JEF - Jefferies Group

[MrB]

Free flights on the company plane

http://ig.ft.com/sites/business-jets/index.html

http://ig.ft.com/sites/business-jets/data.html

 

This is not necessarily news, because most long time followers of LUK will be aware of this. Handler & Friedman have jointed the frequent flyer club though.

LUK ranks 7th on the list.

 

 

 

[WhoIsWarren]

Free flights on the company plane

http://ig.ft.com/sites/business-jets/index.html

http://ig.ft.com/sites/business-jets/data.html

 

This is not necessarily news, because most long time followers of LUK will be aware of this. Handler & Friedman have jointed the frequent flyer club though.

LUK ranks 7th on the list.

 

>:(

Maybe not new, but I wasn't aware of it.

>:(

[Jurgis]

It's interesting that Buffett is not on the list. Did he sell BRKs "Indefensible" and is flying on his personally paid NetJets account nowadays? Probably he did, but I did not realize it up to now.

[merkhet]

It's interesting that Buffett is not on the list. Did he sell BRKs "Indefensible" and is flying on his personally paid NetJets account nowadays? Probably he did, but I did not realize it up to now.

 

I think he did that a while back.

[benhacker]

A while back I made some qualitative comments about why I prefer JEF to GS even given Goldman's supposedly more solid franchise and better historical ROE etc.

 

As mentioned, I think you have to build up a lot of qualitative data to invest more than meager amounts in a highly leveraged financial company.

 

I know Jef has had a lot of news coverage in the past about supposedly coc'd up bankers, etc.  Clearly banks need to guard their reputations, and you never know all that goes on inside the sausage machine, but sometimes interesting info gets juxtaposed side by side and makes you go hmmm...

 

Take a look at this article and ask yourself what you think of this line if you own GS?

 

http://www.bloomberg.com/news/articles/2016-03-08/ex-goldman-banker-to-malaysia-fund-said-subpoenaed-in-u-s-probe

 

"...Goldman earned commissions and expenses of $593 million for its role issuing bonds for 1MDB, or more than 9 percent of the proceeds, well above the industry norm."

 

I wonder what custom tailored service(s?) GS provided for making a fee 10x+ the norm for a large bond offering when ended up being embroiled in a massive global investigation??

 

9% ... Luckily I think GS has great PR to ensure no one asks to many uncomfortable questions... and if they do the article will be on page 84 of the newspaper... or they will focus on the government side of the deal, since clear GS was just doing god's work.

 

Cheers,

 

 

[Picasso]

On another note, you could drive a truck through the bid/ask spread on these LUK bonds.  The bond trader I generally work with is sick and tired of me calling him everyday to see how many of these bonds we can buy at my "high-ish $70's."  I'm going to be patient on this and wait for someone to hit the bid but otherwise not the most liquid situation on a well known name.  It would be cool if they could move up to an investment grade rating from Moody's.  A lot of bond managers can't buy this because of that silly rating.

 

I am beginning to think that the 2023 LUK bond at $90-ish is a better buy in these markets.  That's rolling down the yield curve fairly quickly, something which the 2043 bond doesn't have going for it.  A move back to par + coupon over a couple years is a nice 20% return on investment grade paper.  The 2043 issue can stay at a bigger discount to par for a while because it has a short call + long duration; you're not really going to get paid for a big drop in the spread other than seeing it trade at par.  That's a nice return too and a base case 8-9% return is fine in my books for cash I'm unlikely to invest quickly in these kinds of frothy markets.

 

Sorry nothing to add about the stock.  Maybe they need to pull a SoftBank and do some fancy new re-org of "good" Leucadia and "stuff people don't like" Leucadia.  Sage Kelly can run the "stuff people don't like" Leucadia and everyone will get all hyped up like when Google simply changed their name to Alphabet.  Maybe a name change to Numbers would get that hype train moving even faster.

 

Okay I'm done for the night. 

[MrB]

Leucadia and FXCM Sign Memorandum of Understanding to Deepen and Extend Partnership

 

They are restructuring the deal.

 

http://www.nasdaq.com/press-release/leucadia-and-fxcm-sign-memorandum-of-understanding-to-deepen-and-extend-partnership-20160310-01009

[Guest roark33]

Not really that big of a restructuring.  FXCM can't sell their assets for prices they want, so LUK is giving them another year, and FXCM doesn't have the cash to pay the interest, so they are allowing them to use a PIK feature.  Also, LUK and FXCM shareholders are giving up some equity for mgmt.  Mgmt wins a little and LUK and FXCM lose a little. 

 

Not that big of a deal.  The standalone FXCM just isn't a very good business anymore. LUK will probably get paid back on their loan, but I doubt FXCM gets much if it tries to sell itself.  In other words, it isn't going to be a triple for LUK. 

[MrB]

Not really that big of a restructuring.  FXCM can't sell their assets for prices they want, so LUK is giving them another year, and FXCM doesn't have the cash to pay the interest, so they are allowing them to use a PIK feature.  Also, LUK and FXCM shareholders are giving up some equity for mgmt.  Mgmt wins a little and LUK and FXCM lose a little. 

 

Not that big of a deal.  The standalone FXCM just isn't a very good business anymore. LUK will probably get paid back on their loan, but I doubt FXCM gets much if it tries to sell itself.  In other words, it isn't going to be a triple for LUK.

What concerns me is that it is sitting on the balance sheet at $626m, which is 8% of tangible book as presented by LUK management. Only $193m outstanding on the credit agreement. Quite a big gap. Seems to me that will have to be written down?

[Guest roark33]

SOTP....

[benhacker]

"SOTP...."

 

As this is an indirect dig at me, I guess I will repeat something, and note another.

 

1) The FXCM stake is / was fully hedge-able - at an implied valuation HIGHER than my (or LUK GAAP mark) SOTP estimate

 

2) I am (and was prior to announcement) short FXCM for the reasons you and I discussed roark.

 

Agree this announcement was clearly a negative for the value of the LUK stake (at least as I was modeling).

 

If you weren't short this Roark, I'd love to know why.

 

If you aren't still short, I would also love to know why.

 

It's rare to be decried for being too bullish on an investment you are actually shorting by someone who doesn't have a position - so if that's the case, I'd love to know. ;-)

[Guest roark33]

Ben,

My comment was not directed at you at all...

 

I dislike SOTP analysis in general, but was not referencing your analysis of LUK or any other one, just my general dislike for it. 

 

I was short FXCM, but covered today.  My reason for covering is that the stock is very irrational and *hopefully* will trade up again.  So far this *year*, there have been two irrational spikes (one at the end of 2015 and the second over the past two weeks).  I am not sure the equity is worth anything, let alone $5 where it was trading pre-insider buys. 

 

 

Once again, no ill-will directed at you.  I am glad you were short FXCM....

 

 

 

[benhacker]

Thanks Roark, I added to my short today...

[ratiman]

What happened to the FXCM franchise?

[MrB]

What happened to the FXCM franchise?

 

http://www.bloomberg.com/news/articles/2016-03-15/jefferies-trading-revenue-tumbles-as-fixed-income-equity-slide

 

Wanna bet the other equity holding that was written down is FXCM?

[benhacker]

Wanna bet the other equity holding that was written down is FXCM?

 

don't think so, the FXCM note isn't held at JEF, it's at Leucadia.

 

It's also not HRG, as that was sold to LUK last year or so as well...

 

Not immediately obvious to me what it is... (WSJ suggest LGF)

 

 

 

 

[Sharad]

http://www.wsj.com/articles/the-new-leucadia-is-no-longer-lovable-1458725582

[EricSchleien]

Does anyone have a subscription that can link me to the full article?

[JBTC]

Does anyone have a subscription that can link me to the full article?

 

The New Leucadia Is No Longer Lovable

Since its deal to take full control of Jefferies Group, investors have headed for the exits

 

By

KEN BROWN

Updated March 23, 2016 6:39 p.m. ET

 

What happens when you merge a quirky but beloved conglomerate with a largely unloved investment bank? The answer: Shareholders flee.

That is what happened at Leucadia National Corp., whose shares compounded at 19% a year from 1979 to 2012, topping the market by more than 8 percentage points.

 

The investment bank is Jefferies Group LLC, the scrappy broker known for its high-yield bond and stock-trading businesses. In 2012, as Jefferies was suffering one of its periodic beatings by investors, Leucadia agreed to buy the 70% of the company it didn’t already own and installed the bank’s longtime boss as Leucadia’s chief executive.

 

The two firms knew each other well; Jefferies did every capital raising for Leucadia in the previous 22 years. The deal, after Leucadia’s most successful year, allowed the company’s often-bickering leaders, Ian Cumming and Joseph Steinberg, to step back after 35 yearsand allowed the cash-rich company to put some capital to work.

 

Since the deal closed, Leucadia’s shares have fallen 39% and were down nearly 50% early last week, near their 2009 financial-crisis low. Some of the decline can be blamed on bad decisions and poor performance by the company, and some is due to lousy markets for investment banks.

Another cause was selling by many of Leucadia’s longtime shareholders, some of whom held the stock for nearly two decades. Their reason: It isn’t the old Leucadia anymore.

 

“It’s a different beast,” said Oppenheimer & Co.’s Chris Kotowski, the only Wall Street analyst covering the stock. Mr. Kotowski is positive on Leucadia, believing many of its businesses will perform better in coming years. But he understands the view of shareholders.

“When you did the merger, all of the sudden it was no longer a conglomerate, it was Jefferies,” he said.

 

Leucadia owned everything from iron-ore producers to wineries to large swaths of land in Southern California. Its executives rarely talked publicly and remained under the radar for all but the most sophisticated value investors, who were willing to put up with complexity and volatility to get solid long-term returns.

 

It famously bought the owner of S&H Green Stamps long after its heyday as one of the first big loyalty programs. Leucadia’s insight, that fewer people than expected would redeem the stamps, was worth millions. A painting of a sheet of stamps still adorns the wall of a conference room at the firm.

 

Hits like that drew investors like Fairholme Capital Management LLC, Tweedy Browne Co. and Royce & Associates LLC, all of which have held shares in Leucadia since at least 1999. They and many other longtime shareholders have been selling for the past few years.

 

“It is more focused on the business of Jefferies than on some of the long-term projects that Leucadia focused on,” said Fairholme’s Bruce Berkowitz, who has reduced his holdings of all financial companies, believing their prospects are weak. Some longtime shareholders have suffered redemptions in recent years, forcing them to cut their holdings.

 

There are good reasons to sell Leucadia. Jefferies has performed dismally since the deal, as its high-yield bond business and a big bet on commodity trading both struggled. And many of Leucadia’s old businesses have fared equally poorly, in particular its largest revenue generator, meat processor National Beef, which has lost money three years in a row.

 

Leucadia’s CEO, Richard Handler, has grouped the company’s businesses in three buckets: an investment bank, which is Jefferies; a merchant bank, which holds the company’s nonfinancial business; and an asset manager that is a collection of hedge-fund startups.

 

Leucadia under Mr. Handler is more of a financial firm than it was in the old days, and that shift has come at a terrible time. Most Wall Street banks are trading below tangible book value, and many of their core businesses are struggling. The hedge-fund industry just suffered its worst year for fund launches and liquidations since the financial crisis, as investors push back on high fees and weak performance.

 

Supporters of the company argue that Leucadia has a brighter future with Jefferies than it would have on its own. The company has trimmed weak investments such as Australian mining company Fortescue Metals Group Ltd., whose shares have tumbled.

 

Since the deal, Leucadia has taken advantage of troubled sellers to make value-style investments in currency-trading firm FXCM Inc. and in the owner of Spectrum Brands Holdings Inc., which has 48 consumer brands, including Rayovac batteries, George Foreman grills and Kwikset locks.

 

There have been other positive changes. The company is actually communicating with investors and has reduced Jefferies’s balance sheet to weather the storm in the markets. And other businesses are doing well, including lender Berkadia, its joint venture withBerkshire Hathaway Inc.

Jefferies still reports its own earnings and when it released the lousy numbers last week, Leucadia’s shares fell more than 5% that day. But by the end of the week, they had risen more than 14% off their lows.

 

The old Leucadia has gone the way of S&H Green Stamps. Unless investors fall back in love with investment banks like Jefferies, there are few reasons to believe the new Leucadia will capture its old glory anytime soon.

 

[wachtwoord]

Does anyone have a subscription that can link me to the full article?

 

For future reference look for the article on google and open the link in an incognito browser to have full acces yourself.

[ratiman]

The next shoe to drop here is a massive write-down of intangible assets. National Beef is carried at $650M of intangible assets. Is there a buyer out there for National Beef at all, or for that much? Jefferies has intangible assets of $1.9B which HAHAHAHAHAHAHAHAHA. And once Jefferies and National Beef are written down, then the $320 tax asset possibly gets written down. I could see this returning to the old lows of $10 once management throws in a huge writedown. It should have happened already.

[thepupil]

The next shoe to drop here is a massive write-down of intangible assets. National Beef is carried at $650M of intangible assets. Is there a buyer out there for National Beef at all, or for that much? Jefferies has intangible assets of $1.9B which HAHAHAHAHAHAHAHAHA. And once Jefferies and National Beef are written down, then the $320 tax asset possibly gets written down. I could see this returning to the old lows of $10 once management throws in a huge writedown. It should have happened already.

 

stock is at ~75% of tangible. Don't think the market is really valuing the intangibles/goodwill.

 

The tax asset valuation depends on the company's calculations as to whether or not they'll monetize it (as in will they produce pre-tax income). It is 12% or so of tangible if I recall correctly. So writing that off completely and you are at ~85% of tangible (75/88 =85%).

 

If they announced a $3B write-off tomorrow, I don't think the market would care. The market's already written that shit down as far as i'm concerned. But I could be wrong; considering LUK is about 10% below my most recently calc'd bear case, and 25% my initial bear case; I clearly have been.

[ratiman]

Writedown of tangible also likely. Juneau, Vitesse, Golden Queen Mining are in total $600M. How many buyers out there for undeveloped leases in Montana and North Dakota? The asset management business has book value of $600M, but that business will require continued investment, market will not credit the tangible capital in asset management as long as losses continue. Compare with Cowen, which has a much bigger asset management/hedge fund incubator business, far greater fee revenue, valued by market at big discount.

[jay21]

Writedown of tangible also likely. Juneau, Vitesse, Golden Queen Mining are in total $600M. How many buyers out there for undeveloped leases in Montana and North Dakota? The asset management business is valued at $600M, but that business will require continued investment, market will not credit the tangible capital in asset management as long as losses continue. Compare with Cowen, which has a much bigger asset management/hedge fund incubator business, far greater fee revenue, valued by market at $0.

 

Isnt most of the tangible asset in AM in the form of contributed investment capital ($400m in Folger Hill)? Investment gains/losses will affect that value

[thepupil]

Writedown of tangible also likely. Juneau, Vitesse, Golden Queen Mining are in total $600M. How many buyers out there for undeveloped leases in Montana and North Dakota? The asset management business has book value of $600M, but that business will require continued investment, market will not credit the tangible capital in asset management as long as losses continue. Compare with Cowen, which has a much bigger asset management/hedge fund incubator business, far greater fee revenue, valued by market at big discount.

 

agree on Juneau and Vitesse, jury still out on GQ. wrt to AM, we'll see. the stakes in the funds are worth MV as far as i'm concerned and if the market values those at zero, I'm more inclined to see that as an opportunity. a few pages back I wrote down all commodity related investments, marked up Berkadia and Garcadia, wrote down the tax asset by half, haricut a few other things, marked JEF at 85% of tangbible and got to about the current stock price. Maybe I'm too generous on JEF, but we'll see.