dealerships." Very interesting. I do not have a good view of the auto finance market right now. This should only be a very tiny piece of Leucadia though. "A Major Future Opportunity" I have no idea what the returns would look like on this project. Link to comment Share on other sites More sharing options...
rjstc Posted June 26, 2013 Share Posted June 26, 2013 Probably, that’s why the more I study and research, the more my “circle of competence” tends to shrink, instead of getting larger… Very few new businesses get inside, while many are thrown out! giofranchi Oh, I definitely find that problem too! ;D ;D For now, Leucadia is still in the circle, but I am very conscious that they have changed leadership at the same time as they have radically changed the nature of the business (an investment / merchant bank). As I said earlier, I trust C&S and they trust H&F, so I have a high level of (but not full) trust in H&F. Gio. Who is Warren says it almost perfectly for me. I'm to a large extent a "Gut" investor. That and I shamelessly attach myself to owner, operators whose honesty I trust, investing acumen I trust, & rationality I've learned to get comfortable with. I accept that over the long run there will be ups and downs so I'm like turtle slow when it comes to making changes. :) :) Link to comment Share on other sites More sharing options...
rjstc Posted June 26, 2013 Share Posted June 26, 2013 However, your main disappointment appears to be that "I had hoped I would have found out more about the future of LUK". Was this a realistic expectation? Is it right to think that they should paint the canvas of their successors? Or, given that C&S know and trust their successors -- and we know and trust C&S -- shouldn't they seal their lips and let the new maestros do their thing? Hi WhoIsWarren, maybe you are right… and mine was too selfish a wish! Anyway, what can I say? I am like a spoiled kid, and very difficult to satisfy! ;D Probably, that’s why the more I study and research, the more my “circle of competence” tends to shrink, instead of getting larger… Very few new businesses get inside, while many are thrown out! Like it is now happening with LUK… although only temporarily, I hope! ;) giofranchi You're an engineer. You can't help yourself. ;D ;D ;D Link to comment Share on other sites More sharing options...
muscleman Posted June 26, 2013 Share Posted June 26, 2013 gio, You are right. There was not a lot of new information in the letter, though I at least learned that C&S first came across Handler in 1987, whereas I had thought they first started their relationship in 2000 with the setting up of the Jefferies Partners Opportunity Fund. I take a huge amount of comfort from their long, long association. However, your main disappointment appears to be that "I had hoped I would have found out more about the future of LUK". Was this a realistic expectation? Is it right to think that they should paint the canvas of their successors? Or, given that C&S know and trust their successors -- and we know and trust C&S -- shouldn't they seal their lips and let the new maestros do their thing? Regarding Jefferies Partners Opportunity Fund, I am wondering why Ian mentioned only from 2000 to 2007 the return was 22%? Did he redeem all the money in 2007 at market peak? Or was the return not so great after 2007 that he didn't feel comfortable to let shareholders know? Link to comment Share on other sites More sharing options...
WhoIsWarren Posted June 26, 2013 Share Posted June 26, 2013 Regarding Jefferies Partners Opportunity Fund, I am wondering why Ian mentioned only from 2000 to 2007 the return was 22%? Did he redeem all the money in 2007 at market peak? Or was the return not so great after 2007 that he didn't feel comfortable to let shareholders know? Oh ye of little faith!! ;D From the 2008 10-K: Jefferies Partners Opportunity Fund II, LLC (“JPOF II”) and Jefferies High Yield Holdings, LLC (“JHYH”) During 2000, the Company invested $100,000,000 in the equity of JPOF II, a limited liability company, which was a registered broker-dealer. JPOF II was managed by Jefferies. JPOF II invested in high yield securities,special situation investments and distressed securities and provided trading services to its customers and clients. For the period from January 1, 2007 through March 31, 2007 (date of termination), and for the year ended December 31, 2006, the Company recorded pre-tax income from this investment under the equity method of accounting of $3,000,000 and $26,200,000, respectively. These earnings were distributed by JPOF II as dividends shortly after the end of each period. During 2007, the Company and Jefferies formed JHYH, a newly formed entity, and the Company and Jefferies each initially committed to invest $600,000,000. Link to comment Share on other sites More sharing options...
Partner24 Posted June 26, 2013 Share Posted June 26, 2013 Unfortunately, businesses are theoricaly permanent, but people are surely not. Don't care about stock splits, but I would like to split the age of C&S in two! A very good "Farewell" letter, but I agree that I would have liked to have more information regarding the new managers of the business. I first tought that the letter would be splitted in two...a section by C&S and a section for the new managers. Link to comment Share on other sites More sharing options...
fareastwarriors Posted June 26, 2013 Share Posted June 26, 2013 http://dealbook.nytimes.com/2013/06/26/from-leucadia-a-final-letter-to-shareholders/ From Leucadia, a Final Letter to Shareholders Link to comment Share on other sites More sharing options...
mcliu Posted June 26, 2013 Share Posted June 26, 2013 Have you guys taken a look at the 10-Q for Q1? I was wondering, how do you separate the Jefferies assets from the Leucadia assets? Specifically, there's $2.3B in available-for-sale fixed income securities. Is that part of Jefferies' trading book or is that part of Leucadia's investment portfolio? Also, the $3.1B in cash, is that part of Leucadia's portfolio? Just compare JEF Q1 10Q with LUK Q1 10Q and you can subtract out the JEF BS to get the LUK BS ex JEF. For example, the cash at LUK is 122,463. The AFS portfolio is all LUK, trading assets is JEF. Hope that helps. Thanks. That's helpful. Link to comment Share on other sites More sharing options...
muscleman Posted June 26, 2013 Share Posted June 26, 2013 How have folks gotten comfortable with inherent conflicts that occur when you are both a principal ( distressed investor) and an agent (an investment bank)? As a principal, LUK previously, it was pretty clear what the focus was. Now what is it? How do I-bank customers get comfortable that their interests versus the banks come first. Will this become like a GS type company? Will the firm provide capital back to shareholders when there is excess as in the past or will the capital be trapped in the i-bank for regulatory reasons? Has this model been successful for other firms in terms of growing BV/share? Packer Exactly my concerns as well. It seems like such a clear cut conflict of interest. Have you guys read Seth Klarman's book? He said merchant banking has the most conflict of interest within the IB industry. From another book, I remember the author said that IBs usually have the sale side people to be on a different floor than the buy side people, and they are not allowed to talk to each other. This will supposedly gain imaginary compliance. :) Link to comment Share on other sites More sharing options...
muscleman Posted June 26, 2013 Share Posted June 26, 2013 FWIW, I've met a number of analysts/brokers who used to work at Jeffries but are now are larger shops... All of them said something along the lines of 'Chandler is outstanding/incredible'. The conflict is concerning, however, I do trust they have thought this through. I remember Bruce Berkowitz said before that JEF's leaders are the best Investment Bankers, but I couldn't find the source anymore. Do you see any chance JEF would grow to be the same size as GS, or at least MS? Link to comment Share on other sites More sharing options...
Grenville Posted June 26, 2013 Share Posted June 26, 2013 FWIW, I've met a number of analysts/brokers who used to work at Jeffries but are now are larger shops... All of them said something along the lines of 'Chandler is outstanding/incredible'. The conflict is concerning, however, I do trust they have thought this through. I remember Bruce Berkowitz said before that JEF's leaders are the best Investment Bankers, but I couldn't find the source anymore. Do you see any chance JEF would grow to be the same size as GS, or at least MS? "On the Jeffries/Leucadia Merger: In favor of it. Says Rich Handler, CEO of Jeffries, best Wall Street executive out there. Brilliant succession plan for Leucadia. Great way for Jeffries to have Fort Knox balance sheet." https://www.welchcap.com/csima-conference-notes-part-2-bruce-berkowitz/ Link to comment Share on other sites More sharing options...
Parsad Posted June 26, 2013 Share Posted June 26, 2013 Leucadia locks up Justin Wheeler's services as well. Smart, young guy who has brought Leucadia their best investments in the last few years. Nice to see him staying on with a change in succession. Cheers! http://biz.yahoo.com/e/130626/luk8-k.html Link to comment Share on other sites More sharing options...
Grenville Posted June 26, 2013 Share Posted June 26, 2013 Leucadia locks up Justin Wheeler's services as well. Smart, young guy who has brought Leucadia their best investments in the last few years. Nice to see him staying on with a change in succession. Cheers! http://biz.yahoo.com/e/130626/luk8-k.html Interesting! Good to see that he's moving to NY, closer to HQ. Link to comment Share on other sites More sharing options...
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