Jefferies Financial Group Inc.
JEF 10-K Fiscal year ended Nov. 30, 2024
JEFFERIES FINANCIAL GROUP INC.
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U
NITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
November 30
, 2024
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission file number
1-5721
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code: (
212
)
284-2300
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class:
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Trading Symbol(s)
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Name of each exchange on which registered:
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Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
No
☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes
☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files).
Yes
☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
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☒
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Accelerated filer
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☐
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Non-accelerated filer
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Smaller reporting company
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Emerging growth company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report.
☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements.
☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
☐
No
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Aggregate market value of the voting stock of the registrant held by non-affiliates of the registrant at
May 31,
2024
(computed by reference to the last
reported closing sale price of the Common Shares on the New York Stock Exchange on such date):
$
8,458,821,477
.
On January 17,
2025
, the registrant had outstandin
g
206,094,699
Common Shares.
DOCUMENTS INCORPORATED BY REFERENCE:
2025
Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K.
Jefferies Financial Group, Inc.
Index to Annual Report on Form 10-K
November 30, 2024
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Page
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Item 1. Business
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Item 1A. Risk Factors
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Item 1B. Unresolved Staff Comments
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Item 1C. Cybersecurity
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Item 2. Properties
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Item 3. Legal Proceedings
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Item 4. Mine Safety Disclosures
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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases Equity Securities
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Item 6. [Reserved]
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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Consolidated Results of Operations
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Executive Summary
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Revenues by Source
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Non-interest Expenses
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Accounting Developments
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Critical Accounting Estimates
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Liquidity, Financial Condition and Capital Resources
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Risk Management
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
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Item 8. Financial Statements and Supplementary Data
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Index to Consolidated Financial Statements
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Management’s Report on Internal Control Over Financial Reporting
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Reports of Independent Registered Public Accounting Firm
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Consolidated Statements of Financial Condition
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Consolidated Statements of Earnings
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Consolidated Statements of Comprehensive Income
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Consolidated Statements of Changes in Equity
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Consolidated Statements of Cash Flows
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Notes to Consolidated Financial Statements
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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Item 9A. Controls and Procedures
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Item 9B. Other Information
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Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
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Item 10. Directors, Executive Officers and Corporate Governance
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Item 11. Executive Compensation
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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Item 13. Certain Relationships and Related Transactions, and Director Independence
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Item 14. Principal Accountant Fees and Services
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Item 15. Exhibits and Financial Statement Schedules
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Item 16. Form 10-K Summary
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Signatures
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1
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Jefferies Financial Group Inc.
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PART I
Item 1. Business
Introduction
Jefferies Financial Group Inc. (“Jefferies,” “we,” “us” or “our”) is a
U.S.-headquartered global full-service investment banking and
capital markets firm. Our largest subsidiary, Jefferies LLC, a U.S.
broker-dealer, was founded in the U.S. in 1962 and our first
international operating subsidiary, Jefferies International Limited,
a U.K. broker-dealer, was established in the U.K. in 1986. Our
strategy focuses on driving momentum in our full-service
investment banking business, bringing value to clients and
executing in our capital markets sales and trading businesses
and growing our Leucadia Asset Management alternative asset
management platform. We are always client focused first and
committed to integration and collaboration across our
businesses.
Our global headquarters and executive offices are located at 520
Madison Avenue, New York, New York 10022. We also have
regional headquarters in London and Hong Kong. Our primary
telephone number is 212-284-2300 and our Internet address is
jefferies.com
where we make available, free of charge, our annual
reports on Form 10-K, quarterly reports on Form 10-Q and current
reports on Form 8-K and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as well as proxy statements, as soon as
reasonably practicable after we electronically file with the U.S.
Securities and Exchange Commission (“SEC”) and can also be
viewed at sec.gov.
The following documents and reports are also available on our
public website:
•
Audit Committee Charter
•
Code of Business Practice
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Compensation Committee Charter
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Corporate Governance Guidelines
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Corporate Social Responsibility Principles
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Reportable waivers, if any, from our Code of Business Practice
by our executive officers
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ESG, Diversity, Equity and Inclusion Committee Charter
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Health and Safety Policy
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Human Rights Statement
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Nominating and Corporate Governance Committee Charter
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Risk and Liquidity Oversight Committee Charter
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Supplier Code of Conduct
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Sustainable Investment Statement
•
Whistle Blower Policy
We may use our website to disclose public information. We
encourage you to visit our website for additional information. In
addition, you may also obtain a printed copy of any of the above
documents or reports by sending a request to Investor Relations,
Jefferies Financial Group Inc., 520 Madison Avenue, New York,
NY 10022, by calling 212-284-2300 or by sending an email to
info@jefferies.com.
Business Segments
We report our activities in two business segments: (1) Investment
Banking and Capital Markets and (2) Asset Management.
•
Investment Banking and Capital Markets provides investment
banking, capital markets and other related services to our
clients. We provide underwriting and financial advisory
services across a range of industry sectors in the Americas;
Europe and the Middle East; and Asia-Pacific. Our capital
markets businesses operate across the spectrum of equities
and fixed income products. Related services include prime
brokerage, equity finance, and research and strategy.
Investment Banking and Capital Markets also includes our
corporate lending joint venture (“JFIN Parent LLC” or “Jefferies
Finance”) and our commercial real estate finance joint venture
(“Berkadia Commercial Holding LLC” or “Berkadia”).
•
Asset Management
provides alternative investment
management services to investors globally. Through our asset
management efforts, we often seed or provide additional
strategic capital in the strategies offered by affiliated asset
managers in addition to investing for our own account. Our
Asset Management business also holds investments in public
securities and private companies, along with investments in
several consolidated subsidiaries whose operations consist of,
among other businesses, real estate development, online
foreign exchange trading and telecommunications. These
investments and holdings include the remainder of our legacy
merchant banking portfolio as well as other investments.
Our Businesses
Investment Banking and Capital Markets
Jefferies is one of the world’s leading full-service investment
banking and capital markets firms. Our Investment Banking and
Capital Markets segment focuses on Investment Banking,
Equities and Fixed Income. We primarily serve public companies,
private companies, and their sponsors and owners, institutional
investors and government entities. Our services are enhanced by
our relentless client focus, our differentiated insights and a flat
and nimble operating structure.
Investment Banking
We provide our clients around the world with a full range of
financial advisory, equity underwriting and debt underwriting
services. Our investment banking professionals operate in the
Americas, Europe and the Middle East and Asia-Pacific, and are
organized into industry, product and geographic coverage
groups. Our industry coverage groups include: Consumer; Energy
and Power; Financial Institutions; Financial Sponsors; Healthcare;
Industrials; Municipal Finance; Real Estate, Gaming and Lodging;
and Technology, Media and Telecom. Our product groups include
advisory (which includes mergers and acquisitions, sponsor
coverage, private capital and restructuring and recapitalization
expertise), equity underwriting and debt underwriting. Our teams
are based in major cities in the United States, as well as London,
Hong Kong, Amsterdam, Dubai, Frankfurt, Madrid, Melbourne,
Milan, Mumbai, Paris, São Paulo, Singapore, Stockholm, Sydney,
Tel Aviv, Tokyo, Seoul, Calgary and Toronto. We have continued
to invest in our investment banking business, significantly
expanding our professional talent base again since 2021 and
increasing our presence globally.
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November
2024
Form
10-K
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2
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Advisory Services
We provide mergers and acquisition, debt advisory and
restructuring and private capital advisory services to companies,
financial sponsors and government entities. In the mergers and
acquisitions area, we advise business owners, private equity
firms and public and private corporations on mergers, sales,
acquisitions, divestitures, leveraged buyouts, cross-border
transactions, joint ventures, spin-offs and other corporate
restructurings. In the debt advisory and restructuring area, we
provide companies, bondholders, creditors and lenders a full
range of both in-court and out-of-court advisory capabilities to
help our clients enhance their financial position by obtaining the
best available capital and by executing complex restructuring
transactions. As part of our private capital advisory business, we
advise financial sponsors and their investors on the creation and
structuring of funds and fund offerings and primary and
secondary capital raising. We also advise large institutional
investors on the sale of private equity limited partnership and co-
investment interests.
Equity Underwriting
We provide a broad range of equity financing capabilities and
equity capital solutions to businesses and their owners. These
capabilities include initial public offerings, follow-on offerings,
rights-offerings, at the market offerings, block trades, private
placements and equity-linked products.
Debt Underwriting
We provide a wide range of debt capital raising and acquisition
financing capabilities to businesses, financial sponsors and
government entities. We help clients raise capital, carry out
refinancings, issue bonds, and access alternative and structured
finance solutions that optimize terms and minimize risk. These
offerings include both public and private debt, such as
investment grade debt, high yield bonds, leveraged loans,
municipal debt, emerging market debt, global structured notes,
preferred stock and mortgage-backed and other asset-backed
securities.
Other Investment Banking Activities
Jefferies Finance, our 50/50 joint venture with Massachusetts
Mutual Life Insurance Company, structures, underwrites and
syndicates primarily senior secured loans to corporate borrowers;
and manages proprietary and third-party investments for both
broadly syndicated and direct lending loans. Jefferies Finance
conducts its operations primarily through two business lines,
Leveraged Finance Arrangement and Asset Management. In
connection with its Leveraged Finance business, loans are
originated primarily through our investment banking efforts and
Jefferies Finance typically syndicates to third-party investors
substantially all of its arranged volume. The Asset Management
business of Jefferies Finance, referred to as Jefferies Credit
Partners, is a multi-strategy credit platform that manages
proprietary and third-party capital invested across commingled
funds, funds-of-one, separately managed accounts, business
development companies, collateralized loan obligations and
levered balance sheet funds. Broadly syndicated loan
investments are sourced through transactions arranged by
Jefferies Finance and third-party arrangers and managed through
its subsidiary, Apex Credit Partners LLC. Direct lending
investments are primarily sourced through Jefferies.
Jefferies
Finance and its subsidiaries that are involved in investment
management are registered investment advisers with the SEC.
Berkadia Commercial Mortgage Holding LLC is our commercial
real estate finance and investment sales joint venture with
Berkshire Hathaway, Inc. Berkadia originates commercial and
multifamily real estate loans that are sold to U.S. government
agencies or other investors with Berkadia retaining the mortgage
servicing rights.
In addition,
Berkadia originates loans for its own
balance sheet. These loans provide interim financing to
borrowers who intend to refinance the loan with longer-term
loans from an eligible government agency or other third-party.
Berkadia is also a servicer of commercial real estate loans in the
U.S. performing primary, master and special servicing functions
for U.S. government agency programs and financial services
companies. In addition, Berkadia provides brokerage services,
asset review, market research, financial analysis and due
diligence support for multifamily real estate projects.
Strategic Alliance with SMBC Group
In July 2021, we entered into a strategic alliance with Sumitomo
Mitsui Financial Group, Inc. (“SMFG”), Sumitomo Mitsui Banking
Corporation (“SMBC”) and SMBC Nikko Securities Inc. (together
referred to as “SMBC Group”) to collaborate on corporate and
investment banking business opportunities, with an initial focus
on leveraged finance and cross-border mergers and acquisitions
involving Japanese companies.
In April 2023, we agreed with SMBC a significant expansion of
this alliance. This relationship provides us with enhanced client
capabilities and supports the continued growth of our global
investment banking and capital markets business. Under our
alliance, we, among other things, coordinate efforts in leveraged
finance to expand and scale existing offerings, seek cross-border
mergers and acquisition advisory opportunities involving
Japanese companies, and jointly pursue investment banking,
capital markets and financing opportunities by leveraging our
shared strengths and relationships. Additionally, as of the third
quarter of 2024, the CEO of SMFG serves on our Board of
Directors.
At
November 30, 2024
, SMBC owns
15.8
%
of our
common stock on an as-converted basis and
14.5
%
on a fully-
diluted, as-converted, basis.
Equities
Equities Research, Capital Markets
We provide our clients leading advisory, differentiated distribution
and solution-based execution capabilities through equities
research and sales and trading across global equities markets.
These services are delivered with key capabilities in cash
equities, electronic trading, equity derivatives, convertibles,
corporate access and prime services. We deliver high touch
services and act as agent, principal or market maker to provide
clients with execution quality in varying liquidity situations—
providing clients with bespoke insights and execution informed
by our sector expertise. Our equities electronic trading business
provides our clients with local expertise and innovative electronic
trading solutions, including customizable algorithms. We bring a
full-service coverage model and customized solutions in equity
derivatives and financing solutions and our convertibles platform
is a market leading franchise.
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3
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Jefferies Financial Group Inc.
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Commissions or spread revenue is earned by executing, settling
and clearing transactions for clients across these markets in
equity and equity-related products, including common stock,
American depository receipts, global depository receipts,
exchange-traded funds, exchange-traded and over-the-counter
(“OTC”) equity derivatives, convertible and other equity-linked
products and closed-end funds. Our equity research, sales and
trading efforts are organized across the Americas, Europe and
the Middle East and Asia-Pacific and we continue to strengthen
our global footprint throughout these regions. Our clients are
primarily institutional market participants such as mutual funds,
hedge funds, investment advisors, pension and profit sharing
plans, and insurance companies. Through our global research
team and sales force, we maintain relationships with our clients,
distribute investment research and insights, trading ideas, market
information and analyses across a range of industries and
receive and execute client orders.
Prime Services
Our Prime Services business provides a full-service offering that
includes financing, business consulting and capital introduction
services, a robust technology platform, outsourced trading
solutions for both start-up and existing managers, strategic
content and thought leadership. Our prime brokerage services in
the U.S. provide hedge funds, money managers and registered
investment advisors with execution, financing, clearing, financing,
swaps, outsourced trading and reporting and administrative
services. Our platform is fully self-clearing and provides global
access to markets across the world. We finance our clients’
securities positions through margin loans that are collateralized
by securities, cash or other acceptable liquid collateral. We earn
an interest spread equal to the difference between the amount
we pay for funds and the amount we receive from our clients. We
also operate a matched book in equity and corporate bond
securities, whereby we borrow and lend securities versus cash or
liquid collateral and earn a net interest spread.
Wealth Management
We provide tailored wealth management services designed to
meet the needs of high net worth individuals, their families and
their businesses, private equity and venture funds and small
institutions.
Fixed Income
Jefferies’ facilitates client activity by making markets in a wide
range of fixed income securities, loans and derivative
instruments to a large and diversified group of clients including
financial institutions and corporates. We offer clients real-time
actionable insights and differentiated high and low touch
execution as well as a range of financing solutions tailored to our
clients’ needs.
Our global capabilities across sales, trading and capital markets
cover credit products including loans, high yield and distressed
debt securities, investment grade securities, municipal securities,
structured finance transactions and trade and litigation claims.
Our emerging markets sales and trading team actively
participates in sovereign and corporate fixed income markets in
Latin America, Eastern Europe, the Middle East, Africa and Asia.
Our global structured solutions business provides customized
products in interest rates and foreign exchange to investors as
well as providing interest rate and foreign currency hedging
solutions to corporates. Our securitized markets group trades,
structures and provides warehousing solutions for collateralized
loan obligations (CLOs) and asset-backed securities covering
prime and non-conforming residential mortgage-backed
securities, U.S. agency residential mortgage-backed securities
and consumer as well as other non-traditional collateral.
Our interest rate product capabilities cover government bonds,
other government-backed securities and cleared interest rate
swaps. Jefferies is designated as a Primary Dealer for U.S.
government securities and is designated in similar capacities for
several European countries. Additionally, through the use of
repurchase agreements, we act as an intermediary between
borrowers and lenders of short-term funds and obtain funding for
various of our inventory positions. Our strategists and
economists provide ongoing commentary and analysis of the
global fixed income markets and provide ideas and analysis to
clients across our breadth of fixed income products.
Alternative Asset Management
Under the Leucadia Asset Management (“LAM”) umbrella, we
manage and provide services to a diverse group of alternative
asset management platforms across a spectrum of investment
strategies and asset classes. LAM offers institutional clients an
innovative range of investment strategies through its directly
owned and affiliated managers and offers investors opportunities
to invest alongside us. Our products are currently offered to
pension funds, insurance companies, sovereign wealth funds,
and other institutional investors globally. The investment
products under LAM range from multi-manager products to niche
equity long/short strategies to credit strategies, among other
strategies. We offer our affiliated asset managers access to
stable long-term capital, robust operational infrastructure and
global marketing and distribution. We often invest seed or
additional strategic capital for our own account in the strategies
offered by us and associated third-party asset managers in which
we have an interest. We continue to expand our asset
management efforts and establish further strategic relationships
to expand our offerings.
Other Investments
Our legacy merchant banking portfolio, managed by the co-heads
of Asset Management, includes Stratos Group International, LLC
(“Stratos”) (formerly FXCM Group, LLC, or “FXCM”), provider of
online foreign exchange trading services; Tessellis S.p.A.
(“Tessellis”), a telecommunications company publicly listed on
the Italian stock exchange; HomeFed LLC (“HomeFed”), (real
estate); investments in certain public equity securities; and other
investments in private companies and asset management funds.
Human Capital
Our people make up the fabric of our firm, which is comprised of
diverse and innovative teams. We are focused on the durability,
health and long-term growth and development of our business,
as well as our long-term contribution to our shareholders, clients,
employees, communities in which we live and work, and society
as a whole. Instrumental to all of this is our culture.
We have employees located throughout the world. As of
November 30, 2024
, we had
7,822
employees globally across all
of our consolidated subsidiaries within our Investment Banking
and Capital Markets and Asset Management reportable
segments. Our workforce is distributed across our regions of the
Americas with
49.3%
, Europe and the Middle East with
38.1%
, and
Asia-Pacific with
12.6%
. We employ 5,759 within our Investment
Banking advisory and underwriting businesses, Fixed Income and
Equities capital markets businesses, and alternative asset
management business. In addition,
2,063
individuals are
employees of our Stratos, Tessellis, HomeFed and M Science
subsidiaries.
|
November
2024
Form
10-K
|
4
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During 2024, we have increased the number of our Investment
Banking Managing Directors and related staff, along with
additional technology and corporate staff to support our growth
and strategic priorities. We also expanded our global footprint by
hiring professionals into new locations, including Seoul and
Calgary.
Talent and Recruiting
In order to compete effectively and continue to provide best-in-
class service to our clients, we must attract and retain highly
talented professionals. Our core workforce is predominately
composed of employees in roles within investment banking,
sales, trading, research and other revenue producing and support
personnel for those businesses. During
2024
, we hired
1,221
full-
time employees, with
784
in the Americas,
276
in Europe and the
Middle East and
161
in Asia-Pacific. Of the hires,
845
were made
laterally while
376
were hired directly from our campus recruiting
efforts. While our hiring of talent was largely in Investment
Banking, there has also been meaningful additional investment in
Equities, Fixed Income, Research, Alternative Asset Management
and our support areas. We believe our culture, our effort to
maintain a meritocracy in terms of opportunity and
compensation and our continued evolution and growth contribute
to our success in attracting and retaining strong talent.
We are focused on broadening the pipeline from which we recruit
and hire diverse talent through both campus and lateral hiring
initiatives. For campus recruiting, we have partnered with several
organizations globally to broaden our pipeline of candidates. We
host insight days and symposiums that describe Jefferies to
candidates that come from a diverse range of backgrounds and
experiences. In 2024, we welcomed
345
summer interns globally
from approximately
140
different colleges, universities and
business schools. We also hire off-cycle interns throughout the
year in Europe and the Middle East and Asia-Pacific. Our Global
Recruiting Policy, rolled out in 2024, requires a diverse slate of
candidates for all roles. Interviewing guides, training and other
resources are provided to hiring managers to support inclusive
hiring.
We have several recruitment programs aimed at diversifying the
pipeline of our campus and experienced hires. Through our
Jefferies Black & Latino Network (“J-NOBLE”) Fellowship
Program, we provide mentorship, internships and ongoing
development to students from diverse backgrounds and
experiences who aspire to pursue investment banking careers.
Since the program launched in 2019, 50 fellows have participated
in the program. Our MBA Fellowship Program, launched in 2023,
supports summer associates based on their outstanding
achievements and financial need. The MBA fellows in Investment
Banking are paired with a mentor at the Managing Director level
and provided developmental support. Our Equity Research Career
Switch Program is aimed at recruiting diverse individuals who are
interested in changing careers into equity research.
We value continued training and development for all employees.
We seek to equip our people at all stages in their careers with the
tools necessary to become thoughtful and effective leaders. We
offer customized, year-long training curriculums across all
divisions and title levels globally, focused on enhancing skillsets,
professional development and management best practices. Our
programs comprise both internal leaders and best-in-class
external experts facilitating our trainings. We also offer
mentoring initiatives, including our firmwide Cross-Divisional
Mentoring Program, Career Advisory Program, New Hire Buddy
Program, and Managing Director Mentoring. Additional
development programs include our two Women in Leadership
Programs, which provide learning and networking opportunities
to position our female leaders for success. Our Thrive as a
Leader leadership development program, sponsored by J-NOBLE,
Jefferies Ethnic Minority Society (JEMS), and JASIA (Jefferies
Asian Heritage) is aimed at providing professional development
and career advancement training to diverse participants at the
Vice President and Senior Vice President
levels. To
supplement
our in-person learning model, we also offer on-demand training to
all of our employees via a digital learning platform.
Wellness
In addition to training and development programs, we continue to
be focused on the mental and physical well-being of our
employees. We host global wellness webinars led by mental
health experts, provide confidential 1:1 wellness and nutritional
counseling, host monthly group fitness classes and offer a
variety of tailored wellness content for “Mental Health Awareness
Month” in May and “World Mental Health Day” in October. The
events for these two initiatives include training sessions with
world-class psychologists on managing stress and well-being,
supporting the mental health of friends, family and colleagues,
emotional regulation and physical fitness initiatives. In November
2024, we hosted our inaugural ‘wellness week’ throughout Asia-
Pacific comprised of mental and physical health initiatives.
Diversity, Equity, and Inclusion
The foundation of our culture is our approach to employee
engagement, diversity, equity, and inclusion (“DEI”), which is
summed up in our Corporate Social Responsibility Principle:
Respect People. We embrace diversity, which we believe fosters
creativity, innovation and thought leadership through the infusion
of new ideas and perspectives. We have implemented a number
of policies and measures focused on non-discrimination, sexual
harassment prevention, health and safety and training and
education. We have strong internal partnerships engaging eight
global Employee Resource Groups that support a diverse,
inclusive workplace. Our Diversity Council, co-sponsored by Rich
Handler, our CEO, and Brian Friedman, our President, gives our
Employee Resource Groups a platform to come together and
discuss best practices, as well as collaborate on firmwide
diversity initiatives. Our DEI function has grown since our launch
in 2019 to include six full-time employees located in New York,
London and Hong Kong.
We have also made a commitment to building a culture that
provides opportunities for all employees regardless of our
differences. As a result, we are able to pool our collective insights
and intelligence to provide fresh and innovative thinking for our
clients. Our DEI strategy focuses on fostering inclusive
leadership, building diverse and inclusive teams, developing our
leaders, fostering community and belonging and client and
community engagement. Inclusive Leadership training is
extended to all employees and all new hires are required to
participate in the training. We are focused on improving the
collection and transparency of diversity metrics and the
information flow to senior leadership and utilize an annual
employee engagement survey, which enables employees to
provide feedback on an anonymous basis. Our 2024 participation
rate was
79
%
globally. Our annual Self-ID campaign also aims to
increase the collection of demographic data internally.
Our Board has an ESG, Diversity, Equity and Inclusion (“ESG/DEI”)
Committee, which, among other things, oversees the
sustainability matters arising from our business and includes
oversight over diversity and inclusion. The ESG/DEI Committee
demonstrates our and the Board’s ongoing commitment of
driving and fostering diversity in the workforce and in the
communities in which we operate. In partnership with the ESG/
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Jefferies Financial Group Inc.
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DEI Committee, we participated in a rigorous study to track
progress against our peers in representation data, initiatives, and
programs. Jefferies’ data representation is generally in line with
our peers.
We encourage you to review our Sustainability Report (located on
our website) for more detailed information regarding our human
capital programs and initiatives. Nothing on our website,
including the Sustainability Report or sections thereof, is deemed
incorporated by reference into this Report. In addition, for
discussion of the risks relating to our ability to attract, develop
and retain highly skilled and productive employees, refer to “Part
1. Item 1A. Risk Factors.”
Employee Benefits
Our benefits are designed to attract, support and retain
employees by providing employees and their spouses, partners
and families with health and wellness programs (medical, dental,
vision and behavioral), retirement wealth accumulation, paid time
off, income replacement (paid sick and disability leaves and life
insurance) and family-oriented benefits (parental leaves and child
care assistance). We also provide all our employees with benefits
to support inclusive fertility health and family-forming benefits.
We have continued to broaden our inclusive benefits offering by
adding menopause support as well. This year, we expanded our
primary caregiver leave time in the United States and provided
coaching to individuals going out and returning from primary
caregiver leave globally. We also endeavor to provide location
specific health club, transportation and employee discounts.
Giving Back to Community
The firm is committed to giving back to our communities. In
2024, we donated
$3.8 million
to over
200
organizations across a
number of Jefferies-supported charitable initiatives. Additionally,
through our Employee Resource Groups, employees have created
lasting partnerships by volunteering time to support several of
these charitable partners.
Competition
All aspects of our business are intensely competitive. We
compete primarily with large global bank holding companies that
engage in investment banking and capital markets activities as
one of their lines of business and that have greater capital and
resources than we do. We also compete against other broker-
dealers, asset managers and boutique firms. We believe the
principal factors driving our competitiveness include our ability to
provide differentiated insights to our clients that lead to better
business outcomes, to attract, retain and develop skilled
professionals and to deliver a competitive breadth of high-quality
service offerings; our vast global footprint; the depth and breadth
of our capabilities in Investment Banking and Capital Markets;
and our ability to maintain a flat, nimble and entrepreneurial
culture built on immediacy and client service.
Regulation
Regulation in the United States.
The financial services industry in
which we operate is subject to extensive regulation. As a publicly
traded company and through our investment bank, investment
management and derivative businesses in the U.S., we are
subject to the jurisdiction of the Securities and Exchange
Commission (“SEC”). In the U.S., the SEC is the federal agency
responsible for the administration of federal securities laws, and
the Commodity Futures Trading Commission (“CFTC”) which is
the federal agency responsible for the administration of laws
relating to commodity interests (including futures, commodity
options and swaps). In addition, the Financial Industry Regulatory
Authority, Inc. (“FINRA”) and the National Futures Association
(“NFA”) are self-regulatory organizations (“SROs”) that are
actively involved in the regulation of our financial services
businesses (securities businesses in the case of FINRA and
commodities/futures businesses in the case of the NFA). Broker-
dealers that conduct securities activities involving municipal
securities are also subject to regulation by the Municipal
Securities Rulemaking Board (“MSRB”). In addition to federal
regulation, we are subject to state securities regulations in each
state and U.S. territory in which we conduct securities or
investment advisory activities and to regulation by other SROs
within the U.S. and the securities exchanges and execution
facilities of which we are a member. The SEC, FINRA, CFTC, NFA,
SROs and state securities regulators conduct periodic
examinations of broker-dealers, investment advisors, futures
commission merchants (“FCMs”), swap dealers, security-based
swap dealers (“SBS dealers”) and over the counter derivatives
dealer (“OTCDD”). The designated examining authority under the
U.S. Securities Exchange Act of 1934, as amended (the
“Exchange Act”) for Jefferies LLC’s activities as a broker-dealer is
FINRA, and the designated self-regulatory organization (“DSRO”)
under the U.S. Commodity Exchange Act for Jefferies LLC’s non-
clearing FCM activities is the NFA. As it pertains to Jefferies
Financial Services Inc. (“JFSI”), the designated examining
authority for its activities as an SEC registered SBS dealer and
OTCDD is the SEC, while the DSRO for its activities as a swap
dealer registered with the CFTC is the NFA. Financial services
businesses are also subject to regulation and examination by
state securities regulators and attorneys general in those states
in which they do business. In addition, broker-dealers, investment
advisors, FCMs, swap dealers, SBS dealers and OTCDD must also
comply with the rules and regulation of clearing houses,
exchanges, swap execution facilities and trading platforms of
which they are a member.
Broker-dealers are subject to SEC, FINRA, MSRB, SRO and state
securities regulations that cover all aspects of the securities
business, including sales and trading methods, trade practices
among broker-dealers, use and safekeeping of customers’ funds
and securities, capital structure and requirements, anti-money
laundering efforts, recordkeeping and the conduct of broker-
dealer personnel including officers and employees (although
state securities regulations are, in a number of cases, more
limited). Registered investment advisors are subject to, among
other requirements, SEC regulations concerning marketing,
transactions with affiliates, custody of client assets, disclosures
to clients, conflict of interest, insider trading and recordkeeping;
and investment advisors that are also registered as commodity
trading advisors or commodity pool operators are also subject to
regulation by the CFTC and the NFA. Additional legislation,
changes in rules promulgated by the SEC, FINRA, CFTC, NFA
other SROs of which the broker-dealer is a member, and state
securities regulators, or changes in the interpretation or
enforcement of existing laws or rules may directly affect the
operations and profitability of broker-dealers, investment
advisors, FCMs, commodity trading advisors, commodity pool
operators, swap dealers and SBS dealers. The SEC, CFTC, FINRA,
NFA, state securities regulators and state attorneys general may
conduct administrative proceedings or initiate civil litigation that
can result in adverse consequences for Jefferies LLC, JFSI, and
its affiliated entities, including affiliated investment advisors, as
well as its and their officers and employees (including, without
limitation, injunctions, censures, fines, suspensions, directives
that impact business operations (including proposed
expansions), membership expulsions, or revocations of licenses
and registrations).
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The investment advisers responsible for the Jefferies’ investment
management businesses are all registered as investment
advisers with the SEC or rely upon the registration of an affiliated
adviser, and all are currently exempt from registration as
Commodity Pool Operators and Commodity Trading Advisors.
Registered investment advisers are subject to the requirements
of the Advisers Act and the regulations promulgated thereunder.
Such requirements relate to, among other things, fiduciary duties
to clients, maintaining an effective compliance program,
operational and marketing requirements, disclosure obligations,
conflicts of interest, fees and prohibitions on fraudulent
activities.
The investment activities are also subject to regulation under the
Securities Exchange Act of 1934, as amended, the Securities Act
of 1933, as amended, the Investment Company Act of 1940, as
amended (the “Investment Company Act”) and various other
statutes, as well as the laws of the fifty states and the rules of
various United States and non-United States securities
exchanges and self-regulatory organizations, including laws
governing trading on inside information, market manipulation and
a broad number of technical requirements (e.g., options and
futures position limits, execution requirements and reporting
obligations) and market regulation policies in the United States
and globally. Congress, regulators, tax authorities and others
continue to explore and implement regulations governing all
aspects of the financial services industry. Pursuant to systemic
risk reporting requirements adopted by the SEC, Jefferies’
affiliated registered investment advisers with private investment
fund clients are required to report certain information about their
investment funds to the SEC.
Regulatory Capital Requirements.
Several of our regulated entities
are subject to financial capital requirements that are set by
applicable local regulations.
Jefferies LLC is a dually registered broker-dealer and FCM and is
required to maintain net capital in excess of the greater of the
SEC or CFTC minimum financial requirements. As a broker-
dealer, Jefferies LLC is subject to the SEC’s Uniform Net Capital
Rule 15c3-1 (the “Net Capital Rule”), which
specifies the
minimum level of net capital a broker-dealer must maintain and
also requires that a significant part of a broker-dealer's assets be
kept in relatively liquid form. The SEC and various self-regulatory
organizations impose rules that require notification when net
capital falls below certain predefined criteria, limit the ratio of
subordinated debt to equity in the regulatory capital composition
of a broker-dealer and constrain the ability of a broker-dealer to
expand its business under certain circumstances
. Jefferies LLC
has elected to compute its minimum net capital requirement in
accordance with the “Alternative Net Capital Requirement” as
permitted by the Net Capital Rule, which provides that a broker-
dealer shall not permit its net capital, as defined, to be less than
the greater of 2% of its aggregate debit balances (primarily
customer-related receivables) or $250,000 ($1.5 million for prime
brokers, as applicable to Jefferies LLC). Compliance with the Net
Capital Rule could limit Jefferies LLC’s operations, such as
underwriting and trading activities and financing customers’
prime brokerage or other margin activities, in each case, that
could require the use of significant amounts of capital, limit its
ability to engage in certain financing transactions, such as
repurchase agreements, and may also restrict its ability (i) to
make payments of dividends, withdrawals or similar distributions
or payments to a stockholder/parent or other affiliate, (ii) to make
a redemption or repurchase of shares of stock, or (iii) to make an
unsecured loan or advance to such shareholders or affiliates. As
a carrying/clearing broker-dealer, under FINRA Rule 4110, FINRA
could impose higher minimum net capital requirements than
required by the SEC and could restrict a broker-dealer from
expanding business or require the broker-dealer to reduce its
business activities. As a non-clearing FCM, Jefferies LLC is also
required to maintain minimum adjusted net capital of $1.0 million
under CFTC rules.
JFSI is dually registered with the SEC as an SBS dealer and
OTCDD and registered with the CFTC as a swap dealer. JFSI is
required to comply with the SEC and CFTC capital rules for SBS
dealers and swap dealers, respectively. Further, as an OTCDD,
JFSI is subject to compliance with the SEC’s net capital
requirements.
As an SEC registered OTCDD and security-based swap dealer,
JFSI is subject to rules regarding capital, segregation and margin
requirements. The CFTC and NFA have also adopted similar
swap dealer capital rules. Under the rules there are minimum
capital requirements for, among others, an entity that acts as a
dealer in SBS or swaps, of $100 million in tentative net capital or
the greater of $20 million or 2% (that the SEC could, in the future,
increase up to 4% or 8%) of a risk margin amount in net capital.
The risk margin amount for the SEC means the sum of (i) the
total initial margin required to be maintained by the SEC-
registered SBS dealer at each clearinghouse with respect to SBS
or swap transactions cleared for SBS or swap customers and (ii)
the total initial margin amount calculated by the SEC-registered
SBS dealer with respect to non-cleared SBS and swaps under the
SEC rules. The risk margin amount for the CFTC means the total
initial margin amount calculated by the CFTC-registered swap
dealer with respect to non-cleared SBS and swaps under the
CFTC rules.
Under the Exchange Act, state securities regulators are not
permitted to impose capital, margin, custody, financial
responsibility, making and keeping records, bonding, or financial
or operational reporting requirements on registered broker-
dealers that differ from, or are in addition to, the requirements in
those areas established under the Exchange Act, including the
rules and regulations promulgated thereunder.
For additional information refer to Item 1A. Risk Factors -
“Legislation and regulation may significantly affect our business.”
Jefferies Financial Group Inc. is not subject to any regulatory
capital rules.
Refer to Net Capital within Item 7. Management’s Discussion and
Analysis and
Note 22, Regulatory Requirements
in this Annual
Report on Form 10-K for additional discussion of net capital
calculations.
Regulation outside the United States.
We are an active participant
in the international capital markets and provide investment
banking services internationally, primarily in Europe and the
Middle East and Asia-Pacific. Jefferies International Limited,
which is the principal operating subsidiary of Jefferies in the U.K.,
maintains regulatory capital aligned with the two key regulatory
pillars. Pillar 1 is its own funds requirement which represents the
highest of the permanent minimum capital requirement, fixed
overheads requirement and k-factor requirements set out in the
Investment Firms Prudential Regime (“IFPR”) under the Financial
Conduct Authority’s (“FCA”) MIFIDPRU sourcebook, while Pillar 2
pertains to the International Capital Adequacy and Risk
Assessment (“ICARA”) process whereby Jefferies International
Limited ensures that it maintains capital in excess of minimum
regulatory capital requirements under both normal and stressed
conditions. Our international subsidiaries are subject to extensive
regulations proposed, promulgated and enforced by, among
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Jefferies Financial Group Inc.
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other regulatory bodies, the European Commission and European
Supervisory Authorities (including the European Banking
Authority and European Securities and Market Authority), the U.K.
Financial Conduct Authority, the German Federal Financial
Supervisory Authority (“BaFin”), the Canadian Investment
Regulatory Organization, the Swiss Financial Market Supervisory
Authority (“FINMA”), the Dubai Financial Services Authority, the
Hong Kong Securities and Futures Commission, the Japan
Financial Services Agency, the Monetary Authority of Singapore,
the Australian Securities and Investments Commission and the
Securities and Exchange Board of India (“SEBI”). Every country in
which we do business imposes upon us laws, rules and
regulations similar to those in the U.S., including with respect to
some form of capital adequacy rules, customer protection rules,
data protection regulations, anti-money laundering and anti-
bribery rules, compliance with other applicable trading and
investment banking regulations and similar regulatory reform.
Item 1A. Risk Factors
Factors Affecting Our Business
The following factors describe some of the assumptions, risks,
uncertainties and other factors that could adversely affect our
business or that could necessitate unforeseen changes to the
ways we operate our businesses or could otherwise result in
changes that differ materially from our expectations. In addition
to the specific factors mentioned in this report, we may also be
affected by other factors that affect businesses generally, such
as global or regional changes in economic, business or political
conditions, acts of war, terrorism, pandemics, climate change,
and natural disasters.
Credit, Market and Liquidity Risks
Our business is subject to significant credit risk.
In the normal course of our businesses, we are involved in the
execution, settlement and financing of various customer and
principal securities and derivative transactions. These activities
are transacted on a cash, margin or delivery-versus-payment
basis and are subject to the risk of counterparty or customer
nonperformance. Even when transactions are collateralized by
the underlying security or other securities, we still face the risks
associated with changes in the market value of the collateral
through settlement date or during the time when margin is
extended and collateral has not been secured or the counterparty
defaults before collateral or margin can be adjusted. We may
also incur credit risk in our derivative transactions to the extent
such transactions result in uncollateralized credit exposure to our
counterparties.
We seek to control the risk associated with these transactions by
establishing and monitoring credit limits and by monitoring
collateral and transaction levels daily. We may require
counterparties to deposit additional collateral or return collateral
pledged. In certain circumstances, we may, under industry
regulations, purchase the underlying securities in the market and
seek reimbursement for any losses from the counterparty.
However, there can be no assurances that our risk controls will
be successful.
We are exposed to significant market risk and our principal
trading and investments expose us to risk of loss.
Market risk generally represents the risk that values of assets
and liabilities or revenues will be adversely affected by changes
in market conditions. Market risk is inherent in the financial
instruments associated with our operations and activities,
including trading account assets and liabilities, loans, securities,
short-term borrowings, corporate debt and derivatives. Market
conditions that change from time to time, thereby exposing us to
market risk, include fluctuations in interest rates, equity prices,
relative exchange rates, and price deterioration or changes in
value due to changes in market perception or actual credit quality
of an issuer.
In addition, disruptions in the liquidity or transparency of the
financial markets may result in our inability to sell, syndicate or
realize the value of security positions, thereby leading to
increased concentrations. The inability to reduce our positions in
specific securities may not only increase the market and credit
risks associated with such positions, but also increase capital
requirements, which could have an adverse effect on our
business, results of operations, financial condition and liquidity.
A considerable portion of our revenues is derived from trading in
which we act as principal. We may incur trading losses relating to
the purchase, sale or short sale of fixed income, high yield,
international, convertible and equity securities, loans, derivative
contracts and commodities for our own account. In any period,
we may experience losses on our inventory positions as a result
of the level and volatility of equity, fixed income and commodity
prices (including oil prices), lack of trading volume and illiquidity.
From time to time, we may engage in a large block trade in a
single security or maintain large position concentrations in a
single security, securities of a single issuer, securities of issuers
engaged in a specific industry or securities from issuers located
in a particular country or region. In general, because our inventory
is marked to market on a daily basis, any adverse price
movement in these securities could result in a reduction of our
revenues and profits. In addition, we may engage in hedging
transactions that if not successful, could result in losses.
Increased market volatility may also impact our revenues as
transaction activity in our investment banking and capital
markets sales and trading businesses can be negatively
impacted in a volatile market environment.
Refer to Management’s Discussion and Analysis of Financial
Condition and Results of Operations-Risk Management within
Part II, Item 7. of this Annual Report on Form 10-K for additional
discussion.
A credit-rating agency downgrade could significantly impact our
business.
The cost and availability of financing generally are impacted by
(among other things) our credit ratings. If any of our credit
ratings were downgraded, or if rating agencies indicate that a
downgrade may occur, our business, financial position and
results of operations could be adversely affected and
perceptions of our financial strength could be damaged, which
could adversely affect our client relationships. Additionally, we
intend to access the capital markets and issue debt securities
from time to time, and a decrease in our credit ratings or outlook
could adversely affect our liquidity and competitive position,
increase our borrowing costs, decrease demand for our debt
securities and increase the expense and difficulty of financing
our operations. In addition, in connection with certain over-the-
counter derivative contract arrangements and certain other
trading arrangements, we may be required to provide additional
collateral to counterparties, exchanges and clearing
organizations in the event of a credit rating downgrade. Such a
downgrade could also negatively impact the prices of our debt
securities. There can be no assurance that our credit ratings will
not be downgraded.
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As a holding company, we are dependent for liquidity from
payments from our subsidiaries, many of which are subject to
restrictions.
As a holding company, we depend on dividends, distributions and
other payments from our subsidiaries to fund payments on our
obligations, including debt obligations. Several of our
subsidiaries, particularly our broker-dealer subsidiaries and swap
dealer subsidiary, are subject to regulations that limit or restrict
dividend payments or reduce the availability of the flow of funds
from those subsidiaries to us. In addition, our broker-dealer
subsidiaries and swap dealer subsidiary are subject to
restrictions on their ability to lend or transact with affiliates and
are required to maintain minimum regulatory capital
requirements. These regulations may hinder our ability to access
funds that we may need to make payments to fulfill obligations.
From time to time we may invest in securities that are illiquid or
subject to restrictions.
From time to time we may invest in securities that are subject to
restrictions which prohibit us from selling the securities for a
period of time. Such agreements may limit our ability to generate
liquidity quickly through the disposition of the underlying
investment while the agreement is effective.
Economic Environment Risks
We may incur losses as a result of unforeseen or catastrophic
events, including the emergence of a pandemic, cybersecurity
incidents and events, terrorist attacks, war, trade policies,
military conflict, climate-related incidents or other natural
disasters.
The occurrence of unforeseen or catastrophic events, including
the emergence of a pandemic, such as COVID-19, or other
widespread health emergency (or concerns over the possibility of
such an emergency), cybersecurity incidents and events, terrorist
attacks, war, trade policies, military conflict, extreme climate-
related incidents or events or other natural disasters, could
create economic and financial disruptions, and could lead to
operational difficulties (including travel limitations) that could
impair our ability to manage our businesses. For instance, the
spread of illnesses or pandemics has, and could in the future,
cause illness, quarantines, various shutdowns, reduction in
business activity and financial transactions, labor shortages,
supply chain interruptions and overall economic and financial
market instability. In addition, geopolitical and military conflict
and war between Russia and Ukraine and Hamas and Israel have
and will continue to result in instability and adversely affect the
global economy or specific markets, which could continue to
have an adverse impact or cause volatility in the financial
services industry generally or on our results of operations and
financial conditions. In addition, these geopolitical tensions can
cause an increase in volatility in commodity and energy prices,
creating supply chain issues, and causing instability in financial
markets. Sanctions imposed by the United States and other
countries in response to such conflict could further adversely
impact the financial markets and the global economy, and any
economic countermeasures by the affected countries or others,
could exacerbate market and economic instability. While we do
not have any operations in Russia or any clients with significant
Russian operations and we have minimal market risk related to
securities of companies either domiciled or operating in Russia,
the specific consequences of the conflict in Ukraine on our
business is difficult to predict at this time. Likewise, our
investments and assets in our growing Israeli business could be
negatively affected by consequences from the geopolitical and
military conflict in the region. In addition to inflationary pressures
affecting our operations, we may also experience an increase in
cyberattacks against us and our third-party service providers
from Russia, Hamas or their allies.
Climate change concerns and incidents could disrupt our
businesses, adversely affect the profitability of certain of our
investments, adversely affect client activity levels, adversely
affect the creditworthiness of our counterparties and damage our
reputation.
Climate change may cause extreme weather events that disrupt
operations at one or more of our or our customer’s or client’s
locations, which may negatively affect our ability to service and
interact with our clients, and also may adversely affect the value
of certain of our investments, including our real estate
investments. Climate change, as well as uncertainties related to
the transition to a lower carbon dependent economy, may also
have a negative impact on the financial condition of our clients,
which may decrease revenues from those clients and increase
the credit risk associated with loans and other credit exposures
to those clients. Additionally, our reputation and client
relationships may be damaged as a result of our involvement, or
our clients’ involvement, in certain industries or projects
associated with causing or exacerbating climate change, as well
as any decisions we make to continue to conduct or change our
activities in response to considerations relating to climate
change.
New regulations or guidance relating to climate change and the
transition to a lower carbon dependent economy, as well as the
perspectives of shareholders, employees and other stakeholders
regarding climate change, may affect whether and on what terms
and conditions we engage in certain activities or offer certain
products, as well as impact our business reputation and efforts
to recruit and retain employees and customers.
Abrupt changes in market and general economic conditions have
in the past adversely affected, and may in the future adversely
affect, our business and profitability and cause volatility in our
results of operations.
Economic and market conditions have had, and will continue to
have, a direct and material impact on our results of operations
and financial condition because performance in the financial
services industry is heavily influenced by the overall strength of
general economic conditions and financial market activity.
Our investment banking revenue, in the form of advisory services
and underwriting, is directly related to general economic
conditions and corresponding financial market activity. When the
outlook for such economic conditions is uncertain or negative,
financial market activity generally tends to decrease, which
reduces our investment banking revenues. Reduced expectations
of U.S. economic growth or a decline in the global economic
outlook could cause financial market activity to decrease and
negatively affect our investment banking revenues.
A sustained and continuing market downturn could lead to or
exacerbate declines in the number of securities transactions
executed for clients and, therefore, to a decline in the revenues
we receive from commissions and spreads. Correspondingly, a
reduction of prices of the securities we hold in inventory or as
investments would lead to reduced revenues.
Revenues from our asset management businesses have been
and may continue to be negatively impacted by declining
securities prices, as well as widely fluctuating securities prices.
Because our asset management businesses hold long and short
positions in equity and debt securities, changes in the prices of
these securities, as well as any decrease in the liquidity of these
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securities, may materially and adversely affect our revenues from
asset management.
Similarly, our other investments businesses may suffer from the
above-mentioned impacts of fluctuations in economic and
market conditions, including reductions in business activity and
financial transactions, labor shortages, supply chain interruptions
and overall economic and financial market instability. In addition,
other factors, most of which are outside of our control, can affect
our businesses, including the state of the real estate market, the
state of the Italian telecommunications market, and the state of
international market and economic conditions which impact
trading volume and currency volatility, and changes in regulatory
requirements.
In addition, global economic conditions and global financial
markets remain vulnerable to the potential risks posed by certain
events, which could include, among other things, the level and
volatility of interest rates, the availability and market conditions
of financing, economic growth or its sustainability, unforeseen
changes to gross domestic product, inflation, energy prices,
fluctuations or other changes in both debt and equity capital
markets and currencies, political and financial uncertainty in the
United States and the European Union, ongoing concern about
Asia’s economies, global supply disruptions, complications
involving terrorism and armed conflicts around the world
(including the conflict between Russia and Ukraine, and Hamas
and Israel, or other challenges to global trade or travel, such as
those that occur due to a pandemic). More generally, because
our business is closely correlated to the general economic
outlook, a significant deterioration in that outlook or realization of
certain events would likely have an immediate and significant
negative impact on our business and overall results of
operations.
Changing financial, economic and political conditions could result
in decreased revenues, losses or other adverse consequences.
Global or regional changes in the financial markets or economic
and political conditions could adversely affect our business in
many ways, including the following:
•
A market downturn, potential recession and high inflation, as
well as declines in consumer confidence and an increase in
unemployment rates, could lead to a decline in the volume of
transactions executed for customers and, therefore, to a
decline in the revenues we receive from commissions and
spreads. Any such economic downturn, volatile business
environment, hostile third-party action or continued
unpredictable and unstable market conditions could adversely
affect our general business strategies;
•
Unfavorable conditions or changes in general political,
economic or market conditions could reduce the number and
size of transactions in which we provide underwriting, financial
advisory and other services. Our investment banking revenues,
in the form of financial advisory, underwriting or placement
fees, are directly related to the number and size of the
transactions in which we participate and could therefore be
adversely affected by unfavorable financial, economic or
political conditions. In particular, the increasing trend toward
sovereign protectionism and de-globalization has resulted or
could result in decreases in free trade, erosion of traditional
international coalitions, the imposition of sanctions and tariffs,
governmental closures and no-confidence votes, domestic and
international strife, and general market upheaval in response to
such results, all of which could negatively impact our business;
•
Adverse changes in the securities markets could lead to a
reduction in revenues from asset management fees and losses
on our own capital invested in managed funds. Even in the
absence of a market downturn, below-market investment
performance by our funds and portfolio managers could
reduce asset management revenues and assets under
management and result in reputational damage that might
make it more difficult to attract new investors;
•
Adverse changes in the financial markets could lead to
regulatory restrictions that may limit or halt certain of our
business activities;
•
Limitations on the availability of credit can affect our ability to
borrow on a secured or unsecured basis, which may adversely
affect our liquidity and results of operations. Global market and
economic conditions have been particularly disrupted and
volatile in the last several years and may be in the future. Our
cost and availability of funding could be affected by illiquid
credit markets and wider credit spreads;
•
New or increased taxes on compensation payments such as
bonuses
may adversely affect our profits;
•
Should one of our clients or competitors fail, our business
prospects and revenue could be negatively impacted due to
negative market sentiment causing clients to cease doing
business with us and our lenders to cease loaning us money,
which could adversely affect our business, funding and
liquidity;
•
Unfavorable economic conditions could have an adverse effect
on the demand for new loans and the servicing of loans
originated by third-parties, which would have an adverse
impact on the operations and profitability of some of our
financial services businesses.
Operational Risks
We may incur losses if our risk management is not effective.
We seek to monitor and control our risk exposure. Our risk
management processes and procedures are designed to limit our
exposure to acceptable levels as we conduct our business. We
apply a comprehensive framework of limits on a variety of key
metrics to constrain the risk profile of our business activities.
These limits reflect our risk tolerances for business activity. Our
framework includes inventory position and exposure limits on a
gross and net basis, scenario analysis and stress tests, Value-at-
Risk, sensitivities, exposure concentrations, aged inventory, the
amount of Level 3 assets, counterparty exposure, leverage, cash
capital and performance analysis. Refer to Management’s
Discussion and Analysis of Financial Condition and Results of
Operations - Risk Management within Part II. Item 7. of this
Annual Report on Form 10-K for additional discussion. While we
employ various risk monitoring and risk mitigation techniques,
those techniques and the judgments that accompany their
application, including risk tolerance determinations, cannot
anticipate every economic and financial outcome or the specifics
and timing of such outcomes. As a result, we may incur losses
notwithstanding our risk management processes and
procedures.
The ability to attract, develop and retain highly skilled and
productive employees is critical to the success of our business.
Our ability to develop and retain our clients depends on the
reputation, judgment, business generation capabilities and skills
of our professionals. To compete effectively, we must attract,
retain and motivate qualified professionals, including successful
investment bankers, sales and trading professionals, research
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professionals, portfolio managers and other revenue producing
or specialized personnel, in addition to qualified, successful
personnel in functional, non-revenue producing roles.
Competitive pressures we experience with respect to employees
could have an adverse effect on our business, results of
operations, financial condition and liquidity.
Turnover in the financial services industry is high. The cost of
retaining skilled professionals in the financial services industry
has escalated considerably. Financial industry employers are
increasingly offering guaranteed contracts, upfront payments and
increased compensation. These can be important factors in a
current employee’s decision to leave us as well as in a
prospective employee’s decision to join us. As competition for
skilled professionals in the industry remains intense, we may
have to devote significant resources to attracting and retaining
qualified personnel.
If we were to lose the services of certain of our professionals, we
may not be able to retain valuable relationships and some of our
clients could choose to use the services of a competitor instead
of our services. If we are unable to retain our professionals or
recruit additional professionals, our reputation, business, results
of operations and financial condition will be adversely affected.
Further, new business initiatives and efforts to expand existing
businesses frequently require that we incur compensation and
benefits expense before generating additional revenues.
Moreover, companies in our industry whose employees accept
positions with competitors often claim that those competitors
have engaged in unfair hiring practices. We may be subject to
such claims in the future as we seek to hire qualified personnel
who have worked for our competitors. Some of these claims may
result in material litigation. We could incur substantial costs in
defending against these claims, regardless of their merits. Such
claims could also discourage potential employees who work for
our competitors from joining us.
We face increasing competition in the financial services industry.
We operate in an intensely competitive with other global bank
holding companies that engage in investment banking and
capital markets activities as one of their lines of business and
that have greater capital and resources than we do. We also
compete against other broker-dealers, asset managers and
boutique firms on both a global and regional basis. There is also
growing pressure to provide services at lower fees to appeal to
clients, which may impact our ability to effectively compete.
Operational risks may disrupt our business, result in regulatory
action against us or limit our growth.
Our businesses are highly dependent on our ability to process, on
a daily basis, a large number of transactions across numerous
and diverse markets in many currencies, and the transactions we
process have become increasingly complex. If any of our
financial, accounting or other data processing systems do not
operate properly, or are disabled, or if there are other
shortcomings or failures in our internal processes, people or
systems, we could suffer an impairment to our liquidity, financial
loss, a disruption of our businesses, liability to clients, regulatory
intervention or reputational damage. These systems may fail to
operate properly or become disabled as a result of events that
are wholly or partially beyond our control, including a disruption
of electrical or communications services or our inability to
occupy one or more of our buildings. The inability of our systems
to accommodate an increasing volume and complexity of
transactions could also constrain our ability to expand our
businesses.
Certain of our financial and other data processing systems rely
on access to and the functionality of operating systems
maintained by third-parties. If the accounting, trading or other
data processing systems on which we are dependent are unable
to meet increasingly demanding standards for processing and
security or, if they fail or have other significant shortcomings, we
could be adversely affected. Such consequences may include our
inability to effect transactions and manage our exposure to risk.
In addition, despite the contingency plans we have in place, our
ability to conduct business may be adversely impacted by a
disruption in the infrastructure that supports our businesses and
the communities in which they are located. This may include a
disruption involving electrical, communications, transportation or
other services used by us or third-parties with which we conduct
business.
Any cyber attack, cybersecurity incident, or other information
security breach of, or vulnerability in, our technology systems, or
those of our clients, partners, counterparties, or other third-party
service providers we rely on, could have operational impacts,
subject us to significant liability and harm our reputation.
Our operations rely heavily on the secure processing, storage and
transmission of financial, personal and other information in our
computer systems and networks. In recent years, there have
been several highly publicized incidents involving financial
services companies reporting the unauthorized disclosure of
client or other confidential information, as well as cyber attacks
involving theft, dissemination and destruction of corporate
information or other assets, which in some cases occurred as a
result of failure to follow procedures by employees or contractors
or as a result of actions by third-parties. Cyber attacks can
originate from a variety of sources, including third-parties
affiliated with foreign governments, organized crime or terrorist
organizations, and malicious individuals both outside and inside
a targeted company, including through use of relatively new
artificial intelligence tools or methods. Retaliatory acts by Russia,
Hamas or their allies in response to economic sanctions or other
measures taken by the global community arising from the Russia-
Ukraine and Hamas-Israel conflicts could result in an increased
number and/or severity of cyber attacks. Malicious actors may
also attempt to compromise or induce our employees, clients or
other users of our systems to disclose sensitive information or
provide access to our data, and these types of risks may be
difficult to detect or prevent.
Like other financial services firms, we and our third-party service
providers have been the target of cyber attacks. Although we and
our service providers regularly defend against, respond to and
mitigate the risks of cyberattacks, cybersecurity incidents among
financial services firms and industry generally are on the rise. We
are not aware of any material losses we have incurred relating to
cyber attacks or other information security breaches. The
techniques and malware used in these cyber attacks and
cybersecurity incidents are increasingly sophisticated, change
frequently and are often not recognized until launched because
they are novel. Although we monitor the changing cybersecurity
risk environment and seek to maintain reasonable security
measures, including a suite of authentication and layered
information security controls, no security measures are infallible,
and we cannot guarantee that our safeguards will always work or
that they will detect, mitigate or remediate these risks in a timely
manner. Despite our implementation of reasonable security
measures and endeavoring to modify them as circumstances
warrant, our computer systems, software and networks may be
vulnerable to spam attacks, unauthorized access, distributed
denial of service attacks, ransomware, computer viruses and
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other malicious code, as well as human error, natural disaster,
power loss, and other events that could damage our reputation,
impact the security and stability of our operations, and expose us
to class action lawsuits and regulatory investigation, action, and
penalties, and significant liability.
We also rely on numerous third-party service providers to
conduct other aspects of our business operations and we face
similar risks relating to them. While we evaluate the information
security programs and defenses of third-party vendors, we
cannot be certain that our reviews and oversight will identify all
potential information security weaknesses or that our vendors’
information security protocols are or will be sufficient to
withstand or adequately respond to a cyber attack, cybersecurity
incident or other information security breach. In addition, in order
to access our products and services, or trade with us, our
customers and counterparties may use networks, computers and
other devices that are beyond our security control systems and
processes.
Notwithstanding the precautions we take, if a cyber attack,
cybersecurity incident, or other information security breach were
to occur, this could jeopardize the information we confidentially
maintain, or otherwise cause interruptions in our operations or
those of our clients and counterparties, exposing us to liability.
As attempted attacks continue to evolve in scope and
sophistication, we may be required to expend substantial
additional resources to modify or enhance our reasonable
security measures, to investigate and remediate vulnerabilities or
other exposures or to communicate about cyber attacks,
cybersecurity incidents or other information security breaches to
our customers, partners, third-party service providers and
counterparties. Though we have insurance against some cyber
risks and attacks, we may be subject to litigation and financial
losses that exceed our insurance policy limits or are not covered
under any of our current insurance policies. A technological
breakdown could also interfere with our ability to comply with
financial reporting and other regulatory requirements, exposing
us to potential disciplinary action by regulators. Successful cyber
attacks, cybersecurity incidents or other information security
breaches at other large financial institutions or other market
participants, whether or not we are affected, could lead to a
general loss of customer confidence in financial institutions that
could negatively affect us, including harming the market
perception of the effectiveness of our security measures or the
financial system in general, which could result in a loss of
business.
Further, in light of the high volume of transactions we process,
the large number of our clients, partners and counterparties, and
the increasing sophistication of malicious actors that may
employ increasingly sophisticated methods such as new artificial
intelligence tools, a cyber attack, cybersecurity incident, or other
information security breach could occur and persist for an
extended period of time without detection. We expect that any
investigation of a cyber attack, cybersecurity incident, or other
information security breach would take substantial amounts of
time and resources, and that there may be extensive delays
before we obtain full and reliable information. During such time
we would not necessarily know the extent of the harm caused by
the cyber attack, cybersecurity incident, or other information
security breach or how best to remediate it, and certain errors or
actions could be repeated or compounded before they are
discovered and remediated. All of these factors could further
increase the costs and consequences of such a cyber attack or
cybersecurity incident. In providing services to clients, we
manage, utilize and store sensitive or confidential client or
employee data, including personal data. As a result, we are
subject to numerous laws and regulations designed to protect
this information, such as U.S. and non-U.S. federal and state laws
governing privacy and cybersecurity. If any person, including any
of our associates, negligently disregards or intentionally
breaches our established controls with respect to client or
employee data, or otherwise mismanages or misappropriates
such data, we could be subject to significant monetary damages,
regulatory enforcement actions, fines and/or criminal
prosecution. In addition, unauthorized disclosure of sensitive or
confidential client or employee data, whether through system
compromise or failure, employee negligence, fraud or
misappropriation, could damage our reputation and cause us to
lose clients and related revenue. Depending on the
circumstances giving rise to the information security breach, this
liability may not be subject to a contractual limit or an exclusion
of consequential or indirect damages.
Damage to our reputation could damage our business.
Maintaining our reputation is critical to our attracting and
maintaining customers, investors and employees. If we fail to
deal with, or appear to fail to deal with, various issues that may
give rise to reputational risk, we could significantly harm our
business prospects. These issues include, but are not limited to,
any of the risks discussed in this Item 1A, appropriately dealing
with potential conflicts of interest, legal and regulatory
requirements, ethical issues, money-laundering, cybersecurity
and privacy, record keeping, sales and trading practices, failure to
sell securities we have underwritten at the anticipated price
levels, and the proper identification of the legal, reputational,
credit, liquidity and market risks inherent in our products. A
failure to deliver appropriate standards of service and quality, or a
failure or perceived failure to treat customers and clients fairly,
can result in customer dissatisfaction, litigation and heightened
regulatory scrutiny, all of which can lead to lost revenue, higher
operating costs and harm to our reputation. Further, negative
publicity regarding us, whether or not true, may also result in
harm to our prospects. Our operations in the past have been
impacted as some clients either ceased doing business or
temporarily slowed down the level of business they do, thereby
decreasing our revenue. There is no assurance that we will be
able to successfully reverse the negative impact of allegations
and rumors in the future and our potential failure to do so could
have a material adverse effect on our business, financial
condition and liquidity.
Employee misconduct or fraud
could harm us by impairing our
ability to attract and retain clients and subject us to significant
legal liability and reputational harm.
There is a risk that our employees could engage in fraud or other
misconduct that adversely affects our business. For example, we
are subject to a number of obligations and standards arising
from our asset management business and our responsibility over
the assets managed by this business. In addition, our financial
advisors may act in a fiduciary capacity, providing financial
planning, investment advice, and discretionary asset
management. Misconduct or fraud by employees, advisors, or
other third-party service providers could cause significant losses.
In addition, our business often requires that we deal with
confidential matters of great significance to our clients. If our
employees were to improperly use or disclose confidential
information provided by our clients, we could be subject to
regulatory sanctions and suffer serious harm to our reputation,
financial position, current client relationships and ability to attract
future clients. Employee misconduct or fraud could include,
among other things, binding us to unauthorized transactions that
present unacceptable risks, engaging in other unauthorized
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activities or concealing unsuccessful investments. The violation
of these obligations and standards by any of our employees
would adversely affect our clients and us. It is not always
possible to deter employee misconduct, and the precautions we
take to detect and prevent this activity may not be effective
against certain misconduct, including conduct which is difficult
to detect. The occurrence of significant employee misconduct
could have a material adverse financial effect or cause us
significant reputational harm and/or legal and regulatory liability,
which in turn could seriously harm our business and our
prospects.
We may not be able to insure certain risks economically.
We cannot be certain that we will be able to insure all risks that
we desire to insure economically or that all of our insurers or
reinsurers will be financially viable if we make a claim. If an
uninsured loss or a loss in excess of insured limits should occur,
or if we are required to pay a deductible for an insured loss,
results of operations could be adversely affected.
Future acquisitions and dispositions of our businesses and
investments are possible, changing the components of our assets
and liabilities, and if unsuccessful or unfavorable, could reduce
the value of our securities.
Any future acquisitions or dispositions may result in significant
changes in the composition of our assets and liabilities, as well
as our business mix and prospects. Consequently, our financial
condition, results of operations and the trading price of our
securities may be affected by factors different from those
affecting our financial condition, results of operations and trading
price at the present time.
Our investment in Jefferies Finance may not prove to be
successful and may adversely affect our results of operations or
financial condition.
Many factors, most of which are outside of our control, can affect
Jefferies Finance’s business, including adverse investment
banking and capital market conditions leading to a decline of
syndicate loans, inability of borrowers to repay commitments,
adverse changes to a borrower’s credit worthiness, and other
factors that directly and indirectly effect the results of operations,
and consequently may adversely affect our results of operations
or financial condition.
Our investment in Berkadia may not prove to be successful and
may adversely affect our results of operations or financial
condition.
Many factors, most of which are outside of our control, can affect
Berkadia’s business, including loan losses in excess of reserves,
a change in the relationships with U.S. Government-Sponsored
Enterprises or federal agencies, a significant loss of customers,
and other factors that directly and indirectly effect the results of
operations, including the sales and profitability of Berkadia, and
consequently may adversely affect our results of operations or
financial condition.
If Berkadia suffered significant losses and was unable to repay its
commercial paper borrowings, we would be exposed to loss
pursuant to a reimbursement obligation to Berkshire Hathaway.
Berkadia obtains funds generated by commercial paper sales of
an affiliate of Berkadia. All of the proceeds from the commercial
paper sales are used by Berkadia to fund new mortgage loans,
servicer advances, investments and other working capital
requirements. Repayment of the commercial paper is supported
by a $1.5 billion surety policy issued by a Berkshire Hathaway
insurance subsidiary and a Berkshire Hathaway corporate
guaranty, and we have agreed to reimburse Berkshire Hathaway
for one-half of any losses incurred thereunder. If Berkadia suffers
significant losses and is unable to repay its commercial paper
borrowings, we would suffer losses to the extent of our
reimbursement obligation to Berkshire Hathaway.
Legal, Legislation and Regulation Risks
Legislation and regulation may significantly affect our business.
The Dodd-Frank Wall Street Reform and Consumer Protection Act
(the “Dodd-Frank Act”) and the rules and regulations adopted by
the CFTC and the SEC introduced a comprehensive regulatory
regime for swaps and SBS and parties that deal in such
derivatives. One of our subsidiaries is registered as a swap dealer
with the CFTC and is a member of the NFA, is registered as a
security-based swap dealer with the SEC and is registered with
the SEC as an OTC Derivatives Dealer. We have incurred
significant compliance and operational costs as a result of the
swaps and SBS rules adopted by the CFTC and SEC pursuant to
the Dodd-Frank Act, and we expect that the complex regulatory
framework will continue to require significant monitoring and
compliance expenditures. Negative effects could result from an
expansive extraterritorial application of the Dodd-Frank Act and/
or insufficient international coordination with respect to adoption
of rules for derivatives and other financial reforms in other
jurisdictions.
Similar types of swap regulation have been proposed or adopted
in jurisdictions outside the U.S., including in the EU, the U.K. and
Japan. For example, the EU and the U.K. have established
regulatory requirements relating to portfolio reconciliation and
reporting, clearing certain OTC derivatives and margining for
uncleared derivatives activities under the European Market
Infrastructure Regulation (“EMIR”). Further enhancements (driven
by regulation) have been required in 2024 with respect to EMIR
OTC derivative transaction reporting, and affect our European
entities.
The Markets in Financial Instruments Regulation and a revision of
the Market in Financial Instruments Directive in 2018 (collectively
referred to as “MiFID II”) imposes certain restrictions as to the
trading of shares and derivatives including market structure-
related, reporting, investor protection-related and organizational
requirements, requirements on pre- and post-trade transparency,
requirements to use certain venues when trading financial
instruments (which includes shares and certain derivative
instruments), requirements affecting the way investment
managers can obtain research, powers of regulators to impose
position limits and provisions on regulatory sanctions. The
European regulators continue to refine aspects of MiFID with
these changes now being rolled out separately in both the UK and
Europe.
New prudential regimes for investment firms have been
implemented in both the EU and the UK for MiFID authorized
investment firms. The Investment Firms Regulation (IFR) and the
Investment Firms Directive (IFD), applicable in the EU, and the
MIFIDPRU regime, applicable in the UK, while applying a more
appropriate capital treatment for investments firms such as the
UK entity, Jefferies International Limited, and, its EU subsidiary,
Jefferies GmbH, include a requirement that a certain amount of
variable remuneration for material risk takers be paid in non-cash
instruments and have a deferral element. Consequently, we have
adapted our remuneration structures for those employees
identified as material risk takers.
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A key focus of the European regulators over the last couple of
years has been emerging regulation with regards to Operational
Resilience, with regulators expecting investment firms like
Jefferies to be able to assess (on an ongoing basis) their
resilience (measured by impact to Jefferies’ clients and market)
on identified critical business services. This has brought our
management of third party risk, business continuity and the
mitigation of cyber risk more firmly into focus with the regulators.
Significant new legislation and regulation affecting the financial
services industry is regularly proposed and sometimes adopted.
These legislative and regulatory initiatives affect not only us, but
also our competitors and certain of our clients. These changes
could have an effect on our revenue and profitability, limit our
ability to pursue certain business opportunities, impact the value
of assets that we hold, require us to change certain business
practices, impose additional costs on us and otherwise adversely
affect our business. Accordingly, we cannot provide assurance
that legislation and regulation will not eventually have an adverse
effect on our business, results of operations, cash flows and
financial condition. In the U.S., such initiatives frequently arise in
the aftermath of elections that change the party of the president
or the majority party in the House and/or Senate.
Increasing regulatory focus on evolving privacy and security
issues and expanding laws could impact our businesses and
investments and expose us to increased liability.
The EU General Data Protection Regulation (the “EU GDPR” or
“GDPR”) applies in all EU Member States and also applies to
entities established outside of the EU where such entity
processes personal data in relation to: (i) the offering of goods or
services to data subjects in the EEA; or (ii) monitoring the
behavior of data subjects as far as that behavior takes place in
the EEA. The UK has implemented GDPR as part of its national
law (the “UK GDPR”). The UK GDPR exists alongside the UK Data
Protection Act 2018 and its requirements are largely aligned with
those under the EU GDPR.
The EU GDPR and UK GDPR impose a number of obligations on
organizations to which they apply, including, without limitation:
accountability and transparency requirements; compliance with
the data protection rights of data subjects; and under
circumstances, the prompt reporting of certain personal data
breaches to both the relevant data supervisory authority and
impacted individuals.
The EU GDPR and UK GDPR also include restrictions on the
transfer of personal data from the EEA to jurisdictions that are
not recognized as having an adequate level of protection with
regards to data protection laws.
The EU GDPR imposes significant fines for serious non-
compliance of up to the higher of 4% of an organization’s annual
worldwide turnover or €20 million (or approximately £17.5 million
under the UK GDPR). Data subjects also have a right to receive
compensation as a result of infringement of the EU GDPR and/or
UK GDPR for financial or non-financial losses.
Other privacy laws are in effect in the Americas, Europe and the
Middle East and Asia-Pacific regions, many of which involve
heightened compliance obligations similar to those under EU
GDPR and UK GDPR. The privacy and cybersecurity legislative
and regulatory landscape is evolving rapidly, and numerous
proposals regarding privacy and cybersecurity are pending before
U.S. and non-U.S. legislative and regulatory bodies. The adopted
form of such developing legislation and regulation will determine
the level of any resources which we will need to invest to ensure
compliance. In the event of non-compliance with privacy laws
and regulations, we could face significant administrative and
monetary sanctions as well as reputational damage which may
have a material adverse effect on our operations, financial
condition and prospects.
Extensive regulation of our business limits our activities, and, if
we violate these regulations, we may be subject to significant
penalties.
We are subject to extensive laws, rules and regulations in the
countries in which we operate. Firms that engage in providing
financial services must comply with the laws, rules and
regulations imposed by national and state governments and
regulatory and self-regulatory bodies with jurisdiction over such
activities. Such laws, rules and regulations cover many aspects
of providing financial services.
Our regulators supervise our business activities to monitor
compliance with applicable laws, rules and regulations. In
addition, if there are instances in which our regulators question
our compliance with laws, rules, or regulations, they may
investigate the facts and circumstances to determine whether we
have complied. At any moment in time, we may be subject to one
or more such investigations or similar reviews. At this time, all
such investigations and similar reviews are insignificant in scope
and immaterial to us. However, there can be no assurance that, in
the future, the operations of our businesses will not violate such
laws, rules, or regulations, or that such investigations and similar
reviews will not result in significant or material adverse regulatory
requirements, regulatory enforcement actions, fines or other
adverse impact to the operation of our business.
Additionally, violations of laws, rules and regulations could
subject us to one or more of the following events: civil and
criminal liability; sanctions, which could include the revocation of
our subsidiaries’ registrations as investment advisors or broker-
dealers; the revocation of the licenses of our financial advisors;
censures; fines; or a temporary suspension or permanent bar
from conducting business. The occurrence of any of these events
could have a material adverse effect on our business, financial
condition and prospects.
Certain of our subsidiaries are subject to regulatory financial
capital holding requirements that could impact various capital
allocation decisions or limit the operations of our broker-dealers.
In particular, compliance with the financial capital holding
requirement may restrict our broker-dealers’ ability to engage in
capital-intensive activities such as underwriting and trading, and
may also limit their ability to make loans, advances, dividends
and other payments and may restrict our swap dealer’s ability to
execute certain derivative transactions.
Additional legislation, changes in rules, changes in the
interpretation or enforcement of existing laws and rules, conflicts
and inconsistencies among rules and regulations, or the entering
into businesses that subject us to new rules and regulations may
directly affect our business, results of operations and financial
condition. We continue to monitor the impact of new U.S. and
international regulation on our businesses.
Legal liability may harm our business.
Many aspects of our business involve substantial risks of liability,
and in the normal course of business, we have been named as a
defendant or codefendant in lawsuits involving primarily claims
for damages. The risks associated with potential legal liabilities
often may be difficult to assess or quantify and their existence
and magnitude often remain unknown for substantial periods of
time. The expansion of our business, including increases in the
number and size of investment banking transactions and our
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expansion into new areas impose greater risks of liability.
Substantial legal liability could have a material adverse financial
effect or cause us significant reputational harm, which in turn
could seriously harm our business and our prospects.
A change in tax laws in key jurisdictions could materially increase
our tax expense.
We are subject to tax in the U.S. and numerous international
jurisdictions. Changes to income tax laws and regulations in any
of the jurisdictions in which we operate, or in the interpretation of
such laws, or the introduction of new taxes, could significantly
increase our effective tax rate and ultimately reduce our cash
flow from operating activities and otherwise have an adverse
effect on our financial condition or results of operations.
If our tax filing positions were to be challenged by federal, state
and local, or foreign tax jurisdictions, we may not be wholly
successful in defending our tax filing positions.
We record reserves for unrecognized tax benefits based on our
assessment of the probability of successfully sustaining tax filing
positions. Management exercises significant judgment when
assessing the probability of successfully sustaining tax filing
positions, and in determining whether a contingent tax liability
should be recorded and, if so, estimating the amount. If our tax
filing positions are successfully challenged, payments could be
required that are in excess of reserved amounts or we may be
required to reduce the carrying amount of our net deferred tax
asset, either of which result could be significant to our financial
condition or results of operations.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Cybersecurity Risk Management and Strategy
Our Chief Information Security Officer (“CISO”) and the Global
Information Security team (“GIS”) oversee our cybersecurity
program and exercise overall responsibility for the strategic
vision, design, development and implementation of, and
adherence to, the program’s protocols. The comprehensive
program includes policies and procedures designed to protect
our systems, operations and the data entrusted to it from
anticipated threats or hazards. The program applies seven layers
of controls: governance, identification, protection, detection,
response, recovery and third-party vendor management. The
CISO reviews the cybersecurity framework annually as well as on
an event-driven basis, as necessary, and reviews the scope of
cybersecurity measures periodically, including to accommodate
changes in business practices that may implicate security-related
issues.
Protective measures, where appropriate, include, but are not
limited to, physical and digital access controls, software security
and patch management, identity verification, mobile device
management, data loss prevention solutions, employee
cybersecurity awareness communications and best practices
training programs, security baselines and tools to detect and
report anomalous activity, service provider risk assessments,
network monitoring, hardware and software, and data erasure
and media disposal. Measures, policies and standards are
aligned with industry-leading frameworks, such as those
promulgated by the International Organization for
Standardization and the National Institute of Standards and
Technology (“NIST”).
We test our cybersecurity defenses regularly through automated
vulnerability scanning
t
o identify and remediate critical
vulnerabilities.
In addition, an independent vendor conducts
annual penetration tests to validate our external security posture.
For certain businesses, we also conduct cyber incident tabletop
exercises involving hypothetical cybersecurity incidents to test
our cyber incident response processes. Tabletop exercises are
conducted by the Information Technology Risk team in
collaboration with outside service providers, as appropriate, and
members of senior management and Legal and Compliance.
Learnings from these tabletop exercises and any events that we
experience are reviewed, discussed, and incorporated into our
cybersecurity risk management processes, as appropriate.
In addition to our internal exercises to test aspects of our
cybersecurity program, we annually engage an independent third
party to assess information system risks and the maturity of our
cyber security program. The independent third party assesses the
cybersecurity program against the Cyber Risk Institute Cyber
Profile, a financial sector-focused framework based on the NIST
Cybersecurity Framework, the results of which are reported to the
Board of Directors and inform our program.
We have a comprehensive cybersecurity incident response and
communication plan (the “IRP”), managed by the Security
Operations Group, which is designed to inform appropriate risk
management and business managers of non-routine suspected
or confirmed information security or cybersecurity events based
on the expected risk an event presents. A team composed of
individuals from several internal technical and managerial
functions may be formed to investigate and remediate such an
event and determine the extent of external advisor support
required, including from external counsel, forensic investigators
and law enforcement agencies. The IRP is reviewed at least
annually.
Cybersecurity is assessed by Information Technology Risk and
approved by the Chief Information Officer (“CIO”) as a component
of our annual, enterprise-wide Risk Control Self Assessment
(“RCSA”) managed by the Operational Risk Group. The RCSA
process is independently verified by the Internal Audit
Department. Additionally, our
cybersecurity risk management
process
includes reviewing risks discerned from time to time
from both internal events and from external events, alerts and
reports received from a broad variety of sources. Reports from
external sources are also reviewed to formulate risk mitigation
and remediation strategies
. The CISO periodically discusses and
reviews cybersecurity risks and related mitigants with the
CIO,
the Head of Information Technology Risk and General Counsel
and incorporates relevant cybersecurity risk updates and metrics.
We conduct periodic risk assessments and adjust and enhance
our cybersecurity program in response to the evolving
cybersecurity landscape and to align with regulatory and industry
standards.
We also employ a process designed to periodically assess the
cybersecurity risks associated with the
engagement of third-party
vendors and service providers
. This assessment is conducted on
the basis of, among other factors, the types of products or
services provided and the extent and type of data accessed or
processed by the third party.
Cybersecurity Governance
Our Board’s Risk and Liquidity Oversight Committee oversees
Jefferies’ enterprise risk management. Oversight includes
annually reviewing and approving the risk management
framework and overarching risk appetite statements, which
includes reviewing technology, cybersecurity and privacy risk and
|
15
|
Jefferies Financial Group Inc.
|
reviewing the steps management has taken to monitor and
control such exposures.
The CISO keeps the
Board
informed
about our security posture and cybersecurity maturity program
on a regular basis, providing updates about the current threat
landscape and related risks, cybersecurity events, significant
incidents and new initiatives.
Our cybersecurity program is periodically assessed by the
Internal Audit Department.
The results of these audits are
reported to the Audit Committee. Any resulting findings and
associated actions to address issues are tracked and managed
to completion. In addition,
the Information Technology Risk team
provides key risk indicators (“KRIs”) monthly to the Operational
Risk Committee whose members include the
CIO, Chief Risk
Officer (“CRO”), Head of Internal Audit and the CISO
.
The monthly
presentation includes updates on key security incidents and the
trending of cybersecurity KRIs.
Our dedicated GIS team is led by the CISO, who reports to the
CIO. The CISO has extensive experience in cybersecurity and
technology
with over twenty years’ experience managing
cybersecurity in the financial and consulting services industries
and is responsible for all aspects of cybersecurity across our
global businesses.
The CISO works closely with the CIO, Chief
Financial Officer,
CRO
and the Legal and Compliance
Departments to develop and advance our cybersecurity strategy.
Item 2. Properties
Our global headquarters and principal executive offices are
located at 520 Madison Avenue, New York, New York, with our
European and the Middle East headquarters in London and our
Asia-Pacific headquarters in Hong Kong and other offices and
operations located across the U.S. and around the world. In
addition, we maintain backup data center facilities with
redundant technologies for each of our three main data center
hubs in Jersey City, London and Hong Kong. We lease all of our
office space, or contract via service arrangement, which
management believes is adequate for our business. The facilities
vary in size and have leases expiring at various times, subject, in
certain instances, to renewal options. Additionally, HomeFed
owns and develops various real estate properties in the U.S.
Item 3. Legal Proceedings
Many aspects of our business involve substantial risks of legal
and regulatory liability. In the normal course of business, we have
been named as defendants or co-defendants in lawsuits involving
primarily claims for damages. We are also involved in a number
of judicial and regulatory matters, including exams, investigations
and similar reviews, arising out of the conduct of our business.
Based on currently available information, we do not believe that
any matter will have a material adverse effect on our
consolidated financial statements.
In July 2024, we commenced litigation against the former
portfolio manager of 3ǀ5ǀ2 Capital ABS Master Fund LP (the
“Fund”) and a variety of individuals and entities (collectively, the
“defendants”), alleging that the defendants engaged in a
longstanding Ponzi scheme resulting in the misappropriation of
approximately
$106
million from investors in the Fund and in
certain related accounts, including a separately managed
account held by the Company.
To date, the Company has
recognized a loss of
$17.2 million
.
We anticipate that this
litigation, which will not be resolved in the near term, will result in
the recovery of some or all of our losses but cannot, with any
reliable accuracy, estimate how much we will be able to recover,
or the outcome of this litigation, which may lead to additional
proceedings.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities
Our common shares are traded on the NYSE under the symbol
JEF. As of January 17,
2025
, there were approximately
1,217
record holders of the common shares.
Dividends paid per common share:
|
Year Ended November 30,
|
|||
|
2024
|
2023
|
2022
|
|
|
First Quarter
...........................................
|
$0.30
|
$0.30
|
$0.30
|
|
Second Quarter
.....................................
|
$0.30
|
$0.30
|
$0.30
|
|
Third Quarter
.........................................
|
$0.35
|
$0.30
|
$0.30
|
|
Fourth Quarter
.......................................
|
$0.35
|
$0.30
|
$0.30
|
In January
2025
, our Board of Directors increased our quarterly
dividend from
$0.35
to
$0.40
per common share to be paid on
February 27, 2025
to common shareholders of record at
February 14, 2025
. The payment of dividends in the future is
subject to the discretion of our Board of Directors and will
depend upon general business conditions, legal and contractual
restrictions on the payment of dividends and other factors that
our Board of Directors may deem to be relevant.
During the year ended
November 30, 2024
, we purchased a total
of
1.1 million
of our common shares for
$44.3 million
, or an
average price of
$40.72
per share, in connection with net-share
settlements under our equity compensation plan. Our equity
compensation plan allows participants to surrender shares to
satisfy certain tax liabilities arising from the vesting of restricted
shares and the distribution of restricted share units.
There were no unregistered sales of equity securities during the
period covered by this report.
T
he
Board of Directors has authorized the repurchase of
common stock up to
$250.0 million
under a share repurchase
program. We did not purchase any shares under our share
repurchase program during 2024.
|
November
2024
Form
10-K
|
16
|
Stockholder Return Performance Graph
Set forth below is a graph comparing the cumulative total
stockholder return on our common shares against the cumulative
total return of the Standard & Poor’s 500 Stock Index and the
Standard & Poor’s 500 Financials Index for the period
commencing November
30, 2019
to November 30, 2024. Index
data was furnished by S&P Global Market Intelligence. The graph
assumes that $100 was invested on December 31, 2019 in each
of our common stock, the S&P 500 Index and the S&P
500 Financials Index and that all dividends, including quarterly
and special dividends, were reinvested.
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Forward-Looking Statements
This report may contain or incorporate by reference certain
“forward-looking statements” within the meaning of Section 27A
of the Securities Act of 1933, Section 21E of the Securities
Exchange Act of 1934 and/or the Private Securities Litigation
Reform Act of 1995. Forward-looking statements include
statements about our future and statements that are not
historical or current facts. These forward-looking statements are
often preceded by the words “should,” “expect,” “believe,”
“intend,” “may,” “will,” “would,” “could” or similar expressions.
Forward-looking statements may contain expectations regarding
revenues, earnings, operations and other results, and may include
statements of future performance, plans and objectives. Forward-
looking statements also include statements pertaining to our
strategies for future development of our business and products.
Forward-looking statements represent only our belief regarding
future events, many of which by their nature are inherently
uncertain. It is possible that the actual results may differ, possibly
materially, from the anticipated results indicated in these
forward-looking statements. Information regarding important
factors that could cause actual results to differ, perhaps
materially, from those in our forward-looking statements is
contained in this report and other documents we file. You should
read and interpret any forward-looking statement together with
these documents, including the following:
•
the description of our business contained in this report under
the caption “Business”;
•
the risk factors contained in this report under the caption “Risk
Factors”;
•
the discussion of our analysis of financial condition and results
of operations contained in this report under the caption
“Management’s Discussion and Analysis of Financial Condition
and Results of Operations” herein;
•
the discussion of our risk management policies, procedures
and methodologies contained in this report under the caption
“Management’s Discussion and Analysis of Financial Condition
and Results of Operations—Risk Management” herein;
•
the consolidated financial statements and notes to the
consolidated financial statements contained in this report; and
•
cautionary statements we make in our public documents,
reports and announcements.
Any forward-looking statement speaks only as of the date on
which that statement is made. We undertake no obligation to
update any forward-looking statement to reflect events or
circumstances that occur after the date on which the statement
is made, except as required by applicable law.
Our business, by its nature, does not produce predictable or
necessarily recurring earnings. Our results in any given period
can be materially affected by conditions in global financial
markets, economic conditions generally and our own activities
and positions. For a further discussion of the factors that may
affect our future operating results, refer to the risk factors
contained in this report under the caption “Risk Factors”.
Our results of operations for the years ended
November 30, 2024
(“
2024
”) and
November 30, 2023
(“
2023
”) are discussed below.
For a discussion of our results of operations for the year ended
November 30, 2022
(“
2022
”) and our
2023
results of operations
as compared to our
2022
results of operations, refer to
“Management’s Discussion and Analysis of Financial Condition
and Results of Operations” in Part II, Item 7 of our Annual Report
Form 10-K for the year ended
November 30, 2023
, which was
filed with the SEC on
January 26, 2024
.
|
17
|
Jefferies Financial Group Inc.
|
Consolidated Results of Operations
Overview
|
$ in thousands
|
2024
|
2023
|
% Change
|
|
Net revenues
........................................
|
$
7,034,803
|
$
4,700,417
|
49.7
%
|
|
Non-interest expenses
........................
|
6,029,257
|
4,346,148
|
38.7
%
|
|
Earnings from continuing operations
before income taxes
.............................
|
1,005,546
|
354,269
|
183.8
%
|
|
Income tax expense from continuing
operations
..............................................
|
293,194
|
91,881
|
219.1
%
|
|
Net earnings from continuing
operations
..............................................
|
712,352
|
262,388
|
171.5
%
|
|
Net earnings from discontinued
operations (including gain on
disposal), net of income taxes
............
|
3,667
|
—
|
N/M
|
|
Net losses attributable to
noncontrolling interests
.......................
|
(27,364)
|
(14,846)
|
84.3
%
|
|
Net losses attributable to
redeemable noncontrolling interests
.
|
—
|
(454)
|
(100.0)
%
|
|
Preferred stock dividends
....................
|
74,110
|
14,616
|
407.0
%
|
|
Net earnings attributable to common
shareholders
..........................................
|
669,273
|
263,072
|
154.4
%
|
|
Effective tax rate from continuing
operations
.............................................
|
29.2
%
|
25.9
%
|
|
|
$ in thousands
|
2023
|
2022
|
% Change
|
|
Net revenues
........................................
|
$
4,700,417
|
$
5,978,838
|
(21.4)
%
|
|
Non-interest expenses
........................
|
4,346,148
|
4,923,276
|
(11.7)
%
|
|
Earnings from continuing operations
before income taxes
.............................
|
354,269
|
1,055,562
|
(66.4)
%
|
|
Income tax expense from continuing
operations
..............................................
|
91,881
|
273,852
|
(66.4)
%
|
|
Net earnings from continuing
operations
..............................................
|
262,388
|
781,710
|
(66.4)
%
|
|
Net losses attributable to
noncontrolling interests
.......................
|
(14,846)
|
(2,397)
|
519.4
%
|
|
Net losses attributable to
redeemable noncontrolling interests
.
|
(454)
|
(1,342)
|
(66.2)
%
|
|
Preferred stock dividends
....................
|
14,616
|
8,281
|
76.5
%
|
|
Net earnings attributable to common
shareholders
..........................................
|
263,072
|
777,168
|
(66.1)
%
|
|
Effective tax rate from continuing
operations
.............................................
|
25.9
%
|
25.9
%
|
N/M — Not Meaningful
Executive Summary
Consolidated Results
•
Net revenues were
$7.03 billion
for
2024
,
up
49.7%
compared
to
$4.70 billion
for
2023
, reflecting strength across all lines of
business primarily due to market share gains and a stronger
overall market for our services.
•
Earnings from continuing operations before income taxes were
$1.01 billion
for
2024
,
up
183.8%
compared to
$354.3 million
for
2023
.
•
Our overall results were strong for
2024
, driven by strength and
continued momentum in Investment Banking and Equities.
•
Net earnings from discontinued operations (including gain on
disposal), net of income taxes were
$3.7 million
and reflects
the current year results of OpNet offset by a gain on the sale of
OpNet, which closed in August 2024.
Business Results
•
Investment banking net revenues were
$3.44 billion
for
2024
,
up
51.6%
compared to
$2.27 billion
for
2023
. Advisory net
revenues were
$1.81 billion
,
up
51.1%
compared to
$1.20
billion
for
2023
, primarily attributable to market share gains
and increased overall market opportunity. Total underwriting
net revenues were
$1.49 billion
for
2024
,
up
53.4%
compared
to
$970.5 million
for 2023, due to increased equity and debt
underwriting activity as a result of a more robust equity and
general capital markets environment.
•
Equities net revenues were
$1.59 billion
for
2024
,
up
39.8%
compared to
$1.14 billion
for
2023
, attributable to market
share gains, increased volumes and more favorable trading
opportunities driving stronger results across most of our
equities business lines
•
Fixed income net revenues were
$1.17 billion
,
up
6.8%
compared to
$1.09 billion
for
2023
, driven by stronger results
from our distressed trading and securitized markets
businesses, partially offset by reduced activity in our global
structured solutions business and less favorable results across
our
emerging markets, credit e-trading, corporates, and
municipal securities businesses, which were particularly strong
in the prior fiscal year
.
•
Asset management net revenues were
$803.7 million
for
2024
,
compared to
$188.3 million
for
2023
. Investment return for
2024
were higher on improved performance across a number
of our investment strategies, partially offset by
$36.2 million
of
revenue losses associated with our investment in Weiss. Other
investments net revenues for the current year were
meaningfully higher than the prior year largely due to the
inclusion of Stratos and Tessellis in our overall results as these
entities became consolidated subsidiaries in the fourth quarter
of 2023.
Non-interest Expenses
•
Compensation and benefits expense was
$3.66 billion
for
2024
,
an increase
of
$1.12 billion
, or
44.3%
, compared to
$2.54
billion
for
2023
. Compensation and benefits expense as a
percentage of Net revenues was
52.0%
for
2024
, compared to
53.9%
for
2023
. The ratio for
2024
was impacted by the
consolidation of Stratos and Tessellis, which have lower
compensation ratios.
•
Non-compensation expenses were
$2.37 billion
for
2024
,
an
increase
of
$558.8 million
, or
30.9%
, compared to
$1.81 billion
for
2023
. The increase in non-compensation expenses is
primarily attributed to increased brokerage and clearing fees
associated with increased trading volumes and higher
technology and communication and business development
expenses. Other expenses include bad debt expenses largely
related to our losses associated with Weiss Strategy Advisers
upon its shutdown in the first quarter of 2024. In addition, Non-
compensation expenses were higher due to the inclusion of
Stratos and Tessellis as operating subsidiaries, particularly
impacting depreciation and amortization expense, following
the consolidation of these entities in the fourth quarter of 2023,
partially offset by the impact of the spin-off of Vitesse Energy
in January 2023 and sale of Foursight in April 2024. The
increased cost of sales for 2024 reflects increased sales
activity within our HomeFed real estate subsidiary. Non-
compensation expenses as a percentage of Net revenues
improved from
38.5%
in 2023 to
33.7%
in 2024 as our revenue
growth outpaced expense growth. The ratio includes our Other
investments portfolio, which have higher non-compensation
expense ratios.
|
November
2024
Form
10-K
|
18
|
Headcount
•
At
November 30, 2024
, we had
7,822
employees globally
across all of our consolidated subsidiaries within our
Investment Banking and Capital Markets and Asset
Management reportable segments,
an increase
of
258
employees from our headcount of
7,564
at November 30,
2023
.
Included within our global headcount are
2,063
employees of
our Stratos, Tessellis, HomeFed and M Science subsidiaries.
During the past year, we have increased the number of our
Investment Banking Managing Directors and related staff,
along with additional technology and corporate staff to support
our growth and strategic priorities.
Revenues by Source
We present our results as two reportable business segments:
Investment Banking and Capital Markets and Asset Management.
Additionally, corporate activities are fully allocated to each of
these reportable business segments. Beginning in fiscal 2024, we
now refer to “Merchant banking” as “Other investments” in our
Asset Management reportable segment.
Net revenues presented for our Investment Banking and Capital
Markets reportable segment include allocations of interest
income and interest expense as we assess the profitability of
these businesses inclusive of the net interest revenue or expense
associated with the respective activities, including the net
interest cost of allocated short- and long-term debt, which is a
function of the mix of each business’s associated assets and
liabilities and the related funding costs.
The remainder of our “Consolidated Results of Operations” is
presented on a detailed product and expense basis. Our
“Revenues by Source” is reported along the following business
lines: Investment Banking, Equities, Fixed Income and Asset
Management.
Foreign currency transaction gains or losses, debt valuation
adjustments on derivative contracts, gains and losses on
investments held in deferred compensation plans or certain other
corporate income items are not considered by management in
assessing the financial performance of our operating businesses
and are, therefore, not reported as part of our business segment
results.
|
2024
|
2023
|
||||
|
$ in thousands
|
Amount
|
% of Net
Revenues
|
Amount
|
% of Net
Revenues
|
% Change
|
|
Advisory
............................
|
$
1,811,634
|
25.8
%
|
$
1,198,916
|
25.5
%
|
51.1
%
|
|
Equity underwriting
..........
|
799,804
|
11.4
|
560,243
|
11.9
|
42.8
|
|
Debt underwriting
.............
|
689,227
|
9.8
|
410,208
|
8.7
|
68.0
|
|
Other investment
banking
........................
|
144,122
|
2.0
|
102,851
|
2.2
|
40.1
|
|
Total Investment
Banking
........................
|
3,444,787
|
49.0
|
2,272,218
|
48.3
|
51.6
|
|
Equities
..............................
|
1,592,793
|
22.6
|
1,139,425
|
24.2
|
39.8
|
|
Fixed income
.....................
|
1,166,761
|
16.6
|
1,092,736
|
23.2
|
6.8
|
|
Total Capital Markets
......
|
2,759,554
|
39.2
|
2,232,161
|
47.4
|
23.6
|
|
Total Investment
Banking and Capital
Markets (1)
..................
|
6,204,341
|
88.2
|
4,504,379
|
95.7
|
37.7
|
|
Asset management fees
and revenues
..............
|
103,488
|
1.5
|
93,678
|
2.0
|
10.5
|
|
Investment return
.............
|
212,209
|
3.0
|
154,461
|
3.3
|
37.4
|
|
Allocated net interest (2)
.
|
(62,135)
|
(1.0)
|
(49,519)
|
(1.1)
|
25.5
|
|
Other investments,
inclusive of net
interest
.........................
|
550,107
|
7.8
|
(10,275)
|
(0.2)
|
N/M
|
|
Total Asset
Management
...............
|
803,669
|
11.3
|
188,345
|
4.0
|
326.7
|
|
Other
...................................
|
26,793
|
0.5
|
7,693
|
0.3
|
248.3
|
|
Net revenues
.....................
|
$
7,034,803
|
100.0
%
|
$
4,700,417
|
100.0
%
|
49.7
%
|
|
2023
|
2022
|
||||
|
$ in thousands
|
Amount
|
% of Net
Revenues
|
Amount
|
% of Net
Revenues
|
% Change
|
|
Advisory
.............................
|
$
1,198,916
|
25.5
%
|
$
1,778,003
|
29.7
%
|
(32.6)
%
|
|
Equity underwriting
..........
|
560,243
|
11.9
|
538,947
|
9.0
|
4.0
|
|
Debt underwriting
.............
|
410,208
|
8.7
|
490,873
|
8.2
|
(16.4)
|
|
Other investment
banking
........................
|
102,851
|
2.2
|
63,245
|
1.1
|
62.6
|
|
Total Investment
Banking
........................
|
2,272,218
|
48.3
|
2,871,068
|
48.0
|
(20.9)
|
|
Equities
..............................
|
1,139,425
|
24.2
|
1,069,701
|
17.9
|
6.5
|
|
Fixed income
.....................
|
1,092,736
|
23.2
|
800,492
|
13.4
|
36.5
|
|
Total Capital Markets
......
|
2,232,161
|
47.4
|
1,870,193
|
31.3
|
19.4
|
|
Total Investment
Banking and Capital
Markets (1)
..................
|
4,504,379
|
95.7
|
4,741,261
|
79.3
|
(5.0)
|
|
Asset management fees
and revenues
...............
|
93,678
|
2.0
|
89,127
|
1.5
|
5.1
|
|
Investment return
.............
|
154,461
|
3.3
|
156,594
|
2.6
|
(1.4)
|
|
Allocated net interest (2)
.
|
(49,519)
|
(1.1)
|
(54,429)
|
(0.9)
|
(9.0)
|
|
Other investments,
inclusive of net
interest
.........................
|
(10,275)
|
(0.2)
|
1,052,199
|
17.6
|
N/M
|
|
Total Asset
Management
...............
|
188,345
|
4.0
|
1,243,491
|
20.8
|
(84.9)
|
|
Other
...................................
|
7,693
|
0.3
|
(5,914)
|
(0.1)
|
N/M
|
|
Net revenues
.....................
|
$
4,700,417
|
100.0
%
|
$
5,978,838
|
100.0
%
|
(21.4)
%
|
N/M — Not Meaningful
(1)
Allocated net interest is not separately disaggregated for Investment Banking
and Capital Markets. This presentation is aligned to our Investment Banking
and Capital Markets internal performance measurement.
(2)
Allocated net interest represents an allocation to Asset Management of our
long-term debt interest expense, net of interest income on our Cash and cash
equivalents and other sources of liquidity. Allocated net interest has been
disaggregated to increase transparency and to make clearer actual
Investment return. We believe that aggregating Investment return and
Allocated net interest would obscure the Investment return by including an
amount that is unique to our credit spreads, debt maturity profile, capital
structure, liquidity risks and allocation methods.
|
19
|
Jefferies Financial Group Inc.
|
Beginning in the fourth quarter of 2024, revenues from corporate
equity derivative transactions historically included within Other
investment banking net revenues were reclassified to Equities net
revenues as the underlying business has matured and has
started to generate meaningful revenues. Prior year amounts
have been revised to conform to this reclassification change to
the current year reporting.
Investment Banking Revenues
Investment banking is composed of revenues from:
•
advisory services with respect to mergers and acquisitions,
debt financing, restructurings and private capital transactions;
•
underwriting services, which include debt underwriting and
placement services related to investment grade debt, high yield
bonds, leveraged loans, emerging market debt, global
structured notes, municipal debt, mortgage-backed and asset-
backed securities; equity underwriting and placement services
related to equity offerings, preferred stock, and equity-linked
securities; and loan syndication;
•
our
50%
share of net earnings from our corporate lending joint
venture, Jefferies Finance;
•
our
45%
share of net earnings from our commercial real estate
joint venture, Berkadia (which includes commercial mortgage
origination and servicing);
•
Foursight, our wholly-owned subsidiary engaged in the lending
and servicing of automobile loans (until the sale in April 2024);
•
securities and loans received or acquired in connection with
our investment banking activities; and
•
certain revenue-sharing agreements with SMBC primarily
associated with investment banking business opportunities.
Investment banking net revenues were
$3.44 billion
for
2024
,
up
51.6%
compared to
$2.27 billion
for
2023
. We have made
extensive investments in our investment banking business,
including a significant number of professional hires, particularly
at the managing director level, and have expanded our
capabilities across sectors and regions, which has led to market
share gains.
|
Deals Completed
|
|||
|
2024
|
2023
|
2022
|
|
|
Advisory transactions
....................
|
364
|
287
|
364
|
|
Public and private equity and
convertible offerings
..................
|
243
|
182
|
166
|
|
Public and private debt
financings
....................................
|
1,080
|
699
|
653
|
|
Aggregate Value
|
|||
|
$ in millions
|
2024
|
2023
|
2022
|
|
Advisory transactions
....................
|
$
359.2
|
$
259.1
|
$
336.7
|
|
Public and private equity and
convertible offerings
..................
|
83.5
|
59.6
|
37.8
|
|
Public and private debt
financings
....................................
|
516.1
|
213.6
|
250.6
|
Advisory net revenues were
$1.81 billion
for
2024
,
up
51.1%
compared to
$1.20 billion
for
2023
, driven by market share gains
attributable to an increase in transaction levels across most
sectors in the global mergers and acquisitions markets.
Total underwriting net revenues were
$1.49 billion
for
2024
, up
53.4%
compared to
$970.5 million
for
2023
, due to increased
equity and debt underwriting activity as a result of a more robust
equity and general capital markets environment.
Other investment banking net revenues were
$144.1 million
for
2024
, compared to
$102.9 million
for
2023
. Results from our
share of the net earnings of our
Jefferies Finance joint venture
increased,
as net revenues were slightly improved and certain
investment and loan losses incurred in 2023 were not repeated.
Revenues from our share of the net earnings of our Berkadia joint
venture increased from the prior year period primarily driven by
higher interest income and servicing fees attributable to a larger
and growing loan servicing portfolio, as well as an increase in
sales volumes. In addition, during the current year, we recognized
a
$24.2 million
gain from the sale of Foursight. Other investment
banking revenue also includes net gains on investments and
revenue from our strategic alliance with SMBC.
Our investment banking backlog remains robust and we see
signs that underwriting and mergers and acquisitions activity in
the upcoming year will remain strong, although execution is
always uncertain and dependent on market conditions. Backlog
snapshots are subject to limitations as the time frame for the
realization of revenues from these expected transactions varies
and is influenced by factors we do not control. Transactions not
included in the estimate may occur, and expected transactions
may also be modified or cancelled.
Equities Net Revenues
Equities is composed of net revenues from:
•
services provided to our clients from which we earn
commissions or spread revenue by executing, settling and
clearing transactions for clients;
•
advisory services offered to clients;
•
financing, securities lending and other prime brokerage
services offered to clients, including capital introductions and
outsourced trading;
•
corporate equity derivative transactions; and
•
wealth management services.
Equities net revenues were
$1.59 billion
for
2024
,
an increase
of
39.8%
compared to
$1.14 billion
in
2023
, attributable to market
share gains, increased volumes and more favorable trading
opportunities driving stronger results across most of our equities
business lines. Results in our cash and electronic trading
businesses significantly increased over the prior year period.
Results in our prime services business were also strong and
revenue from equity derivative transactions has continued to
grow as the business continues to mature.
Fixed Income Net Revenues
Fixed income is composed of net revenues from:
•
executing transactions for clients and making markets in
securitized products, investment grade, high-yield, distressed,
emerging markets, municipal, sovereign and emerging markets
securities and loans;
•
customized products and corporate hedging and foreign
currency solutions through derivative products; and
•
financing and other structuring services.
|
November
2024
Form
10-K
|
20
|
Fixed income net revenues were
$1.17 billion
for
2024
,
up
6.8%
compared to
$1.09 billion
in
2023
, driven by stronger results from
our distressed trading and securitized markets businesses,
partially offset by reduced activity in our global structured
solutions business and lower results across our emerging
markets, credit e-trading, corporates, and municipal securities
businesses, which were particularly strong in the prior fiscal year
.
Asset Management
We operate a diversified alternative asset management platform
offering institutional clients a range of investment strategies
directly and through our affiliated asset managers. We provide
certain of our affiliated asset managers access to our global
marketing and distribution platform, as well as operational
infrastructure and support. We often invest our own capital in the
strategies offered by us and associated third-party asset
managers in which we have an interest.
Asset management revenues include the following:
•
management and performance fees from funds and accounts
managed by us;
•
revenue from affiliated asset managers where we are entitled
to portions of their revenues and/or profits, as well as earnings
on our ownership interests in our affiliated asset managers;
•
investment income from our capital invested in and managed
by us and our affiliated asset managers; and
•
revenues from investments held in our other investments
portfolio, including consolidated operations from real estate
development activities, foreign exchange trading
(Stratos
consolidated from the beginning of the fourth quarter of 2023)
and telecommunications activities related to Tessellis
(consolidated at the end of the fourth quarter of 2023) as well
as OpNet (from the at the end of the fourth quarter of 2023
through its sale in August 2024) and investments in certain
public equity securities and private companies
. Prior fiscal
years include revenues from oil and gas activities until the spin-
off of our interest in Vitesse Energy in January 2023.
Asset management fees and revenues are impacted by the level
of assets under management and the performance return of
those assets, for the most part on an absolute basis, and, in
certain cases, relative to a benchmark or hurdle. These
components can be affected by financial markets, profits and
losses in the applicable investment portfolios and client capital
activity. Further, asset management fees vary with the nature of
investment management services. The terms under which clients
may terminate our investment management agreements, and the
requisite notice period for such termination, varies depending on
the nature of the investment vehicle and the liquidity of the
portfolio assets. In some instances, performance fees and
similar revenues are recognized once a year, when they become
fixed and determinable and are not probable of being
significantly reversed, typically in December. As a result, a
significant portion of our performance fees and similar revenues
generated from investment returns in a calendar year are
recognized in our following fiscal year.
|
$ in thousands
|
2024
|
2023
|
% Change
|
|
Asset management fees:
|
|||
|
Equities
.................................................
|
$
5,145
|
$
3,785
|
35.9
%
|
|
Multi-asset
............................................
|
45,555
|
30,082
|
51.4
%
|
|
Total asset management fees
..........
|
50,700
|
33,867
|
49.7
%
|
|
Revenue from strategic affiliates (1)
|
52,788
|
59,811
|
(11.7)
%
|
|
Total asset management fees and
revenues
..........................................
|
103,488
|
93,678
|
10.5
%
|
|
Investment return
................................
|
212,209
|
154,461
|
37.4
%
|
|
Other investments
...............................
|
550,107
|
(10,275)
|
N/M
|
|
Allocated net interest
..........................
|
(62,135)
|
(49,519)
|
25.5
%
|
|
Total Asset Management
..................
|
$
803,669
|
$
188,345
|
326.7
%
|
|
$ in thousands
|
2023
|
2022
|
% Change
|
|
Asset management fees:
|
|||
|
Equities
.................................................
|
$
3,785
|
$
7,198
|
(47.4)
%
|
|
Multi-asset
............................................
|
30,082
|
16,327
|
84.2
%
|
|
Total asset management fees
..........
|
33,867
|
23,525
|
44.0
%
|
|
Revenue from strategic affiliates (1)
|
59,811
|
65,602
|
(8.8)
%
|
|
Total asset management fees and
revenues
..........................................
|
93,678
|
89,127
|
5.1
%
|
|
Investment return
................................
|
154,461
|
156,594
|
(1.4)
%
|
|
Other investments
...............................
|
(10,275)
|
1,052,199
|
N/M
|
|
Allocated net interest
..........................
|
(49,519)
|
(54,429)
|
(9.0)
%
|
|
Total Asset Management
..................
|
$
188,345
|
$
1,243,491
|
(84.9)
%
|
(1)
These amounts include our share of fees received by affiliated asset
management companies with which we have revenue and profit share
arrangements, as well as earnings on our ownership interest in affiliated asset
managers.
Asset management fees and revenues were
$103.5 million
for
2024
, compared to
$93.7 million
for
2023
, reflecting higher
management and performance fees on funds managed by us,
partially offset by a decrease in revenues from our strategic
affiliates.
Investment return was
$212.2 million
for
2024
, compared to
$154.5 million
for
2023
, with the increase driven by improved
returns generated across a number of our fund strategies,
partially offset by losses of
$36.2 million
associated with our
investment in Weiss.
Other investments net revenues were
$550.1 million
for
2024
,
compared to negative net revenues of
$(10.3) million
for
2023
,
with the increase primarily driven by the consolidation of Stratos
and Tessellis in the fourth quarter of 2023, partially offset by the
spin-off of Vitesse Energy in January 2023. Additionally, during
the current year, Other investments net revenues include
net
gains
on investment positions compared to
losses recognized in
the prior fiscal year on certain positions.
|
21
|
Jefferies Financial Group Inc.
|
Assets Under Management
Aggregate net asset values or net asset value equivalent assets
under management:
|
$ in millions
|
2024
|
2023
|
|
Seed capital net asset values of investments
.................
|
$
1,761
|
$
1,763
|
|
Financed net asset values of investments
......................
|
1,174
|
1,785
|
|
Net asset values of investments (1)
..................................
|
2,935
|
3,548
|
|
Assets under management by affiliated asset
managers with revenue sharing arrangements (2)
....
|
19,498
|
22,379
|
|
Third-party and other investments actively managed by
our wholly-owned managers (3)
....................................
|
2,596
|
2,100
|
|
Total aggregate net asset values or net asset value
equivalent assets under management
........................
|
$
25,029
|
$
28,027
|
(1)
Revenues related to the investments made by us are presented in Investment
return within the results of our asset management businesses.
(2)
Revenues from our share of fees received by affiliated asset managers are
presented in Revenue from strategic affiliates within the results of our asset
management businesses.
(3)
We earn asset management fees as a result of the third-party investments,
which are presented in Asset management fees and revenues within the
results of our asset management businesses.
The tables below include third-party and other assets under
management by us, excluding those of our affiliated asset
managers.
Assets under management by predominant asset class:
|
$ in millions
|
2024
|
2023
|
|
Assets under management:
|
||
|
Equities
..........................................................................
|
$
473
|
$
448
|
|
Multi-asset
....................................................................
|
2,123
|
1,606
|
|
Total
...............................................................................
|
$
2,596
|
$
2,054
|
Change in assets under management:
|
$ in millions
|
2024
|
2023
|
|
Assets under management:
|
||
|
Balance, beginning of period
......................................
|
$
2,054
|
$
1,248
|
|
Net cash inflows
...........................................................
|
442
|
693
|
|
Net market appreciation (depreciation)
...................
|
100
|
113
|
|
Balance, end of period
................................................
|
$
2,596
|
$
2,054
|
Assets under management are based on the net asset value or
net asset value equivalent of a fund plus unfunded capital
commitments to the fund, the net asset value equivalents of
separately managed accounts and the fair value of any invested
capital in our consolidated funds and separately managed
accounts. Assets under management is generally based on how
fee and revenues are calculated and the measure also includes
funds and separately managed accounts for which we do not
charge fees.
Our definition of assets under management is not based on any
definition contained in any of our investment management
agreements and differs from the manner in which “Regulatory
Assets Under Management” is reported to the SEC on Form ADV.
Asset Management Investments
Our asset management business makes seed and additional
strategic investments directly in alternative asset management
separately managed accounts and co-mingled funds where we
act as the asset manager or in affiliated asset managers where
we have strategic relationships and participate in the revenues or
profits of the affiliated manager.
Investments by type of asset manager:
|
$ in thousands
|
2024
|
2023
|
|
Jefferies Financial Group Inc.; as manager:
|
||
|
Fund investments (1)
...................................................
|
$
199,248
|
$
179,533
|
|
Separately managed accounts (2)
............................
|
177,998
|
187,350
|
|
Total
...............................................................................
|
$
377,246
|
$
366,883
|
|
Strategic affiliates; as manager:
|
||
|
Fund investments (1)
...................................................
|
$
944,940
|
$
936,743
|
|
Separately managed accounts (2)
............................
|
439,043
|
458,894
|
|
Investments in asset managers
.................................
|
81,403
|
40,363
|
|
Total
...............................................................................
|
$
1,465,386
|
$
1,436,000
|
|
Total asset management investments
...................
|
$
1,842,632
|
$
1,802,883
|
(1)
Due to the level or nature of an investment in a fund, we may consolidate that
fund; and accordingly, the assets and liabilities of the fund are included in the
representative line items in our consolidated financial statements. At
November 30, 2024
and
2023
,
$11.3 million
and
$11.9 million
, respectively,
represent net investments in funds that have been consolidated in our
financial statements.
(2)
Where we have investments in a separately managed account, the assets and
liabilities of such account are presented in our consolidated financial
statements within each respective line item.
Other
Other revenues include foreign currency transaction gains or
losses, debt valuation adjustments on derivative contracts, gains
and losses on investments held in deferred compensation plans
or certain other corporate income items that are not attributed to
business segments as management does not consider such
amounts in assessing the financial performance of our operating
businesses.
Non-interest Expenses
|
$ in thousands
|
2024
|
2023
|
% Change
|
|
Compensation and benefits
...........
|
$
3,659,588
|
$
2,535,272
|
44.3
%
|
|
Brokerage and clearing fees
..........
|
432,721
|
366,702
|
18.0
|
|
Underwriting costs
..........................
|
68,492
|
61,082
|
12.1
|
|
Technology and communications
|
546,655
|
477,028
|
14.6
|
|
Occupancy and equipment rental
.
|
118,611
|
106,051
|
11.8
|
|
Business development
...................
|
283,459
|
177,541
|
59.7
|
|
Professional services
.....................
|
296,204
|
266,447
|
11.2
|
|
Depreciation and amortization
......
|
190,326
|
112,201
|
69.6
|
|
Cost of sales
....................................
|
206,283
|
29,435
|
600.8
|
|
Other
..................................................
|
226,918
|
214,389
|
5.8
|
|
Total non-interest expenses
.........
|
$
6,029,257
|
$
4,346,148
|
38.7
%
|
|
$ in thousands
|
2023
|
2022
|
% Change
|
|
Compensation and benefits
...........
|
$
2,535,272
|
$
2,589,044
|
(2.1)
%
|
|
Brokerage and clearing fees
..........
|
366,702
|
347,805
|
5.4
|
|
Underwriting costs
..........................
|
61,082
|
42,067
|
45.2
|
|
Technology and communications
|
477,028
|
444,011
|
7.4
|
|
Occupancy and equipment rental
.
|
106,051
|
108,001
|
(1.8)
|
|
Business development
...................
|
177,541
|
150,500
|
18.0
|
|
Professional services
.....................
|
266,447
|
240,978
|
10.6
|
|
Depreciation and amortization
......
|
112,201
|
172,902
|
(35.1)
|
|
Cost of sales
....................................
|
29,435
|
440,837
|
(93.3)
|
|
Other
..................................................
|
214,389
|
387,131
|
(44.6)
|
|
Total non-interest expenses
.........
|
$
4,346,148
|
$
4,923,276
|
(11.7)
%
|
|
November
2024
Form
10-K
|
22
|
Total Non-interest Expenses
Non-interest expenses were
$6.03 billion
for
2024
,
an increase
of
$1.68 billion
, or
38.7%
, compared to
$4.35 billion
for
2023
,
primarily due to an increase in overall business activity and
compensation expense. Non-compensation expenses are also
impacted by the inclusion of Stratos and Tessellis as operating
subsidiaries following the consolidation of these entities in the
fourth quarter of 2023, partially offset by the impact of the spin-
off of Vitesse Energy in January 2023 and the sale of Foursight in
April 2024.
Compensation and Benefits
Compensation and benefits expense consists of salaries,
benefits, commissions, annual cash compensation and share-
based awards and the amortization of share-based and cash
compensation awards to employees.
Cash and share-based awards and a portion of cash awards
granted to employees as part of year end compensation generally
contain provisions such that employees who terminate their
employment or are terminated without cause may continue to
vest in their awards, so long as those awards are not forfeited as
a result of other forfeiture provisions (primarily non-compete
clauses) of those awards. Accordingly, the compensation
expense for a portion of awards granted at year end as part of
annual compensation is recorded during the year of the award.
Compensation and benefits expense includes amortization
expense associated with these awards to the extent vesting is
contingent on future service. In addition, certain awards to our
Chief Executive Officer and our President contain market and
performance conditions and the awards are amortized over their
service periods.
Compensation and benefits expense was
$3.66 billion
for
2024
compared to
$2.54 billion
for
2023
. A significant portion of our
compensation expense is highly variable with net revenues.
Compensation and benefits expense as a percentage of Net
revenues was
52.0%
for
2024
and
53.9%
for
2023
. The ratio for
2024 was impacted by the consolidation of Stratos and Tessellis,
which have much lower compensation rates proportionate to net
revenues.
Compensation expense related to the amortization of share- and
cash-based awards amounted to
$513.7 million
for
2024
compared to
$370.0 million
for
2023
.
At
November 30, 2024
, we had
7,822
employees globally across
all of our consolidated subsidiaries within our Investment
Banking and Capital Markets and Asset Management reportable
segments,
an increase
of
258
employees from our headcount of
7,564
at November 30,
2023
. Included within our global
headcount are
2,063
employees of our Stratos, Tessellis,
HomeFed, and M Science subsidiaries.
During
the past year, we
have increased the number of our Investment Banking Managing
Directors and related staff along with additional technology and
corporate staff to support our growth and strategic priorities.
Refer to
Note 15, Compensation Plans
included in this Annual
Report on Form 10-K, for further details on compensation and
benefits.
Non-interest Expenses (Excluding Compensation and Benefits)
Non-interest expenses, excluding Compensation and benefits, as
a percentage of Net revenues improved from
38.5%
in
2023
to
33.7%
in
2024
as our revenue growth outpaced expense growth.
The ratio includes our Other investments portfolio, which has a
higher non-compensation expense ratio.
Non-interest expenses was impacted by the following:
•
Brokerage and clearing fees were higher by
$66.0 million
due
to increased trading volumes.
•
Technology and communication were higher by
$69.6 million
related to the continued development of various trading and
management systems and increased market data costs.
•
Business development was higher by
$105.9 million
reflecting
increased investment banking advisory and capital markets
underwriting activity.
•
Professional services expenses were higher by
$29.8 million
primarily on increased transaction related legal fees
associated with capital markets transaction and litigation as
well as consulting fees paid to outsourced vendors related to
strategic technology investment initiatives.
•
Cost of sales and depreciation and amortization expenses
were higher by
$255.0 million
primarily reflecting the
consolidation of Stratos and Tessellis, partially offset by the
spin-off of Vitesse Energy in January 2023 and sale of
Foursight in April 2024.
Income Taxes
•
The provision for income taxes on continuing operations was
$293.2 million
for
2024
, equating to an effective tax rate of
29.2%
, compared to
$91.9 million
for
2023
, equating to an
effective tax rate of
25.9%
. The higher rate for 2024 is largely
due to a smaller tax benefit from share-based awards in the
current year.
•
The Organization for Economic Co-operation and Development
(“OECD”) Pillar Two Model Rules (“Pillar Two”) for the global
15% minimum tax have been adopted in a number of
jurisdictions in which we operate. Pillar Two will be applicable
to us beginning December 1, 2024 and we do not expect a
material impact on our income tax
expense
for the year ended
November 30, 2025.
Refer to
Note 20, Income Taxes
in our consolidated financial
statements included in this Annual Report on Form 10-K, for
further details on income taxes.
Accounting Developments
For a discussion of recently issued accounting developments and
their impact on our consolidated financial statements, refer to
Note 3, Accounting Developments
in our consolidated financial
statements included in this Annual Report on Form 10-K.
Critical Accounting Estimates
Our consolidated financial statements are prepared in conformity
with U.S. generally accepted accounting principles (“U.S. GAAP”),
which requires management to make estimates and
assumptions that affect the amounts reported in our
consolidated financial statements and related notes. Actual
results can and may differ from estimates. These differences
could be material to our consolidated financial statements.
|
23
|
Jefferies Financial Group Inc.
|
We believe our application of U.S. GAAP and the associated
estimates are reasonable. Our accounting estimates are
reevaluated, and adjustments are made when facts and
circums
tances dictate a change. Historically, we have found our
application of accounting policies to be appropriate, and actual
results have not differe
d materially from those determined using
necessary estimates.
For further discussions of the following significant accounting
policies and other significant accounting policies, refer to
Note 2,
Summary of Significant Accounting Policies
in our consolidated
financial statements included in this Annual Report on Form 10-
K.
Valuation of Financial Instruments
Financial instruments owned and Financial instruments sold, not
yet purchased are recorded at fair value. The fair value of a
financial instrument is the amount that would be received to sell
an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date (the exit
price). Unrealized gains or losses are generally recognized in
Principal transactions revenues in our Consolidated Statements
of Earnings.
For information on the composition of our Financial instruments
owned and Financial instruments sold, not yet purchased
recorded at fair value, refer to
Note 6, Fair Value Disclosures
in
our consolidated financial statements included in this Annual
Report on Form 10-K.
Fair Value Hierarchy
– In determining fair value, we maximize the
use of observable inputs and minimize the use of unobservable
inputs by requiring that observable inputs be used when
available. Observable inputs are inputs that market participants
would use in pricing the asset or liability based on market data
obtained from independent sources. Unobservable inputs reflect
our assumptions that market participants would use in pricing
the asset or liability developed based on the best information
available in the circumstances. We apply a hierarchy to
categorize our fair value measurements broken down into three
levels based on the transparency of inputs, where Level 1 uses
observable prices in active markets and Level 3 uses valuation
techniques that incorporate significant unobservable inputs.
Greater use of management judgment is required in determining
fair value when inputs are less observable or unobservable in the
marketplace, such as when the volume or level of trading activity
for a financial instrument has decreased and when certain
factors suggest that observed transactions may not be reflective
of orderly market transactions. Judgment must be applied in
determining the appropriateness of available prices, particularly
in assessing whether available data reflects current prices and/or
reflects the results of recent market transactions. Prices or
quotes are weighed when estimating fair value with greater
reliability placed on information from transactions that are
considered to be representative of orderly market transactions.
Fair value is a market-based measure; therefore, when market
observable inputs are not available, our judgment is applied to
reflect those judgments that a market participant would use in
valuing the same asset or liability. The availability of observable
inputs can vary for different products. We use prices and inputs
that are current as of the measurement date even in periods of
market disruption or illiquidity. The valuation of financial
instruments categorized within Level 3 of the fair value hierarchy
involves the greatest extent of management judgment. Refer to
Note 2, Summary of Significant Accounting Policies
and
Note 6,
Fair Value Disclosures
in our consolidated financial statements
included in this Annual Report on Form 10-K for further
information on the definitions of fair value, Level 1, Level 2 and
Level 3 and related valuation techniques.
For information on the composition of our Financial instruments
owned and Financial instruments sold, not yet purchased
recorded at fair value and the composition of activity of our Level
3 assets and Level 3 liabilities, refer to
Note 6, Fair Value
Disclosures
in our consolidated financial statements included in
this Annual Report on Form 10-K.
Controls Over the Valuation Process for Financial Instruments
–
Our Independent Price Verification Group, independent of the
trading function, plays an important role in determining that our
financial instruments are appropriately valued and that fair value
measurements are reliable. This is particularly important where
prices or valuations that require inputs are less observable. In the
event that observable inputs are not available, the control
processes are designed to assure that the valuation approach
utilized is appropriate and consistently applied and that the
assumptions are reasonable. Where a pricing model is used to
determine fair value, these control processes include reviews of
the pricing model’s theoretical soundness and appropriateness
by risk management personnel with relevant expertise who are
independent from the trading desks. In addition, recently
executed comparable transactions and other observable market
data are considered for purposes of validating assumptions
underlying the model.
Income Taxes
Significant judgment is required in estimating our provision for
income taxes. In determining the provision for income taxes, we
must make judgments and interpretations about how to apply
inherently complex tax laws to numerous transactions and
business events. In addition, we must make estimates about the
amount, timing and geographic mix of future taxable income,
which includes various tax planning strategies to utilize tax
attributes and deferred tax assets before they expire.
We record a valuation allowance to reduce our net deferred tax
asset to the amount that is more likely than not to be realized. We
are required to consider all available evidence, both positive and
negative, and to weigh the evidence when determining whether a
valuation allowance is required and the amount of such valuation
allowance. Generally, greater weight is required to be placed on
objectively verifiable evidence when making this assessment, in
particular on recent historical operating results.
We also record reserves for unrecognized tax benefits based on
our assessment of the probability of successfully sustaining tax
filing positions. Management exercises significant judgment
when assessing the probability of successfully sustaining tax
filing positions, and in determining whether a contingent tax
liability should be recorded and if so, estimating the amount. If
our tax filing positions are successfully challenged, payments
could be required that are in excess of reserved amounts or we
may be required to reduce the carrying amount of our net
deferred tax asset, either of which could be significant to our
financial condition or results of operations.
Impairment of Equity Method Investments
We evaluate equity method investments for impairment when
operating losses or other factors may indicate a decrease in
value which is other than temporary. We consider a variety of
factors including economic conditions nationally and in an
investment’s geographic area of operation, adverse changes in
the industry in which an investment operates, declines in
business prospects, deterioration in earnings, increasing costs of
operations and other relevant factors specific to the
|
November
2024
Form
10-K
|
24
|
investee. Whenever we believe conditions or events indicate that
one of these investments might be significantly impaired, we
generally obtain from such investee updated cash flow
projections and obtain other relevant information related to
assessing the overall valuation of the investee. Utilizing this
information, we assess whether the investment is considered to
be other-than-temporarily impaired. To the extent an investment
is deemed to be other-than-temporarily impaired, an impairment
charge is recognized for the amount, if any, by which the
investment’s book value exceeds our estimate of the
investment’s fair value.
In the first quarter of 2023, we performed a valuation of our
equity method investment in Golden Queen as forecasts of the
expected future production of gold and silver from its mine had
declined from previous periods. Our estimate of fair value was
based on a discounted cash flow analysis, which included
management’s projections of future Golden Queen cash flows
and a discount rate of 11.0%. As a result, an impairment loss of
$22.1 million was recorded in Other income for the three months
ended February 28, 2023. During the three months ended May 31,
2023, we recognized an additional impairment loss of $7.3
million primarily due to further declines in cash flows at Golden
Queen resulting in a carrying value our investment of $16.8
million at May 31, 2023. During the three months ended August
31, 2023, we recognized an additional impairment loss of $27.8
million, which reduced the carrying value of our investment to
zero and also reduced the carrying value of shareholder loans to
Golden Queen to $8.8 million at August 31, 2023. The impairment
for the three months ended August 31, 2023 was primarily based
on our estimate of what could be recognized in a sale transaction
for the investment. In the fourth quarter of 2023, we sold Golden
Queen and recognized a gain of $1.7 million on the sale.
We had an equity method interest in Stratos with rights to a
majority of all distributions in respect of Stratos. In the fourth
quarter of 2022, we had a triggering event to test our investment
in Stratos for impairment. We estimated the fair value of our
equity interest in Stratos based primarily on a discounted cash
flow valuation model. The discounted cash flow valuation model
used inputs including management’s projections of future Stratos
cash flows and a discount rate of 23.0%. The estimated fair value
of our equity investment in Stratos was $61.7 million as of the
date of our impairment evaluation, which was $25.3 million lower
than our prior carrying value. We concluded that the decline in fair
value was other than temporary and as result incurred a $25.3
million impairment charge. During 2023, we obtained 100% of the
interests in Stratos and now account for Stratos as a wholly
owned subsidiary. Refer to
Note 4, Business Acquisitions
in our
consolidated financial statements included in this Annual Report
on Form 10-K.
Goodwill
At
November 30, 2024
, goodwill recorded in our Consolidated
Statements of Financial Condition is
$1.83 billion
(
2.8%
of total
assets). The nature and accounting for goodwill is discussed in
Note 2, Summary of Significant Accounting Policies
, and
Note 13,
Goodwill and Intangible Assets
, in our consolidated financial
statements included in this Annual Report on Form 10-K.
Goodwill must be allocated to reporting units and tested for
impairment at least annually, or when circumstances or events
make it more likely than not that an impairment occurred.
Goodwill is tested by comparing the estimated fair value of each
reporting unit with its carrying value. Our annual goodwill
impairment testing date for a substantial portion of our reporting
units is August 1 and November 30 for other identified reporting
units. The results of our annual tests did not indicate any
goodwill impairment.
We use allocated tangible equity plus allocated goodwill and
intangible assets for the carrying amount of each reporting unit.
The amount of tangible equity allocated to a reporting unit is
based on our cash capital model deployed in managing our
businesses, which seeks to approximate the capital a business
would require if it were operating independently. For further
information on our Cash Capital Policy, refer to the Liquidity,
Financial Condition and Capital Resources section herein.
Intangible assets are allocated to a reporting unit based on either
specifically identifying a particular intangible asset as pertaining
to a reporting unit or, if shared among reporting units, based on
an assessment of the reporting unit’s benefit from the intangible
asset in order to generate results.
Estimating the fair value of a reporting unit requires management
judgment and often involves the use of estimates and
assumptions that could have a significant effect on whether or
not an impairment charge is recorded and the magnitude of such
a charge. Estimated fair values for our reporting units utilize
market valuation methods that incorporate price-to-earnings and
price-to-book multiples of comparable public companies and/or
projected cash flows. Under the market valuation approach, the
key assumptions are the selected multiples and our internally
developed projections of future profitability, growth and return on
equity for each reporting unit. The weight assigned to the
multiples requires judgment in qualitatively and quantitatively
evaluating the size, profitability and the nature of the business
activities of the reporting units as compared to the comparable
publicly-traded companies. The valuation methodology for our
reporting units is sensitive to management’s forecasts of future
profitability, which are a significant component of the valuation
and come with a level of uncertainty regarding trading volumes
and capital market transaction levels. In addition, as the fair
values determined under the market valuation approach
represent a noncontrolling interest, we apply a control premium
to arrive at the estimate fair value of each reporting unit on a
controlling basis.
Carrying values of goodwill by reporting unit:
|
November 30,
|
||
|
$ in millions
|
2024
|
2023
|
|
Investment banking
...................................................................
|
$
700.7
|
$
700.2
|
|
Equities and wealth management
...........................................
|
255.4
|
255.3
|
|
Fixed income
..............................................................................
|
576.9
|
576.6
|
|
Asset management
...................................................................
|
143.0
|
143.0
|
|
Other investments
.....................................................................
|
151.9
|
172.8
|
|
Total
.............................................................................................
|
$
1,827.9
|
$
1,847.9
|
Refer to
Note 4, Business Acquisitions
and
Note 13, Goodwill and
Intangible Assets
in our consolidated financial statements
included in this Annual Report on Form 10-K for further details on
goodwill.
|
25
|
Jefferies Financial Group Inc.
|
Liquidity, Financial Condition and Capital Resources
Our CFO and Global Treasurer are responsible for developing and
implementing our liquidity, funding and capital management
strategies. These policies are determined by the nature and
needs of our day-to-day business operations, business
opportunities, regulatory obligations, and liquidity requirements.
Our actual levels of capital, total assets and financial leverage are
a function of a number of factors, including asset composition,
business initiatives and opportunities, regulatory requirements
and cost and availability of both long term and short-term
funding. We have historically maintained a balance sheet
consisting of a large portion of our total assets in cash and liquid
marketable securities. The liquid nature of these assets provides
us with flexibility in financing and managing our business.
We also own a legacy portfolio of businesses and investments
that are reflected as consolidated subsidiaries, equity
investments or securities. Over the most recent years, we
completed several critical steps to substantially liquidate our
legacy Other investments
portfolio of businesses, including the
spin-off of Vitesse Energy in January 2023 and the
sales
of
Golden Queen in November 2023, Foursight in April 2024 and the
wholesale operations of OpNet in August 2024.
In
keeping with our strategy of returning excess liquidity to
shareholders, during the year ended
November 30, 2024
, we
returned an aggregate of
$347.3 million
to shareholders primarily
in the form of
$303.0 million
in cash dividends and the
repurchases of
$1.1 million
common shares for a total of
$44.3
million
at a weighted average price of
$40.72
per share in
connection with the net share settlement for tax purposes of
stock awards under our equity compensation plans.
We maintain modest leverage to support our investment grade
ratings. The growth of our balance sheet is supported by our
equity and we have quantitative metrics in place to monitor
leverage and double leverage. Our capital plan is robust, in order
to sustain our operating model through stressed conditions. We
maintain adequate financial resources to support business
activities in both normal and stressed market conditions,
including a buffer in excess of our regulatory, or other internal or
external, requirements. Our access to funding and liquidity is
stable and efficient to ensure that there is sufficient liquidity to
meet our financial obligations in normal and stressed market
conditions.
Our Balance Sheet
A business unit level balance sheet and cash capital analysis are
prepared and reviewed with senior management on a weekly
basis. As a part of this balance sheet review process, capital is
allocated to all assets and gross balance sheet limits are
adjusted, as necessary. This process ensures that the allocation
of capital and costs of capital are incorporated into business
decisions. The goals of this process are to protect the firm’s
platform, enable our businesses to remain competitive, maintain
the ability to manage capital proactively and hold businesses
accountable for both balance sheet and capital usage.
We actively monitor and evaluate our financial condition and the
composition of our assets and liabilities. We continually monitor
our overall securities inventory, including the inventory turnover
rate, which confirms the liquidity of our overall assets. A
significant portion of our financial instruments are valued on a
daily basis and we monitor and employ balance sheet limits for
our various businesses.
|
November 30,
|
|||
|
$ in millions
|
2024
|
2023
|
% Change
|
|
Total assets
................................................
|
$
64,360.3
|
$
57,905.2
|
11.1
%
|
|
Cash and cash equivalents
......................
|
12,153.4
|
8,526.4
|
42.5
|
|
Cash and securities segregated and on
deposit for regulatory purposes or
deposited with clearing and
depository organizations
....................
|
1,132.6
|
1,414.6
|
(19.9)
|
|
Financial instruments owned
..................
|
24,138.3
|
21,747.5
|
11.0
|
|
Financial instruments sold, not yet
purchased
..............................................
|
11,007.3
|
11,251.2
|
(2.2)
|
|
Total Level 3 assets
..................................
|
734.2
|
680.6
|
7.9
|
|
Securities borrowed
..................................
|
$
7,213.4
|
$
7,192.1
|
0.3
%
|
|
Securities purchased under
agreements to resell
............................
|
6,179.7
|
5,950.5
|
3.9
|
|
Total securities borrowed and
securities purchased under
agreements to resell
...........................
|
$
13,393.1
|
$
13,142.6
|
1.9
%
|
|
Securities loaned
.......................................
|
$
2,540.9
|
$
1,840.5
|
38.1
%
|
|
Securities sold under agreements to
repurchase
............................................
|
12,337.9
|
10,920.6
|
13.0
|
|
Total securities loaned and securities
sold under agreements to
repurchase
............................................
|
$
14,878.8
|
$
12,761.1
|
16.6
%
|
Total assets at
November 30, 2024
and
2023
were
$64.36 billion
and
$57.91 billion
, respectively,
an increase
of
11.1%
. During
2024
, average total assets were approximately
10.3%
higher
than
total assets at
November 30, 2024
.
Our
total Financial instruments owned inventory was
$24.14
billion
and
$21.75 billion
at
November 30, 2024
and
2023
,
respectively. During the year ended
November 30, 2024
, our total
Financial instruments owned
increased
primarily due to the
increase in corporate equity securities. Financial instruments
sold, not yet purchased inventory was
$11.01 billion
at
November 30, 2024
,
a decrease
of
2.2%
from
$11.25 billion
at
November 30, 2023
, with the
decrease
primarily driven by
decreases in sovereign obligations and derivative contracts,
partially offset by increases in corporate equity and debt
securities. Our overall net inventory position was
$13.13 billion
and
$10.50 billion
at
November 30, 2024
and
2023
, respectively,
with the increase primarily due to an increases in corporate
equity securities.
Level 3 assets:
|
$ in millions
|
November 30,
2024
|
Percent
|
November 30,
2023
|
Percent
|
|
Investment Banking
............
|
$
146.7
|
20.0%
|
$
129.3
|
19.0%
|
|
Equities and Fixed Income
.
|
312.2
|
42.5
|
337.2
|
49.5
|
|
Asset Management (1)
.......
|
256.2
|
34.9
|
198.4
|
29.2
|
|
Other
......................................
|
19.1
|
2.6
|
$
15.7
|
2.3
|
|
Total
......................................
|
$
734.2
|
100.0%
|
$
680.6
|
100.0%
|
(1)
At
November 30, 2024
and
2023
,
$218.3 million
and
$121.4 million
,
respectively, are attributed to Other investments within our Asset Management
reportable segment.
Securities financing assets and liabilities include financing for
our financial instruments trading activity, matched book
transactions and mortgage finance transactions. Matched book
transactions accommodate customers, as well as obtain
securities for the settlement and financing of inventory positions.
Our average month end balance of total reverse repos and stock
borrows during
2024
were
34.4%
higher
than the
November 30,
2024
balance. Our average month end balance of total repos and
stock loans during
2024
were
23.8%
higher
than the
November 30, 2024
balance.
|
November
2024
Form
10-K
|
26
|
Select information related to repurchase agreements:
|
Year Ended
|
||
|
$ in millions
......................................................................
|
2024
|
2023
|
|
Securities Purchased Under Agreements to Resell:
|
||
|
Year end
...........................................................................
|
$
6,180
|
$
5,951
|
|
Month end average
.........................................................
|
8,910
|
7,681
|
|
Maximum month end
.....................................................
|
10,978
|
10,767
|
|
Securities Sold Under Agreements to Repurchase:
.
|
||
|
Year end
...........................................................................
|
$
12,338
|
$
10,921
|
|
Month end average
.........................................................
|
15,197
|
13,556
|
|
Maximum month end
.....................................................
|
20,971
|
17,981
|
Fluctuations in the balance of our repurchase agreements from
period to period and intraperiod are dependent on business
activity in those periods. Additionally, the fluctuations in the
balances of our securities purchased under agreements to resell
are influenced in any given period by our clients’ balances and
our clients’ desires to execute collateralized financing
arrangements via the repurchase market or via other financing
products. Average balances and period end balances will
fluctuate based on market and liquidity conditions and we
consider the fluctuations intraperiod to be typical for the
repurchase market.
Leverage Ratios:
|
November 30,
|
||
|
$ in millions
|
2024
|
2023
|
|
Total assets
..................................................................
|
$
64,360
|
$
57,905
|
|
Total equity
...................................................................
|
$
10,225
|
$
9,802
|
|
Total shareholders’ equity
..........................................
|
$
10,157
|
$
9,710
|
|
Deduct: Goodwill and intangible assets
....................
|
(2,054)
|
(2,045)
|
|
Tangible shareholders’ equity
...................................
|
$
8,103
|
$
7,665
|
|
Leverage ratio (1)
.........................................................
|
6.3
|
5.9
|
|
Tangible gross leverage ratio (2)
...............................
|
7.7
|
7.3
|
(1)
Leverage ratio equals total assets divided by total equity.
(2)
Tangible gross leverage ratio (a non-GAAP financial measure) equals total
assets less goodwill and identifiable intangible assets divided by tangible
shareholders’ equity. The tangible gross leverage ratio is used by rating
agencies in assessing our leverage ratio.
Liquidity Management
The key objectives of the liquidity management framework are to
support the successful execution of our business strategies
while ensuring sufficient liquidity through the business cycle and
during periods of financial and idiosyncratic distress. Our liquidity
management policies are designed to mitigate the potential risk
that we may be unable to access adequate financing to service
our financial obligations without material franchise or business
impact.
The principal elements of our liquidity management framework
are our Cash Capital Policy, our assessment of Modeled Liquidity
Outflow (“MLO”) and our Contingency Funding Plan (“CFP”).
Liquidity Management Framework
. Our Liquidity Management
Framework is based on a model of a potential liquidity
contraction over a one-year time period. This incorporates
potential cash outflows during a market or our idiosyncratic
liquidity stress event, including, but not limited to, the following:
•
Repayment of all unsecured debt maturing within one year and
no incremental unsecured debt issuance;
•
Maturity rolloff of outstanding letters of credit with no further
issuance and replacement with cash collateral;
•
Higher margin requirements than currently exist on assets on
securities financing activity, including repurchase agreements
and other secured funding including central counterparty
clearinghouses;
•
Liquidity outflows related to possible credit downgrade;
•
Lower availability of secured funding;
•
Client cash withdrawals;
•
The anticipated funding of outstanding investment and loan
commitments; and
•
Certain accrued expenses and other liabilities and fixed costs.
Cash Capital Policy
. We maintain a cash capital model that
measures long-term funding sources against requirements.
Sources of cash capital include our equity, mezzanine equity and
the noncurrent portion of long-term borrowings. Uses of cash
capital include the following:
•
Illiquid assets such as equipment, goodwill, net intangible
assets, exchange memberships, deferred tax assets and
certain investments;
•
A portion of securities inventory and other assets not expected
to be financed on a secured basis in a credit stressed
environment (
i.e.
, margin requirements); and
•
Drawdowns of unfunded commitments.
To ensure that we do not need to liquidate inventory in the event
of a funding stress, we seek to maintain surplus cash capital. Our
total long-term capital of
$21.66 billion
at
November 30, 2024
exceeded our cash capital requirements.
MLO
. Our businesses are diverse, and our liquidity needs are
determined by many factors, including market movements,
collateral requirements and client commitments, all of which can
change dramatically in a difficult funding environment. During a
liquidity stress, credit-sensitive funding, including unsecured debt
and some types of secured financing agreements, may be
unavailable, and the terms (
e.g.
, interest rates, collateral
provisions and tenor) or availability of other types of secured
financing may change. As a result of our policy to ensure we have
sufficient funds to cover what we estimate may be needed in a
liquidity stress, we hold more cash and unencumbered securities
and have greater long-term debt balances than our businesses
would otherwise require. As part of this estimation process, we
calculate an MLO that could be experienced in a liquidity stress.
MLO is based on a scenario that includes both a market-wide
stress and firm-specific stress, characterized by some or all of
the following elements:
•
Global recession, default by a medium-sized sovereign, low
consumer and corporate confidence, and general financial
instability.
•
Severely challenged market environment with material declines
in equity markets and widening of credit spreads.
•
Damaging follow-on impacts to financial institutions leading to
the failure of a large bank.
•
A firm-specific crisis potentially triggered by material losses,
reputational damage, litigation, executive departure, and/or a
ratings downgrade.
The following are the critical modeling parameters of the MLO:
•
Liquidity needs over a 30-day scenario.
|
27
|
Jefferies Financial Group Inc.
|
•
A two-notch downgrade of our long-term senior unsecured
credit ratings.
•
No support from government funding facilities.
•
A combination of contractual outflows, such as upcoming
maturities of unsecured debt, and contingent outflows (
e.g
.,
actions though not contractually required, we may deem
necessary in a crisis). We assume that most contingent
outflows will occur within the initial days and weeks of a
stress.
•
No diversification benefit across liquidity risks. We assume
that liquidity risks are additive.
The calculation of our MLO under the above stresses and
modeling parameters considers the following potential
contractual and contingent cash and collateral outflows:
•
All upcoming maturities of unsecured long-term debt,
promissory notes and other unsecured funding products
assuming we will be unable to issue new unsecured debt or
rollover any maturing debt.
•
Repurchases of our outstanding long-term debt in the ordinary
course of business as a market maker.
•
A portion of upcoming contractual maturities of secured
funding activity due to either the inability to refinance or the
ability to refinance only at wider haircuts (
i.e.
, on terms which
require us to post additional collateral). Our assumptions
reflect, among other factors, the quality of the underlying
collateral and counterparty concentration.
•
Collateral postings to counterparties due to adverse changes in
the value of our over-the-counter (“OTC”) derivatives and other
outflows due to trade terminations, collateral substitutions,
collateral disputes, collateral calls or termination payments
required by a two-notch downgrade in our credit ratings.
•
Variation margin postings required due to adverse changes in
the value of our outstanding exchange-traded derivatives and
any increase in initial margin and guarantee fund requirements
by derivative clearing houses.
•
Liquidity outflows associated with our prime services business,
including withdrawals of customer credit balances, and a
reduction in customer short positions.
•
Liquidity outflows to clearing banks to ensure timely
settlements of cash and securities transactions.
•
Draws on our unfunded commitments considering, among
other things, the type of commitment and counterparty.
•
Other upcoming large cash outflows, such as employee
compensation, tax and dividend payments, with no expectation
of future dividends from any subsidiaries.
Based on the sources and uses of liquidity calculated under the
MLO scenarios, we determine, based on a calculated surplus or
deficit, additional long-term funding that may be needed versus
funding through the repurchase financing market and consider
any adjustments that may be necessary to our inventory balances
and cash holdings. At
November 30, 2024
, we had sufficient
excess liquidity to meet all contingent cash outflows detailed in
the MLO for at least 30 days without balance sheet reduction. We
regularly refine our model to reflect changes in market or
economic conditions and our business mix.
CFP
. Our CFP ensures the ability to access adequate liquid
financial resources to meet liquidity shortfalls that may arise in
emergency situations. The CFP triggers the following actions:
•
Sets out the governance for managing liquidity during a
liquidity crisis;
•
Identifies key liquidity and capital early warning indicators that
will help guide the response to the liquidity crisis;
•
Identifies the actions and escalation procedures should we
experience a liquidity crisis including coordination amongst
senior management and the Board of Directors;
•
Sets out the sources of funding available during a liquidity
crisis;
•
Sets out the communication plan during a liquidity crisis for
key external stakeholders including regulators, relationship
banks, rating agencies and funding counterparties; and
•
Sets out an action plan to source additional funding.
Sources of Liquidity
Financial instruments that are cash and cash equivalents or are
deemed by management to be generally readily convertible into
cash, marginable or accessible for liquidity purposes within a
relatively short period of time:
|
$ in thousands
|
November 30,
2024
|
Average
Balance Quarter
Ended
November 30,
2024
(1)
|
November 30,
2023
|
|
Cash and cash equivalents:
|
|||
|
Cash in banks
.............................................
|
$
3,925,535
|
$
5,070,837
|
$
2,606,673
|
|
Money market investments (2)
...............
|
8,227,879
|
5,089,187
|
5,919,690
|
|
Total cash and cash equivalents
............
|
12,153,414
|
10,160,024
|
8,526,363
|
|
Other sources of liquidity:
|
|||
|
Debt securities owned and securities
purchased under agreements to
resell (3)
................................................
|
1,287,564
|
1,415,863
|
1,472,524
|
|
Other (4)
......................................................
|
573,042
|
717,178
|
456,341
|
|
Total other sources
...................................
|
1,860,606
|
2,133,041
|
1,928,865
|
|
Total cash and cash equivalents and
other liquidity sources
.......................
|
$
14,014,020
|
$
12,293,065
|
$
10,455,228
|
|
Total cash and cash equivalents and
other liquidity sources as % of Total
assets
....................................................
|
21.8
%
|
18.1
%
|
|
|
Total cash and cash equivalents and
other liquidity sources as % of Total
assets less goodwill and intangible
assets
....................................................
|
22.5
%
|
18.7
%
|
(1)
Average balances are calculated based on weekly balances.
(2)
At
November 30, 2024
and
2023
,
$8.21 billion
and
$5.90 billion
, respectively,
was invested in U.S. government money funds that invest primarily in cash,
securities issued by the U.S. government and U.S. government-sponsored
entities, and repurchase agreements that are fully collateralized by cash or
government securities. The remaining balances at
November 30, 2024
and
2023
are primarily invested in AAA-rated prime money funds. The average
balance of U.S. government money funds for the quarter ended
November 30,
2024
was
$5.07 billion
.
(3)
Consists of high-quality sovereign government securities and reverse
repurchase agreements collateralized by U.S. government securities and other
high quality sovereign government securities; deposits with a central bank
within the European Economic Area, United Kingdom, Canada, Australia,
Japan, Switzerland or the U.S.; and securities issued by a designated
multilateral development bank and reverse repurchase agreements with
underlying collateral composed of these securities.
(4)
Other includes unencumbered inventory representing an estimate of the
amount of additional secured financing that could be reasonably expected to
be obtained from our Financial instruments owned that are currently not
pledged after considering reasonable financing haircuts.
|
November
2024
Form
10-K
|
28
|
In addition to the cash balances and liquidity pool presented
above, the majority of financial instruments (both long and short)
in our trading accounts are actively traded and readily
marketable. At
November 30, 2024
, we had the ability to readily
obtain repurchase financing for
77.0%
of our inventory at haircuts
of 10% or less, which reflects the liquidity of our inventory. In
addition, as a matter of our policy, all of these assets have
internal capital assessed, which is in addition to the funding
haircuts provided in the securities finance markets. Additionally,
certain of our Financial instruments owned primarily consisting
of loans and investments are predominantly funded by long term
capital. Under our cash capital policy, we model capital allocation
levels that are more stringent than the haircuts used in the
market for secured funding; and we maintain surplus capital at
these more stringent levels. We continually assess the liquidity of
our inventory based on the level at which we could obtain
financing in the marketplace for a given asset. Assets are
considered to be liquid if financing can be obtained in the
repurchase market or the securities lending market at collateral
haircut levels of 10% or less.
Financial instruments by asset class that we consider to be of a
liquid nature and the amount of such assets that have not been
pledged as collateral:
|
November 30,
|
||||
|
2024
|
2023
|
|||
|
$ in thousands
|
Liquid Financial
Instruments
|
Unencumbered
Liquid Financial
Instruments (2)
|
Liquid Financial
Instruments
|
Unencumbered
Liquid Financial
Instruments (2)
|
|
Corporate equity
securities
.............
|
$
5,280,920
|
$
781,490
|
$
4,062,977
|
$
652,131
|
|
Corporate debt
securities
.............
|
5,179,229
|
339,500
|
4,785,701
|
171,457
|
|
U.S. government,
agency and
municipal
securities
.............
|
4,061,773
|
75,911
|
3,852,232
|
111,423
|
|
Other sovereign
obligations
..........
|
1,361,762
|
1,044,630
|
1,562,346
|
1,120,074
|
|
Agency mortgage-
backed
securities (1)
.......
|
2,695,282
|
—
|
3,220,918
|
—
|
|
Loans and other
receivables
..........
|
978
|
—
|
210,373
|
—
|
|
Total
...........................
|
$
18,579,944
|
$
2,241,531
|
$
17,694,547
|
$
2,055,085
|
(1)
Consists solely of agency mortgage-backed securities issued by the Federal
Home Loan Mortgage Corporation (“Freddie Mac”), the Federal National
Mortgage Association (“Fannie Mae”) and the Government National Mortgage
Association (“Ginnie Mae”).
(2)
Unencumbered liquid balances represent assets that can be sold or used as
collateral for a loan but have not been.
In addition to being able to be readily financed at reasonable
haircut levels, we estimate that each of the individual securities
within each asset class above could be sold into the market and
converted into cash within three business days under normal
market conditions, assuming that the entire portfolio of a given
asset class was not simultaneously liquidated. There are no
restrictions on the unencumbered liquid securities, nor have they
been pledged as collateral.
Sources of Funding and Capital Resources
Our assets are funded by equity capital, senior debt, securities
loaned, securities sold under agreements to repurchase,
customer free credit balances, bank loans and other payables.
Secured Financing
We rely principally on readily available secured funding to finance
our inventory of financial instruments owned and financial
instruments sold. Our ability to support increases in total assets
is largely a function of our ability to obtain short- and
intermediate term secured funding, primarily through securities
financing transactions. We finance a portion of our long inventory
and cover some of our short inventory by pledging and borrowing
securities in the form of repurchase or reverse repurchase
agreements (collectively “repos”), respectively. During
2024
, an
average of approximately
61.0%
of our cash and noncash
repurchase financing activities used collateral that was
considered eligible collateral by central clearing corporations.
Central clearing corporations are situated between participating
members who borrow cash and lend securities (or vice versa);
accordingly, repo participants contract with the central clearing
corporation and not one another individually. Therefore,
counterparty credit risk is borne by the central clearing
corporation which mitigates the risk through initial margin
demands and variation margin calls from repo participants. The
comparatively large proportion of our total repo activity that is
eligible for central clearing reflects the high quality and liquid
composition of the inventory we carry in our trading books. For
those asset classes not eligible for central clearing house
financing, we seek to execute our bi-lateral financings on an
extended term basis and the tenor of our repurchase and reverse
repurchase agreements generally exceeds the expected holding
period of the assets we are financing. The weighted average
maturity of cash and noncash repurchase agreements for non-
clearing corporation eligible funded inventory is approximately
six
months at
November 30, 2024
.
Our ability to finance our inventory via central clearinghouses and
bi-lateral arrangements is augmented by our ability to draw bank
loans on an uncommitted basis under our various banking
arrangements. At
November 30, 2024
, short-term borrowings,
which must be repaid within one year or less include bank loans,
overdrafts and borrowings under revolving credit facilities.
Letters of credit are used in the normal course of business
mostly to satisfy various collateral requirements in favor of
exchanges in lieu of depositing cash or securities. Average daily
short-term borrowings outstanding were
$1.25 billion
and
$787.9
million
for
2024
and
2023
, respectively.
At
November 30, 2024
and
2023
, our borrowings under bank
loans in Short-term borrowings were
$414.5 million
and
$937.1 million
, respectively
. Our borrowings include credit
facilities that contain certain covenants that, among other things,
require us to maintain a specified level of tangible net worth,
require a minimum regulatory net capital requirement for our U.S.
broker-dealer, Jefferies LLC, and impose certain restrictions on
the future indebtedness of certain of our subsidiaries that are
borrowers. Interest is based on rates at spreads over the federal
funds rate or other adjusted rates, as defined in the various credit
agreements, or at a rate as agreed between the bank and us in
reference to the bank’s cost of funding. At
November 30, 2024
,
we were in compliance with all covenants under these credit
facilities.
In addition to the above financing arrangements, we issue notes
backed by eligible collateral under master repurchase
agreements, which provides an additional financing source for
our inventory (our “repurchase agreement financing program”).
The notes issued under the program are presented within Other
secured financings. At
November 30, 2024
, the outstanding notes
totaled
$2.11 billion
, bear interest at a spread over the Secured
Overnight Funding Rate (“SOFR”) or the Euro Short-Term Rate
(“ESTER”) and
mature from
December 2024
to
October 2026
.
For additional details on our repurchase agreement financing
program, refer to
Note 10, Variable Interest Entities
in our
consolidated financial statements included in this Annual Report
on Form 10-K.
|
29
|
Jefferies Financial Group Inc.
|
Total Long-Term Capital
At
November 30, 2024
and
2023
, we had total long-term capital
of
$21.66 billion
and
$17.70 billion
, respectively, resulting in a
long-term debt to equity capital ratio of
1.12:1
and
0.81:1
,
respectively. Refer to “Equity Capital” herein for further
information on our change in total equity.
|
November 30,
|
||
|
$ in thousands
|
2024
|
2023
|
|
Unsecured Long-Term Debt (1)
..................................
|
$
11,430,610
|
$
7,902,079
|
|
Total Mezzanine Equity
...............................................
|
406
|
406
|
|
Total Equity
...................................................................
|
10,224,987
|
9,802,135
|
|
Total Long-Term Capital
............................................
|
$
21,656,003
|
$
17,704,620
|
(1)
The
amounts at
November 30, 2024
and
2023
exclude our secured long-term
debt. The amount at
November 30, 2023
excludes
$544.2 million
of our 1%
Euro Medium Term Notes as the note fully matured on July 19, 2024. The
amount at
November 30, 2024
excludes
$8.5 million
of our 5.500% Callable
Note as the note matures on February 22, 2025,
$5.4 million
of our 6.000%
Callable Note as the note matures on June 16, 2025,
$6.2 million
of our
4.500% Callable Note as the note matures on July 22, 2025, and
$500.0 million
of our 5.100% Callable Note as the note matures on September 15, 2025. The
amounts at
November 30, 2024
and
2023
exclude
$157.6 million
and
$51.0
million
, respectively, of structured notes as the senior notes mature within one
year.
Long-Term Debt
During
2024
, long-term debt
increased
by
$3.83 billion
to
$13.53
billion
at
November 30, 2024
, as presented in our Consolidated
Statements of Financial Condition. This
increase
is
primarily due
to
proceeds of
$3.98 billion
from the issuances of unsecured
senior notes,
$487.0 million
from net issuances of structured
notes,
$254.8 million
from increased subsidiaries borrowings,
and valuation losses on structured notes of
$175.7 million
. These
increases were partially offset by a
$350.0 million
paydown of a
revolving credit facility and repayments of
$720.5 million
on our
unsecured senior notes.
At
November 30, 2024
, our unsecured long-term debt has a
weighted average maturity of approximately
7.5
years.
At
November 30, 2024
and
2023
our borrowings under several
credit facilities classified within Long-term debt in our
Consolidated Statements of Financial Condition amounted to
$775.3 million
and
$735.2 million
, respectively. Interest on these
credit facilities is based on an adjusted SOFR plus a spread or
other adjusted rates, as defined in the various credit agreements.
The credit facility agreements contain certain covenants that,
among other things, require us to maintain specified levels of
tangible net worth and liquidity amounts, certain credit and rating
levels and impose certain restrictions on future indebtedness of
and require specified levels of regulated capital and cash
reserves for certain of our subsidiaries. At
November 30, 2024
,
we were in compliance with all covenants under theses credit
facilities.
For further information, refer to
Note 18, Borrowings
, in our
consolidated financial statements included in this Annual Report
on Form 10-K.
Our long-term debt ratings at
November 30, 2024
are as follows:
|
Rating
|
Outlook
|
|
|
Moody’s Investors Service
.........................................
|
Baa2
|
Stable
|
|
Standard & Poor’s
........................................................
|
BBB
|
Stable
|
|
Fitch Ratings
.................................................................
|
BBB+
|
Stable
|
|
Jefferies LLC
|
Jefferies
International
Limited
|
Jefferies GmbH
|
||||
|
Rating
|
Outlook
|
Rating
|
Outlook
|
Rating
|
Outlook
|
|
|
Moody’s
Investors
Service
..........
|
Baa1
|
Stable
|
Baa1
|
Stable
|
Baa1
|
Stable
|
|
Standard &
Poor’s
............
|
BBB+
|
Stable
|
BBB+
|
Stable
|
BBB+
|
Stable
|
Access to external financing to finance our day-to-day operations,
as well as the cost of that financing, is dependent upon various
factors, including our debt ratings. Our current debt ratings are
dependent upon many factors, including industry dynamics,
operating and economic environment, operating results,
operating margins, earnings trend and volatility, balance sheet
composition, liquidity and liquidity management, our capital
structure, our overall risk management, business diversification
and our market share and competitive position in the markets in
which we operate. Deterioration in any of these factors could
impact our credit ratings. While certain aspects of a credit rating
downgrade are quantifiable pursuant to contractual provisions,
the impact on our business and trading results in future periods
is inherently uncertain and depends on a number of factors,
including the magnitude of the downgrade, the behavior of
individual clients and future mitigating action taken by us.
In connection with certain over-the-counter derivative contract
arrangements and certain other trading arrangements, we may be
required to provide additional collateral to counterparties,
exchanges and clearing organizations in the event of a credit
rating downgrade. At
November 30, 2024
, the amount of
additional collateral that could be called by counterparties,
exchanges and clearing organizations under the terms of such
agreements in the event of a downgrade of our long-term credit
rating below investment grade was
$120.1 million
. For certain
foreign clearing organizations, credit rating is only one of several
factors employed in determining collateral that could be called.
The above represents management’s best estimate for additional
collateral to be called in the event of a credit rating downgrade.
The impact of additional collateral requirements is considered in
our CFP and calculation of MLO, as described above.
Equity Capital
Common Stock
At
November 30, 2024
and
2023
, we had
565,000,000
authorized
shares of voting common stock with a par value of
$1.00
per
share and had
205,504,272
and
210,626,642
common shares
outstanding, respectively. At
November 30, 2024
,
we had
15,768,229
share-based awards that do not require the holder to
pay any exercise price and
5,064,740
stock options that require
the holder to pay a weighted average exercise price of
$22.69
per
share.
The Board of Directors has authorized the repurchase of
common stock up to
$250.0 million
under a share repurchase
program
. We did not purchase any shares under our share
repurchase program during 2024. T
reasury stock repurchases
during 2024 represent repurchases of common stock for net-
share withholding under our equity compensation plan.
In
February 2023
, our mandatorily redeemable convertible
preferred shares were converted into
4,654,362
common shares.
|
November
2024
Form
10-K
|
30
|
Dividends
|
Year Ended November 30, 2024
|
|||
|
Declaration Date
|
Record Date
|
Payment Date
|
Per Common
Share Amount
|
|
January 8, 2024
|
February 16, 2024
|
February 27, 2024
|
$0.30
|
|
March 27, 2024
|
May 20, 2024
|
May 30, 2024
|
$0.30
|
|
June 26, 2024
|
August 19, 2024
|
August 30, 2024
|
$0.35
|
|
September 25, 2024
|
November 18, 2024
|
November 27, 2024
|
$0.35
|
|
Year Ended November 30, 2023
|
|||
|
Declaration Date
|
Record Date
|
Payment Date
|
Per Common
Share Amount
|
|
January 9, 2023
|
February 13, 2023
|
February 24, 2023
|
$0.30
|
|
March 28, 2023
|
May 15, 2023
|
May 26, 2023
|
$0.30
|
|
June 27, 2023
|
August 14, 2023
|
August 25, 2023
|
$0.30
|
|
September 27, 2023
|
November 13, 2023
|
November 28, 2023
|
$0.30
|
On January 8, 2025, the Board of Directors increased our
quarterly dividend from
$0.35
to
$0.40
per common share to be
paid on
February 27, 2025
to common shareholders of record at
February 14, 2025
.
The payment of dividends is subject to the discretion of our
Board of Directors and depends upon general business
conditions and other factors that our Board of Directors may
deem to be relevant.
Non-Voting Common Stock
On
June 28, 2023
, shareholders approved an Amended and
Restated Certificate of Incorporation, which authorized the
issuance of
35,000,000
shares of non-voting common stock with
a par value of
$1.00
per share (the “Non-Voting Common
Shares”). The Non-Voting Common Shares are entitled to share
equally, on a per share basis, with the voting common stock, in
dividends and distributions. Upon the effectiveness of the
Amended and Restated Certificate of Corporation on June 30,
2023, the number of authorized shares of common stock
remains at
600,000,000
shares, composed of
565,000,000
shares
of voting common stock and
35,000,000
shares of Non-Voting
Common Shares.
Series B Preferred Stock
On April 27, 2023, we established Series B Non-Voting
Convertible Preferred Shares with a par value of
$1.00
per share
(“Series B Preferred Stock”) and designated
70,000
shares as
Series B Preferred Stock. The Series B Preferred Stock has a
liquidation preference of
$17,500
per share and rank senior to our
voting common stock upon dissolution, liquidation or winding up
of Jefferies Financial Group Inc. Each share of Series B Preferred
Stock is automatically convertible into
500
shares of non-voting
common stock, subject to certain anti-dilution adjustments, three
years after issuance. The Series B Preferred Stock participates in
cash dividends and distributions alongside our voting common
stock on an as-converted basis.
Additionally
, on
April 27, 2023
, we entered into an Exchange
Agreement with Sumitomo Mitsui Banking Corporation (“SMBC”),
which entitles SMBC to exchange shares of our voting common
stock for shares of the Series B Preferred Stock at a rate of
500
shares of voting common stock for one share of Series B
Preferred Stock. The Exchange Agreement is limited to
55,125
shares of Preferred Stock and SMBC is required to pay
$1.50
per
share of voting common stock so exchanged. During the year-
ended November 30, 2023, SMBC exchanged
21.0 million
shares
of voting common stock for
42,000
shares of Series B Preferred
Stock and we received cash of
$31.5 million
in connection with
the exchange. As a result of the exchange, our equity attributed
to our voting common stock decreased by
$21.0 million
, our
equity attributed to the Series B Preferred Stock increased by
$42,000
and additional paid-in capital increased by
$52.4 million
.
On June 20, 2024, SMBC exchanged an additional
6.6 million
shares of voting common stock for
13,125
shares of Series B
Preferred Stock and we received
$9.8 million
from SMBC in
connection with the exchange. Following this exchange, SMBC
increased its ownership to
11.8%
of our common stock on an as-
converted basis and
10.9%
on a fully-diluted, as-converted basis.
As a result, the CEO of Sumitomo Mitsui Financial Group, Inc.
was elected and now serves on our Board of Directors. On
September 19, 2024, SMBC purchased
9.2 million
shares of our
common stock.
At
November 30, 2024
, SMBC owns
approximately
15.8%
of our common stock on an as-converted
basis and
14.5%
on a fully-diluted, as-converted basis
. Refer to
Note 24, Related Party Transactions
for further information
regarding transactions with SMBC.
During
the
year ended November 30, 2024
and
2023
, we paid
cash dividends of
$31.9 million
and
$12.6 million
, respectively,
with respect to the Series B Preferred Stock.
Net Capital
Jefferies LLC is a broker-dealer registered with the SEC and a
member firm of the Financial Industry Regulatory Authority
(“FINRA”) and is subject to the SEC Uniform Net Capital Rule
(“Rule 15c3-1”), which requires the maintenance of minimum net
capital, and has elected to calculate minimum capital
requirements using the alternative method permitted by Rule
15c3-1 in calculating net capital. Jefferies LLC, as a dually-
registered U.S. broker-dealer and futures commission merchant
(“FCM”), is also subject to Regulation 1.17 of the Commodity
Futures Trading Commission (“CFTC”) under the Commodity
Exchange Act (“CEA”), which sets forth minimum financial
requirements. The minimum net capital requirement in
determining excess net capital for a dually registered U.S. broker-
dealer and FCM is equal to the greater of the requirement under
SEA Rule 15c3-1 or CFTC Regulation 1.17. Accordingly, FINRA is
the designated examining authority for Jefferies LLC and the
National Futures Association (“NFA”) is the designated self-
regulatory organization (“DSRO”) for Jefferies LLC as an FCM
Jefferies Financial Services, Inc. (“JFSI”) is registered with the
SEC as a Security-Based Swap Dealer (“SBS Dealer”) and an OTC
Derivatives Dealer (“OTCDD”) subject to the SEC’s SBS dealer
regulatory rules and the SEC’s net capital requirements pursuant
to Rule 18a-1. JFSI is also registered as a swap dealer with the
CFTC and is subject to the CFTC’s regulatory capital
requirements pursuant to the minimum financial requirements for
swap dealers under CFTC Regulation 23.101. Additionally, as a
registered member firm, JFSI is subject to the net capital
requirements of the NFA. Accordingly, the SEC is the designated
examining authority for JFSI in its capacity as an SBS Dealer and
OTCDD, while the NFA is the DSRO for JFSI, as a CFTC registered
swap dealer.
Certain non-U.S. subsidiaries are subject to capital adequacy
requirements as prescribed by the regulatory authorities in their
respective jurisdictions. This includes Jefferies International
Limited which is subject to the regulatory supervision and
requirements of the Financial Conduct Authority (“FCA”) in the
U.K. Jefferies International Limited’s’ own funds requirement
represents the highest of the permanent minimum capital
requirement, fixed overheads requirement and k-factor
requirements set out in the Investment Firms Prudential Regime
(“IFPR”) under the FCA’s MIFIDPRU sourcebook.
|
31
|
Jefferies Financial Group Inc.
|
At
November 30, 2024
, Jefferies LLC’s and JFSI’s net capital and
excess net capital were as follows (in thousands):
|
$ in thousands
|
Net
Capital
|
Excess Net
Capital
|
|
Jefferies LLC
.................................................................
|
$
2,018,251
|
$
1,879,220
|
|
JFSI - SEC
......................................................................
|
348,588
|
325,511
|
|
JFSI - CFTC
...................................................................
|
348,588
|
322,144
|
In addition, the equivalent capital requirements for Jefferies
International Limited, on a consolidated basis, is a total capital of
$1,781.0 million
and an excess capital of
$1,054.0 million
at
November 30, 2024
.
At
November 30, 2024
, Jefferies LLC, JFSI and JIL are in
compliance with their applicable requirements.
The regulatory capital requirements referred to above may
restrict our ability to withdraw capital from our regulated
subsidiaries.
Customer Protection and Segregation Requirement
As a registered broker dealer that clears and carries customer
accounts, Jefferies LLC is subject to the customer protection
provisions under SEC Rule 15c3-3 and is required to compute a
reserve formula requirement for customer accounts and deposit
cash or qualified securities into a special reserve bank account
for the exclusive benefit of customers. At
November 30, 2024
,
Jefferies LLC had
$142.6 million
in cash and qualified U.S.
Government securities on deposit in special reserve bank
accounts for the exclusive benefit of customers.
As a registered broker dealer that clears and carries proprietary
accounts of brokers or dealers (commonly referred to as “PAB”),
Jefferies LLC is also required to compute a reserve requirement
for PABs pursuant to SEC Rule 15c3-3. At
November 30, 2024
,
Jefferies LLC had
$581.9 million
in cash and qualified U.S.
Government securities in special reserve bank accounts for the
exclusive benefit of PABs.
Other Developments
In February 2022, Russia invaded Ukraine. Following Russia’s
invasion, the U.S., the U.K., and the European Union governments,
among others, developed coordinated financial and economic
sanctions targeting Russia that, in various ways, constrain
transactions with numerous Russian entities, including major
Russian banks and individuals; transactions in Russian sovereign
debt; and investment, trade and financing to, from, or in Ukraine.
We do not have any operations in Russia or any clients with
significant Russian operations and we have minimal market risk
related to securities of companies either domiciled or operating
in Russia. We continue to closely monitor the status of global
sanctions and restrictions, trading conditions related to Russian
securities and the credit risk and nature of our counterparties.
In October 2023, Hamas attacked Israel. Our investments and
assets in our growing Israeli business could be negatively
affected by consequences from the geopolitical and military
conflict in the region. We continue to closely monitor the status
of global sanctions and restrictions arising from the conflict.
Off-Balance Sheet Arrangements
We have contractual commitments arising in the ordinary course
of business for securities loaned or purchased under agreements
to resell, repurchase agreements, future purchases and sales of
foreign currencies, securities transactions on a when-issued
basis, purchases and sales of corporate loans in the secondary
market and underwriting. Each of these financial instruments and
activities contains varying degrees of off-balance sheet risk
whereby the fair values of the securities underlying the financial
instruments may be in excess of, or less than, the contract
amount. The settlement of these transactions is not expected to
have a material effect upon our consolidated financial
statements.
In the normal course of business, we engage in other off balance-
sheet arrangements, including derivative contracts. Neither
derivatives’ notional amounts nor underlying instrument values
are reflected as assets or liabilities in our Consolidated
Statements of Financial Condition. Rather, the fair values of
derivative contracts are reported in our Consolidated Statements
of Financial Condition as Financial instruments owned or
Financial instruments sold, not yet purchased as applicable.
Derivative contracts are reflected net of cash paid or received
pursuant to credit support agreements and are reported on a net
by counterparty basis when a legal right of offset exists under an
enforceable master netting agreement.
For additional information
about our accounting policies and our derivative activities, refer
to
Note 2, Summary of Significant Accounting Policies
, in our
consolidated financial statements included in Part II, Item 8 of
our Annual Report on Form 10-K for the year ended November 30,
2023 and
Note 6, Fair Value Disclosures
and
Note 7, Derivative
Financial Instruments
in our consolidated financial statements
included in this Annual Report on Form 10-K.
Contractual Obligations
Subsequent to
November 30, 2024
and on or before
January 31,
2025,
we expect to make cash payments of
$1.82 billion
related
to year-end compensation awards for fiscal
2024
. Refer to
Note
15, Compensation Plans
in our consolidated financial statements
included in this Annual Report on Form 10-K for further
information.
Risk Management
Overview
Risk is an inherent part of our business and activities. The extent
to which we properly and effectively identify, assess, monitor and
manage each of the various types of risk involved in our activities
is critical to our financial soundness, viability and profitability.
Accordingly, we have a comprehensive risk management
approach, with a formal governance structure and policies and
procedures outlining frameworks and processes to identify,
assess, monitor and manage risk. Principal risks involved in our
business activities include market, credit, liquidity and capital,
operational, model and strategic risk. Legal and compliance, new
business and reputational risk are also included within our
principal risks.
Risk management is a multifaceted process that requires
communication, judgment and knowledge of financial products
and markets. Our risk management process encompasses the
active involvement of executive and senior management, and
also many departments independent of the revenue-producing
business units, including Risk Management, Operations,
Information Technology, Compliance, Legal and Finance. Our risk
management policies, procedures and methodologies are flexible
in nature and are subject to ongoing review and modification.
In achieving our strategic business objectives, our risk appetite
incorporates keeping our clients’ interests as top priority and
ensuring we are in compliance with applicable laws, rules and
regulations, as well as adhering to the highest ethical standards.
We undertake prudent risk-taking that protects the capital base
and franchise, utilizing risk limits and tolerances that avoid
outsized risk-taking. We maintain a diversified business mix and
avoid significant concentrations to any sector, product,
|
November
2024
Form
10-K
|
32
|
geography or activity and set quantitative concentration limits to
manage this risk. We consider contagion, second order effects
and correlation in our risk assessment process and actively seek
out value opportunities of all sizes. We manage the risk of
opportunities larger than our approved risk levels through risk
sharing and risk distribution, sell-down and hedging as
appropriate. We have a limited appetite for illiquid assets and
complex derivative financial instruments. We maintain the asset
quality of our balance sheet through conducting trading activity in
liquid markets and generally ensure high turnover of our
inventory. We subject less liquid positions and derivative financial
instruments to particular scrutiny and use a wide variety of
specific metrics, limits and constraints to manage these risks.
We protect our reputation and franchise, as well as our standing
within the market. We operate a federated approach to risk
management and assign risk oversight responsibilities to a
number of functions with specific areas of focus.
For discussion of liquidity and capital risk management, refer to
the “Liquidity, Financial Condition and Capital Resources” section
herein.
Governance and Risk Management Structure
Our Board of Directors (“Board”) and Risk and Liquidity Oversight
Committee (“Committee”)
. Our Board and Committee play an
important role in reviewing our risk management process and
risk appetite. The Committee assists the Board in its oversight of:
(i) our enterprise risk management, (ii) our capital, liquidity and
funding guidelines and policies and (iii) the performance of our
Global Chief Risk Officer (“CRO”). Our CRO and Global Treasurer
meet with the Committee on no less than a quarterly basis to
present our risk profile and liquidity profile and to respond to
questions. Our Chief Information Officer also meets with the
Committee at least semi-annually to receive and review reports
related to any exposure to cybersecurity risk and our plans and
programs to mitigate and respond to cybersecurity risks.
Additionally, our risk management team continuously monitors
our various businesses, the level of risk the businesses are taking
and the efficacy of potential risk mitigation strategies and
presents this information to our senior management and the
Committee.
Our Board also fulfills its risk oversight role through the
operations of its various committees, including its Audit
Committee. The Audit Committee has responsibility for risk
oversight in connection with its review of our financial
statements, internal audit function and internal control over
financial reporting, as well as assisting the Board with our legal
and regulatory compliance and overseeing our Code of Business
Practice. The Audit Committee is also updated on risk controls at
each of its regularly scheduled meetings.
Internal Audit, which reports to the Audit Committee of the Board
and includes professionals with a broad range of audit and
industry experience, including risk management expertise, is
responsible for independently assessing and validating key
controls within our risk management framework.
We make extensive use of internal committees to govern risk
taking and ensure that business activities are properly identified,
assessed, monitored and managed. The Risk Management
Committee (“RMC”) and membership comprises our Chief
Executive Officer, President, CFO, CRO and Global Treasurer. Our
other risk related committees govern risk taking and ensure that
business activities are properly managed for their area of
oversight.
Risk Committees
•
Risk Management Committee (RMC) -
the principal committee
that governs our risk taking activities. The RMC meets weekly
to discuss our risk profile and discuss business or market
trends and their potential impact on the business. The RMC
approves our limits as a whole and across risk categories and
business lines, reviews limit breaches, approves risk policies
and stress testing methodologies and is supported by other
Committees including:
◦
Credit Risk Committee
- provides review and approval of
counterparties and credit limits.
◦
Model Governance Committee
- oversees all model risk
matters throughout the model life cycle, from model
identification and initiation, model development, model
validation/approval and model risk control.
◦
Stress Testing Committee
- provides review, approval and
oversees implementation of our stress testing framework
and methodologies.
•
Operating Committee
- brings together the managers of all
control areas and the business line chief operating officers,
whereby each department presents issues regarding current
and proposed business. This committee provides the key
forum for coordination and communication between the
control managers entirely focused on our activities as a whole.
•
Asset / Liability Committee
- seeks to ensure effective
management and control of the balance sheet in terms of risk
profile, adequacy of capital and liquidity resources and funding
profile and strategy. The committee is responsible for
developing, implementing and enforcing our liquidity, funding
and capital policies. This includes recommendations for
capital and balance sheet size, as well as the allocation of
capital to our businesses.
•
Independent Price Verification Committee
- establishes our
valuation policies and procedures and is responsible for
independently validating the fair value of our financial
instruments. The committee, which comprises stakeholders
represented by the CFO, Internal Audit, Risk Management and
Controllers, meets monthly to assess and approve the results
of our inventory price testing.
•
New Business Committee
- reviews new business, products and
activities and extensions of existing businesses, products and
activities that may introduce materially different or greater
risks than those of a business’ existing activities. The new
business approval process is a key control over new business
activity. The objectives are to notify all relevant functions of the
intention to introduce a new product, business or activity, to
share information between functions and to ensure there is a
thorough understanding of the proposal.
Risk Considerations
We apply a comprehensive framework of limits on a variety of
key metrics to constrain the risk profile of our business activities.
The size of the limits reflects our risk appetite for a certain
activity under normal business conditions. Key metrics included
in our risk management framework include inventory position
and exposure limits on a gross and net basis, scenario analysis
and stress tests, Value-at-Risk (“VaR”), sensitivities, exposure
concentrations, aged inventory, Level 3 assets, counterparty
exposure, leverage and cash capital.
|
33
|
Jefferies Financial Group Inc.
|
Market Risk
Market risk is defined as the risk of loss due to fluctuations in the
market value of financial assets and liabilities attributable to
changes in market variables.
Our market risk principally arises from interest rate risk, from
exposure to changes in the yield curve, the volatility of interest
rates, and credit spreads, and from equity price risks from
exposure to changes in prices and volatilities of individual
equities, equity baskets and equity indices. In addition,
commodity price risk results from exposure to the changes in
prices and volatilities of individual commodities, commodity
baskets and commodity indices, and foreign exchange risk
results from changes in foreign currency rates.
Market risk is present in our capital markets business through
market making, proprietary trading, underwriting and investing
activities and is present in our asset management business
through investments in separately managed accounts and direct
investments in funds. Given our involvement in a broad set of
financial products and markets, market risk exposures are
diversified and economic hedges are established as appropriate.
Market risk is monitored and managed through a set of key risk
metrics such as VaR, stress scenarios, risk sensitivities and
position exposures. Limits are set on the key risk metrics to
monitor and control the risk exposure ensuring that it is in line
with our risk appetite. Our risk appetite, including the market risk
limits, is periodically reviewed to reflect business strategy and
market environment. Material risk changes, top/emerging risks
and limit utilizations/breaches are highlighted through risk
reporting and escalated as necessary.
Trading is principally managed through front office trader
mandates, where each trader is provided a specific mandate in
line with our product registry. Mandates set out the activities,
currencies, countries and products that a desk is permitted to
trade in and set the limits applicable to a desk. Traders are
responsible for knowing their trading limits and trading in a
manner consistent with their mandate.
VaR
VaR is a statistical estimate of the potential loss from adverse
market movements over a specified time horizon within a
specified probability (confidence level). It provides a common
risk measure across financial instruments, markets and asset
classes. We estimate VaR using a model that simulates revenue
and loss distributions by applying historical market changes to
the current portfolio. We calculate a one-day VaR using a one-
year look-back period measured at a 95% confidence level.
As with all measures of VaR, our estimate has inherent
limitations due to the assumption that historical changes in
market conditions are representative of the future. Furthermore,
the VaR model measures the risk of a current static position over
a one-day horizon and might not capture the market risk over a
longer time horizon where moves may be more extreme.
Previous changes in market risk factors may not generate
accurate predictions of future market movements. While we
believe the assumptions and inputs in our risk model are
reasonable, we could incur losses greater than the reported VaR.
Consequently, this VaR estimate is only one of a number of tools
we use in our daily risk management activities.
|
VaR at
November 30,
2024
|
Daily Firmwide VaR
|
|||
|
$ in millions
|
Daily VaR for 2024
|
|||
|
Risk Categories
|
Average
|
High
|
Low
|
|
|
Interest Rates and Credit
Spreads
.............................
|
$
4.30
|
$
5.69
|
$
8.25
|
$
2.58
|
|
Equity Prices
........................
|
8.31
|
11.41
|
20.69
|
7.76
|
|
Currency Rates
....................
|
0.84
|
0.67
|
2.82
|
0.24
|
|
Commodity Prices
..............
|
0.41
|
0.44
|
1.38
|
0.15
|
|
Diversification Effect (1)
....
|
(2.19)
|
(5.08)
|
N/A
|
N/A
|
|
Firmwide VaR (2)
................
|
$
11.67
|
$
13.13
|
$
18.70
|
$
9.33
|
|
VaR at
November 30,
2023
|
Daily Firmwide VaR
|
|||
|
$ in millions
|
Daily VaR for 2023
|
|||
|
Risk Categories
|
Average
|
High
|
Low
|
|
|
Interest Rates and Credit
Spreads
.............................
|
$
5.35
|
$
7.66
|
$
12.02
|
$
4.31
|
|
Equity Prices
........................
|
8.76
|
10.39
|
16.19
|
6.53
|
|
Currency Rates
....................
|
1.29
|
0.55
|
2.26
|
0.04
|
|
Commodity Prices
..............
|
1.02
|
0.31
|
2.59
|
0.07
|
|
Diversification Effect (1)
....
|
(4.23)
|
(5.34)
|
N/A
|
N/A
|
|
Firmwide VaR (2)
................
|
$
12.19
|
$
13.57
|
$
19.93
|
$
9.12
|
(1)
The diversification effect is not applicable for the maximum and minimum
VaR values as the firmwide VaR and the VaR values for the four risk categories
might have occurred on different days during the period.
(2)
The aggregated VaR presented here is less than the sum of the individual
components (
i.e.
, interest rate risk, foreign exchange rate risk, equity risk and
commodity price risk) due to the benefit of diversification among the four risk
categories. Diversification benefit equals the difference between aggregated
VaR and the sum of VaRs for the four risk categories and arises because the
market risk categories are not perfectly correlated.
VaR for our capital markets trading activities, which excludes the
impact on VaR for each component of market risk from our asset
management activities, by interest rate and credit spreads, equity,
currency and commodity products using the past 365 days of
historical data:
|
VaR at
November 30,
2024
|
Daily Capital Markets VaR
|
|||
|
$ in millions
|
Daily VaR for 2024
|
|||
|
Risk Categories
|
Average
|
High
|
Low
|
|
|
Interest Rates and Credit
Spreads
.............................
|
$
4.33
|
$
5.66
|
$
11.88
|
$
0.98
|
|
Equity Prices
........................
|
7.27
|
7.00
|
18.85
|
4.18
|
|
Currency Rates
....................
|
0.52
|
0.45
|
0.90
|
0.11
|
|
Commodity Prices
..............
|
—
|
0.01
|
0.03
|
—
|
|
Diversification Effect (1)
....
|
(5.69)
|
(4.59)
|
N/A
|
N/A
|
|
Capital Markets VaR (2)
....
|
$
6.43
|
$
8.53
|
$
12.47
|
$
5.52
|
|
VaR at
November 30,
2023
|
Daily Capital Markets VaR
|
|||
|
$ in millions
|
Daily VaR for 2023
|
|||
|
Risk Categories
|
Average
|
High
|
Low
|
|
|
Interest Rates and Credit
Spreads
.............................
|
$
4.75
|
$
7.11
|
$
11.79
|
$
4.01
|
|
Equity Prices
........................
|
4.02
|
6.70
|
10.68
|
3.83
|
|
Currency Rates
....................
|
0.71
|
0.29
|
0.78
|
0.01
|
|
Commodity Prices
..............
|
—
|
0.01
|
0.71
|
—
|
|
Diversification Effect (1)
....
|
(2.88)
|
(4.98)
|
N/A
|
N/A
|
|
Capital Markets VaR (2)
....
|
$
6.60
|
$
9.13
|
$
11.94
|
$
6.34
|
(1)
The diversification effect is not applicable for the maximum and minimum
VaR values as the capital markets VaR and the VaR values for the four risk
categories might have occurred on different days during the period.
(2)
The aggregated VaR presented here is less than the sum of the individual
components (
i.e.
, interest rate risk, foreign exchange rate risk, equity risk and
commodity price risk) due to the benefit of diversification among the four risk
categories. Diversification benefit equals the difference between aggregated
VaR and the sum of VaRs for the four risk categories and arises because the
market risk categories are not perfectly correlated
.
|
November
2024
Form
10-K
|
34
|
Our average daily firmwide VaR
decreased
to
$13.13 million
for
2024
from
$13.57 million
for
2023
driven by overall lower interest rate
and credit spread exposures across the capital markets desks, partially offset by an increase in equity exposure in our asset
management business.
The a
verage daily capital markets VaR decreased to
$8.53 million
for
2024
from
$9.13 million
for
2023
driven
by lower interest rate and credit spread exposures.
The efficacy of the VaR model is tested by comparing our actual daily net revenues for those positions included in the calculation of
VaR with the daily VaR estimate. This evaluation is performed at various levels, from the overall level down to specific business lines.
For the VaR model, revenue is defined as principal transactions revenues, trading related commissions, revenue from securitization
activities and net interest income. VaR backtesting methodologies differ for regulated entities with approved capital models.
For a 95% confidence one day VaR model (
i.e.
,
no intra-day trading), assuming current changes in market value are consistent with the
historical changes used in the calculation, losses would not be expected to exceed the VaR estimates more than twelve times on an
annual basis (
i.e.
, once in every 20 days). During
2024
, there was
one
day when the aggregate net trading loss exceeded the 95% one
day VaR.
The chart below presents our daily firmwide VaR and capital markets VaR over the last four quarters. In the last quarter of 2024, VaR
increase was driven by average increase in equity exposures in asset management.
Daily Net Trading Revenue
There were
19
days with firmwide trading losses out of a total of
251
trading days in
2024
. The histogram below presents the
distribution of our actual daily net trading revenue for substantially all of our trading activities for
2024
(in millions):
|
35
|
Jefferies Financial Group Inc.
|
Other Risk Measures
The VaR model does not include certain positions that are best measured and monitored using sensitivity analysis. Risk Management
has additional procedures in place to assure that the level of potential loss driven by those positions not in the VaR model arising from
market movements are within acceptable levels. Such procedures include performing stress tests and profit and loss analysis. The
table below presents the potential reduction in earnings associated with a 10% stress of the fair value of the positions that are not
included in the VaR model at
November 30, 2024
:
|
$ in thousands
|
10% Sensitivity
|
|
Investment in funds (1)
............................................................................................................................................................................................
|
$
123,838
|
|
Private investments
..................................................................................................................................................................................................
|
51,214
|
|
Corporate debt securities in default
.......................................................................................................................................................................
|
22,917
|
|
Trade claims
..............................................................................................................................................................................................................
|
3,852
|
(1)
Includes investments in hedge funds, fund of funds and private equity funds classified within Level 3 of the fair value hierarchy and excluded from
the fair value hierarchy based on net asset value.
The impact of changes in our own credit spreads on our structured notes for which the fair value option was elected is not included in
VaR. The estimated credit spread risk sensitivity for each one basis point widening in our own credit spreads on financial liabilities for
which the fair value option was elected was an increase in value of approximately
$1.6 million
at
November 30, 2024
, which is included
in other comprehensive income.
Other Risk
We are also subject to interest rate risk on our long-term fixed interest rate debt. Generally, the fair market value of debt securities with
a fixed interest rate will increase as interest rates fall, and the fair market value will decrease as interest rates rise. The following table
represents principal cash flows by expected maturity dates and the related weighted-average interest rate on those maturities for our
consolidated long-term debt obligations, inclusive of any related interest rate hedges. For the variable rate borrowings, the weighted-
average interest rates are based on the rates in effect at the reporting date. Our market risk with respect to foreign currency exposure
on our long-term debt is also presented in the table below. For additional information, refer to
Note 18, Borrowings
in our consolidated
financial statements included in this Annual Report on Form 10-K.
|
|
Expected Maturity Date (Fiscal Years)
|
|||||||
|
$ in thousands
|
2025
|
2026
|
2027
|
2028
|
2029
|
Thereafter
|
Total
|
Fair Value
|
|
Rate Sensitive Liabilities:
|
||||||||
|
Fixed Interest Rate Borrowings
|
$
679,449
|
$
70,508
|
$
448,874
|
$
1,093,018
|
$
327,777
|
$
4,642,363
|
$
7,261,989
|
$
7,358,465
|
|
Weighted-Average Interest Rate
|
4.19%
|
5.50%
|
5.23%
|
5.85%
|
5.58%
|
5.90%
|
|
|
|
Variable Interest Rate Borrowings
|
$
122,064
|
$
890,763
|
$
1,107,825
|
$
55,727
|
$
310,866
|
$
1,907,398
|
$
4,394,643
|
$
4,186,501
|
|
Weighted-Average Interest Rate
|
6.34%
|
4.55%
|
6.73%
|
6.50%
|
6.48%
|
5.53%
|
|
|
|
Borrowings with Foreign Currency Exposure
|
$
16,977
|
$
876,621
|
$
—
|
$
—
|
$
533,310
|
$
802,888
|
$
2,229,796
|
$
2,189,456
|
|
Weighted-Average Interest Rate
|
5.24%
|
3.95%
|
—%
|
—%
|
4.04%
|
6.91%
|
|
|
Stress Tests and Scenario Analysis
Stress tests are used to analyze the potential impact of specific
events or extreme market moves on the current portfolio both
firm-wide and within business segments. Stress testing is an
important part of our risk management approach because it
allows us to quantify our exposure to tail risks, highlight potential
loss concentrations, undertake risk/reward analysis, set risk
controls and overall assess and mitigate our risk.
We employ a range of stress scenarios, which comprise both
historical market price and rate changes and hypothetical market
environments, and generally involve simultaneous changes of
many risk factors. Indicative market changes in the scenarios
include, but are not limited to, a large widening of credit spreads,
a substantial decline in equities markets, significant moves in
selected emerging markets, large moves in interest rates and
changes in the shape of the yield curve.
Unlike our VaR, which measures potential losses within a given
confidence interval, stress scenarios do not have an associated
implied probability. Rather, stress testing is used to estimate the
potential loss from market moves that tend to be larger than
those embedded in the VaR calculation. Stress testing
complements VaR to cover for potential limitations of VaR such
as the breakdown in correlations, non-linear risks, tail risk and
extreme events and capturing market moves beyond the
confidence levels assumed in the VaR calculations.
Stress testing is performed and reported at least weekly as part
of our risk management process and on an ad hoc basis in
response to market events or concerns. Current stress tests
provide estimated revenue and loss of the current portfolio
through a range of both historical and hypothetical events. The
stress scenarios are reviewed and assessed at least annually so
that they remain relevant and up to date with market
developments. Additional hypothetical scenarios are also
conducted on a sub-portfolio basis to assess the impact of any
relevant idiosyncratic stress events as needed.
|
November
2024
Form
10-K
|
36
|
Counterparty Credit Risk
Credit risk is the risk of loss due to adverse changes in a
counterparty’s credit worthiness or its ability or willingness to
meet its financial obligations in accordance with the terms and
conditions of a financial contract.
We are exposed to credit risk as a trading counterparty to other
broker-dealers and customers, as a counterparty to derivative
contracts, as a direct lender and through extending loan
commitments and providing securities-based lending and as a
member of exchanges and clearing organizations. Credit
exposure exists across a wide range of products, including cash
and cash equivalents, loans, securities finance transactions and
over-the-counter derivative contracts. The main sources of credit
risk are:
•
Loans and lending arising in connection with our investment
banking and capital markets activities, which reflects our
exposure at risk on a default event with no recovery of loans.
Current exposure represents loans that have been drawn by the
borrower and lending commitments that are outstanding. In
addition, credit exposures on forward settling traded loans are
included within our loans and lending exposures for
consistency with the balance sheet categorization of these
items. Loans and lending also arise in connection with our
portion of a Secured Revolving Credit Facility that is with us
and Massachusetts Mutual Life Insurance Company, to be
funded equally, to support loan underwritings by Jefferies
Finance. For further information on this facility, refer to
Note
11, Investments
in our consolidated financial statements
included in this Annual Report on Form 10-K. In addition, we
have loans outstanding to certain of our officers and
employees (none of whom are executive officers or directors).
For further information on these employee loans, refer to
Note
24, Related Party Transactions
in our consolidated financial
statements included in this Annual Report on Form 10-K.
•
Securities and margin financing transactions, which reflect our
credit exposure arising from reverse repurchase agreements,
repurchase agreements and securities lending agreements to
the extent the fair value of the underlying collateral differs from
the contractual agreement amount and from margin provided
to customers.
•
OTC derivatives, which are reported net by counterparty when a
legal right of setoff exists under an enforceable master netting
agreement. OTC derivative exposure is based on a contract at
fair value, net of cash collateral received or posted under credit
support agreements. In addition, credit exposures on forward
settling trades are included within our derivative credit
exposures.
•
Cash and cash equivalents, which includes both interest-
bearing and non-interest-bearing deposits at banks.
Credit is extended to counterparties in a controlled manner and in
order to generate acceptable returns, whether such credit is
granted directly or is incidental to a transaction. All extensions of
credit are monitored and managed as a whole to limit exposure
to loss related to credit risk. Credit risk is managed according to
the Credit Risk Management Policy, which sets out the process
for identifying counterparty credit risk, establishing counterparty
limits, and managing and monitoring credit limits. The policy
includes our approach for:
•
Client on-boarding and approving counterparty credit limits;
•
Negotiating, approving and monitoring credit terms in legal and
master documentation;
•
Determining the analytical standards and risk parameters for
ongoing management and monitoring credit risk books;
•
Actively managing daily exposure, exceptions and breaches;
and
•
Monitoring daily margin call activity and counterparty
performance.
Counterparty credit exposure limits are granted within our credit
ratings framework, as detailed in the Credit Risk Management
Policy. The Credit Risk Department assesses counterparty credit
risk and sets credit limits at the counterparty master agreement
level. Limits must be approved by appropriate credit officers and
initiated in our credit and trading systems before trading
commences. All credit exposures are reviewed against approved
limits on a daily basis.
Our Secured Revolving Credit Facility, which supports loan
underwritings by Jefferies Finance, is governed under separate
policies other than the Credit Risk Management Policy and is
approved by our Board. The loans outstanding to certain of our
officers and employees are extended pursuant to a review by our
most senior management.
Current counterparty credit exposures at
November 30, 2024
and
2023
are summarized in the tables below and provided by credit
quality, region and industry. Credit exposures presented take
netting and collateral into consideration by counterparty and
master agreement. Collateral taken into consideration includes
both collateral received as cash as well as collateral received in
the form of securities or other arrangements. Current exposure is
the loss that would be incurred on a particular set of positions in
the event of default by the counterparty, assuming no recovery.
Current exposure equals the fair value of the positions less
collateral. Issuer risk is the credit risk arising from inventory
positions (for example, corporate debt securities and secondary
bank loans). Issuer risk is included in our country risk exposure
within the following tables.
|
37
|
Jefferies Financial Group Inc.
|
|
Counterparty Credit Exposure by Credit Rating
|
||||||||||||
|
Loans and Lending
|
Securities and Margin
Finance
|
OTC Derivatives
|
Total
|
Cash and
Cash Equivalents
|
Total with Cash and
Cash Equivalents
|
|||||||
|
At
|
At
|
At
|
At
|
At
|
At
|
|||||||
|
$ in millions
|
November
30,
2024
|
November
30,
2023
|
November
30,
2024
|
November
30,
2023
|
November
30,
2024
|
November
30,
2023
|
November
30,
2024
|
November
30,
2023
|
November
30,
2024
|
November
30,
2023
|
November
30,
2024
|
November
30,
2023
|
|
AAA Range
|
$
—
|
$
—
|
$
12.0
|
$
15.1
|
$
—
|
$
—
|
$
12.0
|
$
15.1
|
$
8,227.9
|
$
5,919.7
|
$
8,239.9
|
$
5,934.8
|
|
AA Range
|
80.0
|
75.1
|
190.3
|
113.3
|
5.6
|
0.9
|
275.9
|
189.3
|
63.8
|
4.4
|
339.7
|
193.7
|
|
A Range
|
0.2
|
—
|
1,145.1
|
884.2
|
415.0
|
293.1
|
1,560.3
|
1,177.3
|
3,691.8
|
2,502.1
|
5,252.1
|
3,679.4
|
|
BBB Range
|
253.5
|
250.0
|
31.2
|
81.6
|
40.0
|
50.4
|
324.7
|
382.0
|
169.4
|
100.2
|
494.1
|
482.2
|
|
BB or Lower
|
37.2
|
38.0
|
31.2
|
16.1
|
78.7
|
65.6
|
147.1
|
119.7
|
0.5
|
—
|
147.6
|
119.7
|
|
Unrated
|
322.6
|
341.1
|
—
|
—
|
5.3
|
7.5
|
327.9
|
348.6
|
—
|
—
|
327.9
|
348.6
|
|
Total
|
$
693.5
|
$
704.2
|
$
1,409.8
|
$
1,110.3
|
$
544.6
|
$
417.5
|
$
2,647.9
|
$
2,232.0
|
$
12,153.4
|
$
8,526.4
|
$
14,801.3
|
$
10,758.4
|
|
Counterparty Credit Exposure by Region
|
||||||||||||
|
Loans and Lending
|
Securities and Margin
Finance
|
OTC Derivatives
|
Total
|
Cash and
Cash Equivalents
|
Total with Cash and
Cash Equivalents
|
|||||||
|
At
|
At
|
At
|
At
|
At
|
At
|
|||||||
|
$ in millions
|
November
30,
2024
|
November
30,
2023
|
November
30,
2024
|
November
30,
2023
|
November
30,
2024
|
November
30,
2023
|
November
30,
2024
|
November
30,
2023
|
November
30,
2024
|
November
30,
2023
|
November
30,
2024
|
November
30,
2023
|
|
Asia-Pacific/Latin
America/Other
|
$
15.8
|
$
15.8
|
$
130.4
|
$
57.8
|
$
0.2
|
$
3.2
|
$
146.4
|
$
76.8
|
$
520.3
|
$
378.2
|
$
666.7
|
$
455.0
|
|
Europe and the Middle
East
|
0.2
|
—
|
523.2
|
482.1
|
88.7
|
92.6
|
612.1
|
574.7
|
70.8
|
43.3
|
682.9
|
618.0
|
|
North America
|
677.5
|
688.4
|
756.2
|
570.4
|
455.7
|
321.7
|
1,889.4
|
1,580.5
|
11,562.3
|
8,104.9
|
13,451.7
|
9,685.4
|
|
Total
|
$
693.5
|
$
704.2
|
$
1,409.8
|
$
1,110.3
|
$
544.6
|
$
417.5
|
$
2,647.9
|
$
2,232.0
|
$
12,153.4
|
$
8,526.4
|
$
14,801.3
|
$
10,758.4
|
|
Counterparty Credit Exposure by Industry
|
||||||||||||
|
Loans and Lending
|
Securities and Margin
Finance
|
OTC Derivatives
|
Total
|
Cash and
Cash Equivalents
|
Total with Cash and
Cash Equivalents
|
|||||||
|
At
|
At
|
At
|
At
|
At
|
At
|
|||||||
|
$ in millions
|
November
30,
2024
|
November
30,
2023
|
November
30,
2024
|
November
30,
2023
|
November
30,
2024
|
November
30,
2023
|
November
30,
2024
|
November
30,
2023
|
November
30,
2024
|
November
30,
2023
|
November
30,
2024
|
November
30,
2023
|
|
Asset Managers
|
$
6.4
|
$
7.4
|
$
0.8
|
$
0.8
|
$
—
|
$
—
|
$
7.2
|
$
8.2
|
$
8,227.9
|
$
5,919.7
|
$
8,235.1
|
$
5,927.9
|
|
Banks, Broker-Dealers
|
253.7
|
250.0
|
849.0
|
752.0
|
466.6
|
341.5
|
1,569.3
|
1,343.5
|
3,925.5
|
2,606.7
|
5,494.8
|
3,950.2
|
|
Commodities
|
—
|
—
|
—
|
—
|
—
|
10.2
|
—
|
10.2
|
—
|
—
|
—
|
10.2
|
|
Corporates
|
187.1
|
177.0
|
—
|
—
|
69.5
|
53.2
|
256.6
|
230.2
|
—
|
—
|
256.6
|
230.2
|
|
As Agent Banks
|
—
|
—
|
474.8
|
287.7
|
—
|
—
|
474.8
|
287.7
|
—
|
—
|
474.8
|
287.7
|
|
Other
|
246.3
|
269.8
|
85.2
|
69.8
|
8.5
|
12.6
|
340.0
|
352.2
|
—
|
—
|
340.0
|
352.2
|
|
Total
|
$
693.5
|
$
704.2
|
$
1,409.8
|
$
1,110.3
|
$
544.6
|
$
417.5
|
$
2,647.9
|
$
2,232.0
|
$
12,153.4
|
$
8,526.4
|
$
14,801.3
|
$
10,758.4
|
For additional information regarding credit exposure to OTC derivative contracts, refer to
Note 7, Derivative Financial Instruments
in our
consolidated financial statements included in this Annual Report on Form 10-K.
|
November
2024
Form
10-K
|
38
|
Country Risk Exposure
Country risk is the risk that events or developments that occur in the general environment of a country or countries due to economic,
political, social, regulatory, legal or other factors, will affect the ability of obligors of the country to honor their obligations. We define the
country of risk as the country of jurisdiction or domicile of the obligor and monitor country risk resulting from both trading positions and
counterparty exposure, which may not include the offsetting benefit of any financial instruments utilized to manage market risk. The
following tables reflect our top exposures at
November 30, 2024
and
2023
to the sovereign governments, corporations and financial
institutions in those non- U.S. countries in which we have net long issuer and counterparty exposure:
|
November 30, 2024
|
|||||||||
|
Issuer Risk
|
Counterparty Risk
|
Issuer and Counterparty Risk
|
|||||||
|
$ in millions
|
Fair Value of
Long Debt
Securities
|
Fair Value of
Short Debt
Securities
|
Net Derivative
Notional
Exposure
|
Loans and
Lending
|
Securities and
Margin
Finance
|
OTC
Derivatives
|
Cash and
Cash
Equivalents
|
Excluding
Cash and
Cash
Equivalents
|
Including
Cash and
Cash
Equivalents
|
|
Canada
|
$
259.2
|
$
(280.1)
|
$
109.7
|
$
—
|
$
46.6
|
$
360.1
|
$
59.3
|
$
495.5
|
$
554.8
|
|
United Kingdom
|
1,332.5
|
(680.8)
|
(364.3)
|
0.1
|
95.8
|
76.5
|
37.9
|
459.8
|
497.7
|
|
France
|
592.2
|
(495.0)
|
7.7
|
0.1
|
184.9
|
1.6
|
—
|
291.5
|
291.5
|
|
Hong Kong
|
73.5
|
(36.5)
|
(6.0)
|
—
|
2.4
|
—
|
250.0
|
33.4
|
283.4
|
|
Spain
|
403.1
|
(263.6)
|
(6.0)
|
—
|
63.1
|
1.2
|
0.5
|
197.8
|
198.3
|
|
Netherlands
|
484.1
|
(450.4)
|
125.4
|
—
|
5.7
|
1.7
|
0.1
|
166.5
|
166.6
|
|
Japan
|
2,146.0
|
(2,093.5)
|
0.4
|
—
|
63.2
|
—
|
37.4
|
116.1
|
153.5
|
|
Australia
|
523.8
|
(426.8)
|
(16.8)
|
—
|
26.5
|
—
|
44.6
|
106.7
|
151.3
|
|
India
|
27.4
|
(29.7)
|
—
|
—
|
—
|
—
|
142.9
|
(2.3)
|
140.6
|
|
Italy
|
1,070.9
|
(569.3)
|
(402.9)
|
—
|
0.4
|
—
|
1.1
|
99.1
|
100.2
|
|
Total
|
$
6,912.7
|
$
(5,325.7)
|
$
(552.8)
|
$
0.2
|
$
488.6
|
$
441.1
|
$
573.8
|
$
1,964.1
|
$
2,537.9
|
|
November 30, 2023
|
|||||||||
|
Issuer Risk
|
Counterparty Risk
|
Issuer and Counterparty Risk
|
|||||||
|
$ in millions
|
Fair Value of
Long Debt
Securities
|
Fair Value of
Short Debt
Securities
|
Net Derivative
Notional
Exposure
|
Loans and
Lending
|
Securities and
Margin
Finance
|
OTC
Derivatives
|
Cash and
Cash
Equivalents
|
Excluding
Cash and
Cash
Equivalents
|
Including
Cash and
Cash
Equivalents
|
|
France
|
$
649.7
|
$
(428.0)
|
$
(70.2)
|
$
—
|
$
183.6
|
$
6.0
|
$
—
|
$
341.1
|
$
341.1
|
|
Canada
|
216.5
|
(168.5)
|
2.1
|
—
|
83.0
|
191.6
|
1.7
|
324.7
|
326.4
|
|
United Kingdom
|
1,088.6
|
(621.6)
|
(244.8)
|
—
|
50.5
|
84.1
|
25.5
|
356.8
|
382.3
|
|
Italy
|
1,138.9
|
(840.1)
|
(75.0)
|
—
|
2.8
|
—
|
0.6
|
226.6
|
227.2
|
|
Hong Kong
|
26.6
|
(33.1)
|
(1.3)
|
—
|
4.9
|
3.0
|
188.1
|
0.1
|
188.2
|
|
Spain
|
553.0
|
(401.8)
|
(50.1)
|
—
|
51.1
|
—
|
0.5
|
152.2
|
152.7
|
|
Netherlands
|
334.9
|
(251.9)
|
53.6
|
—
|
13.0
|
0.7
|
0.5
|
150.3
|
150.8
|
|
Australia
|
423.1
|
(353.5)
|
(2.4)
|
—
|
11.2
|
—
|
37.7
|
78.4
|
116.1
|
|
Switzerland
|
275.5
|
(245.6)
|
18.3
|
—
|
63.8
|
—
|
0.6
|
112.0
|
112.6
|
|
China
|
715.9
|
(631.2)
|
7.7
|
—
|
—
|
—
|
—
|
92.4
|
92.4
|
|
Total
|
$
5,422.7
|
$
(3,975.3)
|
$
(362.1)
|
$
—
|
$
463.9
|
$
285.4
|
$
255.2
|
$
1,834.6
|
$
2,089.8
|
Operational Risk
Operational risk is the risk of financial or non-financial impact,
resulting from inadequate or failed internal processes, people
and systems or from external events. We interpret this definition
as including not only financial loss or gain but also other negative
impacts to our objectives such as reputational impact, legal/
regulatory impact and impact on our clients. Third-party risk is
also included as a subset of operational risk and is defined as the
potential threat presented to us, our employees or clients from
our supply chain and other third parties used to perform a
process, service or activity on our behalf.
Our Operational Risk framework includes governance as well as
operational risk processes, comprises operational risk event
capture and analysis, risk and control self-assessments,
operational risk key indicators, action tracking, risk monitoring
and reporting, deep dive risk assessments, new business
approvals and vendor risk management. Each revenue producing
and support department is responsible for the management and
reporting of operational risks and the implementation of the
Operational Risk Management Policy and processes within the
department with regular operational risk training provided to our
employees.
Operational risk events are mapped to risk categories used for
the consistent classification of risk data to support root cause
and trend analysis, which includes:
•
Fraud and Theft
•
Clients and Business Practices
•
Market Conduct / Regulatory Compliance
•
Business Disruption
•
Technology
•
Data Protection and Privacy
•
Trading
•
Transaction and Process Management
•
People
•
Cybersecurity
•
Vendor Risk
Our Operational Risk Management Policy and operational risk
management framework, infrastructure, methodology, processes,
guidance and oversight of the operational risk processes are
centralized and consistent firmwide and, additionally, subject to
regional and legal entity operational risk governance, as required.
|
39
|
Jefferies Financial Group Inc.
|
We also maintain a Third-Party (“Vendor”) Risk Management
Policy and Framework to ensure adequate control and monitoring
over our critical third parties, which includes processes for
conducting periodic reviews covering areas of risk including
financial health, information security, privacy, business continuity
management, disaster recovery and operational risk of our
vendors.
Model Risk
Model risk refers to the risk of loss resulting from decisions that
are based on the output of models, due to errors or weaknesses
in the design and development, implementation or improper use
of models. We use quantitative models primarily to value certain
financial assets and liabilities and to monitor and manage our
risk. Model risk is a function of the model materiality, frequency
of use, complexity and uncertainty around inputs and
assumptions used in a given model. Robust model risk
management is a core part of our risk management approach
and is overseen through our risk governance structure and risk
management controls.
Legal and Compliance Risk
Legal and compliance risk includes the risk of noncompliance
with applicable legal and regulatory requirements. We are subject
to extensive regulation in the different jurisdictions in which we
conduct our business. We have various procedures addressing
issues such as regulatory capital requirements, sales and trading
practices, use of and safekeeping of customer funds, credit
granting, collection activities, anti-money laundering and record
keeping. These risks also reflect the potential impact that
changes in local and international laws and tax statutes have on
the economics and viability of current or future transactions. In
an effort to mitigate these risks, we continuously review new and
pending regulations and legislation and participate in various
industry interest groups. We also maintain an anonymous hotline
for employees or others to report suspected inappropriate
actions by us or by our employees or agents.
New Business Risk
New business risk refers to the risks of entering into a new line of
business or offering a new product. By entering a new line of
business or offering a new product, we may face risks that we are
unaccustomed to dealing with and may increase the magnitude
of the risks we currently face. The New Business Committee
reviews proposals for new businesses and new products to
determine if we are prepared to handle the additional or
increased risks associated with entering into such activities.
Reputational Risk
We recognize that maintaining our reputation among clients,
investors, regulators and the general public is an important
aspect of minimizing legal and operational risks. Maintaining our
reputation depends on a large number of factors, including the
selection of our clients and the conduct of our business
activities. We seek to maintain our reputation by screening
potential clients and by conducting our business activities in
accordance with high ethical standards. Our reputation and
business activity can be affected by statements and actions of
third parties, even false or misleading statements by them. We
actively monitor public comment concerning us and are vigilant
in seeking to assure accurate information and perception
prevails.
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk
Quantitative and qualitative disclosures about market risk are set
forth under “Management’s Discussion and Analysis of Financial
Condition and Results of Operations —Risk Management” in
Part II, Item 7 of this Form 10-K.
|
November
2024
Form
10-K
|
40
|
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
|
Page
|
|
|
Management’s Report on Internal Control over Financial Reporting
......................................................................................................................................
|
|
|
Reports of Independent Registered Public Accounting Firm
...................................................................................................................................................
|
|
|
Consolidated Statements of Financial Condition
......................................................................................................................................................................
|
|
|
Consolidated Statements of Earnings
.........................................................................................................................................................................................
|
|
|
Consolidated Statements of Comprehensive Income
..............................................................................................................................................................
|
|
|
Consolidated Statements of Changes in Equity
.........................................................................................................................................................................
|
|
|
Consolidated Statements of Cash Flows
....................................................................................................................................................................................
|
|
|
Notes to Consolidated Financial Statements
.............................................................................................................................................................................
|
|
41
|
Jefferies Financial Group Inc.
|
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over
financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and procedures that pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management evaluated our internal control over financial reporting as of
November 30, 2024
. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal Control — Integrated
Framework (2013)
. As a result of this assessment and based on the criteria in this framework, management has concluded that, as of
November 30, 2024
, our internal control over financial reporting was effective.
Deloitte & Touche LLP, our independent registered public accounting firm, has audited and issued a report on our internal control over
|
November
2024
Form
10-K
|
42
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Jefferies Financial Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial condition of Jefferies Financial Group Inc. and subsidiaries
(the “Company”) as of November 30, 2024 and 2023, the related consolidated statements of earnings, comprehensive income, changes
in equity, and cash flows, for each of the three years in the period ended November 30, 2024, and the related notes and the schedules
listed in the Index at Item 15(a)(2) (collectively referred to as the “financial statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Company as of November 30, 2024 and 2023, and the results of its
operations and its cash flows for each of the three years in the period ended November 30, 2024, in conformity with accounting
principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB),
the Company’s internal control over financial reporting as of November 30, 2024, based on criteria established in
Internal Control —
Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
January 28, 2025, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or
fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material
to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical
audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the
critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of financial assets and liabilities measured at fair value on a recurring basis that incorporate significant unobservable inputs
or complex models/methodologies - Refer to Note 2 and Note 6 to the financial statements
Critical Audit Matter Description
The Company estimates fair value for certain financial assets and liabilities utilizing models and unobservable inputs. Unlike the fair
value of other assets and liabilities which are readily observable and therefore more easily independently corroborated, these financial
assets and liabilities are not actively traded or quoted prices are available but traded less frequently, and fair value is determined based
on significant judgments such as models, inputs and valuation methodologies.
We identified the valuation of financial assets and liabilities measured at fair value on a recurring basis that incorporate significant
unobservable inputs or complex models/methodologies
as a critical audit matter because of the pricing inputs, complexity of models
and/or methodologies used by management and third-party specialists to estimate fair value. The valuations involve a high degree of
auditor judgment and an increased extent of effort, including the need to involve our fair value specialists who possess significant
quantitative and modeling experience, to audit and evaluate the appropriateness of the models and inputs.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures for financial assets and liabilities that incorporate significant unobservable inputs or complex models/
methodologies included the following procedures, among others:
•
We tested the design and operating effectiveness of the Company’s valuation controls, including the:
◦
Independent price verification controls.
◦
Pricing model controls which are designed to review a model’s theoretical soundness and its appropriateness.
•
With the assistance of our fair value specialists, we evaluated the reasonableness of management’s valuation methodology and
estimates by:
◦
Developing independent valuation estimates and comparing such estimates to management’s recorded values.
◦
Comparing management’s assumptions and both observable and unobservable inputs to relevant audit evidence, including
external sources, where available.
|
43
|
Jefferies Financial Group Inc.
|
•
We evaluated management’s ability to estimate fair value by comparing management’s valuation estimates to transactions or events
occurring after the valuation date, when available.
/s/
Deloitte & Touche LLP
January 28, 2025
We have served as the Company’s auditor since 2017.
|
November
2024
Form
10-K
|
44
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Jefferies Financial Group, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Jefferies Financial Group Inc. and subsidiaries (the “Company”) as of
November 30, 2024, based on criteria established in
Internal Control — Integrated Framework (2013)
issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of November 30, 2024, based on criteria established in
Internal Control — Integrated
Framework (2013)
issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB),
the consolidated financial statements as of and for the year ended November 30, 2024, of the Company and our report dated January
28, 2025, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control
Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on
our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
New York, New York
January 28, 2025
|
45
|
Jefferies Financial Group Inc.
|
Consolidated
Statements of Financial Condition
|
November 30,
|
||
|
$ in thousands, except share and per share amounts
|
2024
|
2023
|
|
Assets
|
||
|
Cash and cash equivalents
..............................................................................................................................................................
|
$
|
$
|
|
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository
organizations (includes $
|
|
|
|
Financial instruments owned, at fair value (includes securities pledged of
$
|
|
|
|
Investments in and loans to related parties
..................................................................................................................................
|
|
|
|
Securities borrowed
..........................................................................................................................................................................
|
|
|
|
Securities purchased under agreements to resell
........................................................................................................................
|
|
|
|
Securities received as collateral, at fair value
...............................................................................................................................
|
|
|
|
Receivables:
|
||
|
Brokers, dealers and clearing organizations
..............................................................................................................................
|
|
|
|
Customers
.......................................................................................................................................................................................
|
|
|
|
Fees, interest and other
.................................................................................................................................................................
|
|
|
|
Premises and equipment
..................................................................................................................................................................
|
|
|
|
Goodwill
..............................................................................................................................................................................................
|
|
|
|
Assets held for sale (includes pledged assets of
$
|
|
|
|
Other assets (includes assets pledged of
$
|
|
|
|
Total assets
........................................................................................................................................................................................
|
$
|
$
|
|
Liabilities and Equity
|
||
|
Short-term borrowings
......................................................................................................................................................................
|
$
|
$
|
|
Financial instruments sold, not yet purchased, at fair value
.......................................................................................................
|
|
|
|
Securities loaned
...............................................................................................................................................................................
|
|
|
|
Securities sold under agreements to repurchase
.........................................................................................................................
|
|
|
|
Other secured financings (includes
$
|
|
|
|
Obligation to return securities received as collateral, at fair value
............................................................................................
|
|
|
|
Payables:
|
||
|
Brokers, dealers and clearing organizations
..............................................................................................................................
|
|
|
|
Customers
.......................................................................................................................................................................................
|
|
|
|
Lease liabilities
..................................................................................................................................................................................
|
|
|
|
Liabilities held for sale
......................................................................................................................................................................
|
|
|
|
Accrued expenses and other liabilities
...........................................................................................................................................
|
|
|
|
Long-term debt (includes
$
|
|
|
|
Total liabilities
...................................................................................................................................................................................
|
|
|
|
Mezzanine Equity
|
||
|
Redeemable noncontrolling interests
.............................................................................................................................................
|
|
|
|
Equity
|
||
|
Preferred shares, par value of
$
outstanding; liquidation preference of
$
|
|
|
|
Common shares, par value
$
issued and outstanding, after deducting
|
|
|
|
Non-voting common shares, par value
$
outstanding
....................................................................................................................................................................................
|
|
|
|
Additional paid-in capital
..................................................................................................................................................................
|
|
|
|
Accumulated other comprehensive loss
.......................................................................................................................................
|
(
|
(
|
|
Retained earnings
..............................................................................................................................................................................
|
|
|
|
Total Jefferies Financial Group Inc. shareholders' equity
.........................................................................................................
|
|
|
|
Noncontrolling interests
...................................................................................................................................................................
|
|
|
|
Total equity
........................................................................................................................................................................................
|
|
|
|
Total liabilities and equity
...............................................................................................................................................................
|
$
|
$
|
See accompanying notes to consolidated financial statements.
|
November
2024
Form
10-K
|
46
|
Consolidated
Statements of
Earnings
|
Year Ended November 30,
|
|||
|
$ in thousands, except per share amounts
|
2024
|
2023
|
2022
|
|
Revenues
|
|||
|
Investment banking
..........................................................................................................................................
|
$
|
$
|
$
|
|
Principal transactions
......................................................................................................................................
|
|
|
|
|
Commissions and other fees
..........................................................................................................................
|
|
|
|
|
Asset management fees and revenues
.........................................................................................................
|
|
|
|
|
Interest
................................................................................................................................................................
|
|
|
|
|
Other
...................................................................................................................................................................
|
|
|
|
|
Total revenues
..................................................................................................................................................
|
|
|
|
|
Interest expense
................................................................................................................................................
|
|
|
|
|
Net revenues
.....................................................................................................................................................
|
|
|
|
|
Non-interest expenses
|
|||
|
Compensation and benefits
............................................................................................................................
|
|
|
|
|
Brokerage and clearing fees
............................................................................................................................
|
|
|
|
|
Underwriting costs
............................................................................................................................................
|
|
|
|
|
Technology and communications
..................................................................................................................
|
|
|
|
|
Occupancy and equipment rental
...................................................................................................................
|
|
|
|
|
Business development
.....................................................................................................................................
|
|
|
|
|
Professional services
.......................................................................................................................................
|
|
|
|
|
Depreciation and amortization
........................................................................................................................
|
|
|
|
|
Cost of sales
......................................................................................................................................................
|
|
|
|
|
Other expenses
..................................................................................................................................................
|
|
|
|
|
Total non-interest expenses
...........................................................................................................................
|
|
|
|
|
Earnings from continuing operations before income taxes
.......................................................................
|
|
|
|
|
Income tax expense
..........................................................................................................................................
|
|
|
|
|
Net earnings from continuing operations
.....................................................................................................
|
|
|
|
|
Net earnings from discontinued operations
(including gain on disposal of $
income tax benefit of $
|
|
|
|
|
Net earnings
......................................................................................................................................................
|
|
|
|
|
Net losses attributable to noncontrolling interests
.....................................................................................
|
(
|
(
|
(
|
|
Net losses attributable to redeemable noncontrolling interests
...............................................................
|
|
(
|
(
|
|
Preferred stock dividends
................................................................................................................................
|
|
|
|
|
Net earnings attributable to common shareholders
..................................................................................
|
$
|
$
|
$
|
|
Earnings per common share
|
|||
|
Basic from continuing operations
..................................................................................................................
|
$
|
$
|
$
|
|
Diluted from continuing operations
................................................................................................................
|
|
|
|
|
Basic
...................................................................................................................................................................
|
|
|
|
|
Diluted
.................................................................................................................................................................
|
|
|
|
|
Weighted-average common shares outstanding
|
|||
|
Basic
...................................................................................................................................................................
|
|
|
|
|
Diluted
.................................................................................................................................................................
|
|
|
|
See accompanying notes to consolidated financial statements.
|
47
|
Jefferies Financial Group Inc.
|
Consolidated
Statements of Comprehensive
Income
|
Year Ended November 30,
|
|||
|
$ in thousands
|
2024
|
2023
|
2022
|
|
Net earnings
.......................................................................................................................................................
|
$
|
$
|
$
|
|
Other comprehensive loss, net of tax:
.............................................................................................................
|
|||
|
Currency translation adjustments and other (1)
...........................................................................................
|
(
|
|
(
|
|
Changes in fair value related to instrument-specific credit risk (2)
...........................................................
|
(
|
(
|
|
|
Minimum pension liability adjustments (3)
...................................................................................................
|
|
|
|
|
Unrealized gains (losses) on available-for-sale securities
.........................................................................
|
|
|
(
|
|
Total other comprehensive loss, net of tax (4)
.............................................................................................
|
(
|
(
|
(
|
|
Comprehensive income
.....................................................................................................................................
|
|
|
|
|
Net losses attributable to noncontrolling interests
.......................................................................................
|
(
|
(
|
(
|
|
Net losses attributable to redeemable noncontrolling interests
.................................................................
|
|
(
|
(
|
|
Preferred stock dividends
.................................................................................................................................
|
|
|
|
|
Comprehensive income attributable to common shareholders
................................................................
|
$
|
$
|
$
|
(1)
Includes
income tax
(expenses) benefits
of
$(
1.6
) million
,
$(
3.1
) million
and
$
15.6
million
for the
years ended
November 30, 2024
,
2023
and
2022
,
respectively.
(2)
I
ncludes income tax
benefits (expenses)
of
$
9.0
million
,
$
29.0
million
and
$(
15.6
) million
for the
years ended
November 30, 2024
,
2023
and
2022
,
respectively.
(3)
Includes income tax expense of
$
2.2
million
for the year ended
November 30, 2024
.
(4)
Includes unrealized losses of
$
2.2
million
for the
year ended
November 30, 2024
related to currency translation adjustments attributable to
noncontrolling interests.
See accompanying notes to consolidated financial statements.
|
November
2024
Form
10-K
|
48
|
Consolidated Statements of Changes in Equity
|
$ in thousands, except share amounts
|
Year Ended November 30,
|
||
|
2024
|
2023
|
2022
|
|
|
Preferred shares $1 par value
|
|||
|
Balance, beginning of period
...........................................................................................................................
|
$
|
$
|
$
|
|
Conversion of common shares to preferred shares
.................................................................................
|
|
|
|
|
Balance, end of period
.....................................................................................................................................
|
$
|
$
|
$
|
|
Common shares $1 par value
|
|||
|
Balance, beginning of period
...........................................................................................................................
|
$
|
$
|
$
|
|
Purchase of common shares for treasury
..................................................................................................
|
(
|
(
|
(
|
|
Conversion of
|
|
|
|
|
Conversion of common shares to preferred shares
.................................................................................
|
(
|
(
|
|
|
Other
.................................................................................................................................................................
|
|
|
|
|
Balance, end of period
.....................................................................................................................................
|
$
|
$
|
$
|
|
Additional paid-in capital
|
|||
|
Balance, beginning of period
...........................................................................................................................
|
$
|
$
|
$
|
|
Share-based compensation expense
..........................................................................................................
|
|
|
|
|
Change in fair value of redeemable noncontrolling interests
..................................................................
|
|
(
|
(
|
|
Purchase of common shares for treasury
..................................................................................................
|
(
|
(
|
(
|
|
Conversion of
|
|
|
|
|
Dividend equivalents
......................................................................................................................................
|
|
|
|
|
Conversion of common shares to preferred shares
.................................................................................
|
|
|
|
|
Change in equity interest related to consolidated subsidiaries
..............................................................
|
(
|
(
|
|
|
Other
.................................................................................................................................................................
|
|
|
|
|
Balance, end of period
.....................................................................................................................................
|
$
|
$
|
$
|
|
Accumulated other comprehensive loss, net of tax
|
|||
|
Balance, beginning of period
...........................................................................................................................
|
$
(
|
$
(
|
$
(
|
|
Other comprehensive loss, net of tax
..........................................................................................................
|
(
|
(
|
(
|
|
Balance, end of period
.....................................................................................................................................
|
$
(
|
$
(
|
$
(
|
|
Retained earnings
|
|||
|
Balance, beginning of period
...........................................................................................................................
|
$
|
$
|
$
|
|
Net earnings attributable to Jefferies Financial Group Inc.
.....................................................................
|
|
|
|
|
Dividends - common shares (
$
|
(
|
(
|
(
|
|
Dividends - preferred shares
.........................................................................................................................
|
(
|
(
|
|
|
Cumulative effect of change in accounting principle for current expected credit losses, net of tax
|
(
|
(
|
|
|
Distribution of Vitesse Energy, Inc.
..............................................................................................................
|
|
(
|
|
|
Other
.................................................................................................................................................................
|
(
|
|
|
|
Balance, end of period
.....................................................................................................................................
|
$
|
$
|
$
|
|
Total Jefferies Financial Group Inc. shareholders' equity
.........................................................................
|
$
|
$
|
$
|
|
Noncontrolling interests
|
|||
|
Balance, beginning of period
...........................................................................................................................
|
$
|
$
|
$
|
|
Net losses attributable to noncontrolling interests
...................................................................................
|
(
|
(
|
(
|
|
Contributions
...................................................................................................................................................
|
|
|
|
|
Distributions
....................................................................................................................................................
|
(
|
(
|
(
|
|
Deconsolidation of asset management company
....................................................................................
|
|
(
|
(
|
|
Change in equity interest related to Vitesse Energy, Inc.
.........................................................................
|
|
|
|
|
Conversion of redeemable noncontrolling interest to noncontrolling interest
.....................................
|
|
|
|
|
Other
.................................................................................................................................................................
|
|
|
|
|
Balance, end of period
.....................................................................................................................................
|
$
|
$
|
$
|
|
Total equity
........................................................................................................................................................
|
$
|
$
|
$
|
See accompanying notes to consolidated financial statements.
|
49
|
Jefferies Financial Group Inc.
|
Consolidated Statements of Cash Flows
|
Year Ended November 30,
|
|||
|
$ in thousands
|
2024
|
2023
|
2022
|
|
Cash flows from operating activities:
|
|||
|
Net earnings
.......................................................................................................................................................
|
$
|
$
|
$
|
|
Adjustments to reconcile net earnings to net cash (used in) provided by operating activities:
|
|||
|
Depreciation and amortization
.....................................................................................................................
|
|
|
|
|
Deferred income taxes
..................................................................................................................................
|
(
|
|
(
|
|
Share-based compensation
..........................................................................................................................
|
|
|
|
|
Net bad debt expense
....................................................................................................................................
|
|
|
|
|
(Income) losses on investments in and loans to related parties
............................................................
|
(
|
|
|
|
Distributions received on investments in related parties
.........................................................................
|
|
|
|
|
Gain on sale of subsidiaries and investments in related parties
.............................................................
|
(
|
|
(
|
|
Other adjustments
..........................................................................................................................................
|
|
(
|
(
|
|
Net change in assets and liabilities:
|
|||
|
Securities deposited with clearing and depository organizations
..........................................................
|
|
(
|
|
|
Receivables:
|
|||
|
Brokers, dealers and clearing organizations
...........................................................................................
|
(
|
(
|
|
|
Customers
....................................................................................................................................................
|
(
|
(
|
|
|
Fees, interest and other
..............................................................................................................................
|
(
|
(
|
|
|
Securities borrowed
.......................................................................................................................................
|
(
|
(
|
|
|
Financial instruments owned
.......................................................................................................................
|
(
|
(
|
(
|
|
Securities purchased under agreements to resell
.....................................................................................
|
(
|
(
|
|
|
Other assets
....................................................................................................................................................
|
(
|
(
|
(
|
|
Payables:
|
|||
|
Brokers, dealers and clearing organizations
...........................................................................................
|
(
|
|
(
|
|
Customers
....................................................................................................................................................
|
|
|
(
|
|
Securities loaned
............................................................................................................................................
|
|
|
(
|
|
Financial instruments sold, not yet purchased
..........................................................................................
|
(
|
(
|
|
|
Securities sold under agreements to repurchase
......................................................................................
|
|
|
(
|
|
Lease liabilities
...............................................................................................................................................
|
(
|
(
|
(
|
|
Accrued expenses and other liabilities
.......................................................................................................
|
|
(
|
(
|
|
Net cash (used in) provided by operating activities from continuing operations
..................................
|
(
|
(
|
|
|
Net cash (used in) provided by operating activities from discontinued operations
.............................
|
(
|
|
|
|
Cash flows from investing activities:
|
|||
|
Contributions to investments in and loans to related parties
..................................................................
|
(
|
(
|
(
|
|
Capital distributions from investments and repayments of loans from related parties
......................
|
|
|
|
|
Originations and purchases of automobile loans, notes and other receivables
...................................
|
(
|
(
|
(
|
|
Principal collections of automobile loans, notes and other receivables
................................................
|
|
|
|
|
Net payments on premises and equipment
...............................................................................................
|
(
|
(
|
(
|
|
Proceeds from sales of subsidiaries and investments in related parties, net of expenses and
cash of operations sold
............................................................................................................................
|
|
|
|
|
Net cash acquired in business acquisitions
...............................................................................................
|
|
|
|
|
Proceeds for the sale from investments
.....................................................................................................
|
|
|
|
|
Deconsolidation of asset management entity
...........................................................................................
|
|
|
(
|
|
Other
.................................................................................................................................................................
|
|
|
|
|
Net cash provided by (used in) investing activities from continuing operations
..................................
|
|
(
|
(
|
|
November
2024
Form
10-K
|
50
|
Consolidated Statements of Cash Flows
|
Year Ended November 30,
|
|||
|
$ in thousands
|
2024
|
2023
|
2022
|
|
Cash flows from financing activities:
|
|||
|
Proceeds from short-term borrowings
........................................................................................................
|
$
|
$
|
$
|
|
Payments on short-term borrowings
...........................................................................................................
|
(
|
(
|
(
|
|
Proceeds from issuance of long-term debt, net of issuance costs
........................................................
|
|
|
|
|
Repayment of long-term debt
.......................................................................................................................
|
(
|
(
|
(
|
|
Proceeds from conversion of common to preferred shares
...................................................................
|
|
|
|
|
Purchase of common shares for treasury
..................................................................................................
|
(
|
(
|
(
|
|
Dividends paid to common and preferred shareholders
..........................................................................
|
(
|
(
|
(
|
|
Net proceeds from (payments on) other secured financings
..................................................................
|
|
|
(
|
|
Net change in bank overdrafts
.....................................................................................................................
|
(
|
|
(
|
|
Proceeds from contributions of noncontrolling interests
........................................................................
|
|
|
|
|
Payments on distributions to noncontrolling interests
............................................................................
|
(
|
|
(
|
|
Other
.................................................................................................................................................................
|
|
|
|
|
Net cash provided by (used in) financing activities from continuing operations
..................................
|
|
|
(
|
|
Net cash (used in) provided by financing activities from discontinued operations
..............................
|
(
|
|
|
|
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
................................
|
(
|
|
(
|
|
Change in cash, cash equivalents, and restricted cash reclassified from (to) assets held for sale
.....
|
(
|
(
|
|
|
Net increase (decrease) in cash, cash equivalents, and restricted cash
..................................................
|
|
(
|
(
|
|
Cash, cash equivalents, and restricted cash at beginning of period
.........................................................
|
|
|
|
|
Cash and cash equivalents at end of period
................................................................................................
|
$
|
$
|
$
|
|
Supplemental disclosures of cash flow information:
|
|||
|
Cash paid during the period for:
|
|||
|
Interest
.............................................................................................................................................................
|
$
|
$
|
$
|
|
Income taxes, net
...........................................................................................................................................
|
|
|
|
Noncash investing activities:
•
During the
year ended
November 30, 2024
, we had a stock distribution of
$
0.6
million
. from one of our equity method investments.
•
During the
year ended
November 30, 2023, we had acquisition related activity attributable to Vitesse Oil, LLC of
$
30.6
million
.
•
During the
year ended
November 30, 2022, we sold our interest in the Oak Hill investment management company. Noncash investing
activities related to the sale were a receivable of
$
215.9
million
.
Refer to
Note 4, Business Acquisitions
for the noncash effects of our consolidations of Stratos and OpNet.
Refer to
Note 5, Assets Held for Sale and Discontinued Operations
for the noncash effects of Foursight and OpNet.
Noncash financing activities:
During the
year ended
November 30, 2023
, we had the following non-cash financing activities:
•
Capital distributions of
$
527.0
million
and
$
31.4
million
to our shareholders and noncontrolling interest holders, respectively, related
to the spin-off of Vitesse Energy, Inc.
•
During the
year ended
November 30, 2023
, preferred shares of
$
125.0
million
were converted to common shares.
Cash, cash equivalents and restricted cash by category in our Consolidated Statements of Financial Condition:
|
November 30,
|
November 30,
|
|
|
$ in thousands
|
2024
|
2023
|
|
Cash and cash equivalents
...........................................................................................................................................
|
$
|
$
|
|
Cash on deposit for regulatory purposes with clearing and depository organizations
.......................................
|
|
|
|
Total cash, cash equivalents and restricted cash
....................................................................................................
|
$
|
$
|
See accompanying notes to consolidated financial statements.
|
51
|
Jefferies Financial Group Inc.
|
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Index
|
Page
|
|
|
Note 1. Organization and Basis of Presentation
......................................................................................................................................................................
|
|
|
Note 2. Summary of Significant Accounting Policies
.............................................................................................................................................................
|
|
|
Note 3. Accounting Developments
............................................................................................................................................................................................
|
|
|
Note 4. Business Acquisitions
....................................................................................................................................................................................................
|
|
|
Note 5. Assets Held for Sale and Discontinued Operations
...................................................................................................................................................
|
|
|
Note 6. Fair Value Disclosures
....................................................................................................................................................................................................
|
|
|
Note 7. Derivative Financial Instruments
..................................................................................................................................................................................
|
|
|
Note 8. Collateralized Transactions
...........................................................................................................................................................................................
|
|
|
Note 9. Securitization Activities
.................................................................................................................................................................................................
|
|
|
Note 10. Variable Interest Entities
..............................................................................................................................................................................................
|
|
|
Note 11. Investments
...................................................................................................................................................................................................................
|
|
|
Note 12. Credit Losses on Financial Assets Measured at Amortized Cost
.........................................................................................................................
|
|
|
Note 13. Goodwill and Intangible Assets
..................................................................................................................................................................................
|
|
|
Note 14. Revenues from Contracts with Customers
...............................................................................................................................................................
|
|
|
Note 15. Compensation Plans
....................................................................................................................................................................................................
|
|
|
Note 16. Benefit Plans
.................................................................................................................................................................................................................
|
|
|
Note 17. Leases
............................................................................................................................................................................................................................
|
|
|
Note 18. Borrowings
.....................................................................................................................................................................................................................
|
97
|
|
Note 19. Total Equity
....................................................................................................................................................................................................................
|
|
|
Note 20. Income Taxes
................................................................................................................................................................................................................
|
|
|
Note 21. Commitments, Contingencies and Guarantees
.......................................................................................................................................................
|
|
|
Note 22. Regulatory Requirements
............................................................................................................................................................................................
|
|
|
Note 23. Segment Reporting
.......................................................................................................................................................................................................
|
|
|
Note 24. Related Party Transactions
.........................................................................................................................................................................................
|
|
November
2024
Form
10-K
|
52
|
Notes to Consolidated Financial Statements
Organization
Jefferies Financial Group Inc. is a U.S.-headquartered global full
service, integrated investment banking and capital markets firm.
The accompanying Consolidated Financial Statements represent
the accounts of Jefferies Financial Group Inc. and subsidiaries
(together, the “Company,” “we” or “us”). We, collectively with our
consolidated subsidiaries and through our affiliates, deliver a
broad range of financial services across investment banking,
capital markets and asset management.
We operate in
two
reportable business segments: (1) Investment
Banking and Capital Markets and (2) Asset Management. The
Investment Banking and Capital Markets reportable business
segment includes our capital markets activities and our
investment banking business, which provides underwriting and
financial advisory services to our clients. We operate in the
Americas; Europe and the Middle East; and Asia-Pacific.
Investment Banking and Capital Markets also includes our
corporate lending joint venture (“Jefferies Finance LLC” or
“Jefferies Finance”), our commercial real estate joint venture
(“Berkadia Commercial Holding LLC” or “Berkadia”) and
historically our automobile lending and servicing activities. The
Asset Management reportable business segment provides
alternative investment management services to investors in the
U.S. and overseas and generates investment income from capital
invested in and managed by us or our affiliated asset managers,
and includes certain remaining businesses and assets of our
legacy merchant banking portfolio.
On
January 13, 2023
, our consolidated subsidiary, Vitesse Energy,
Inc. (“Vitesse Energy”), issued shares measured at a total
consideration of
$
30.6
million
in exchange for acquiring all of the
outstanding capital interests of Vitesse Oil, LLC (“Vitesse Oil”).
Prior to the acquisition, Vitesse Oil was controlled by Jefferies
Capital Partners V L.P. and Jefferies SBI USA Fund L.P. (together,
“JCP Fund V”), which are private equity funds managed by a team
led by our President. Simultaneously, we distributed all of our
ownership interests in Vitesse Energy on a tax-free pro rata basis
to all of our shareholders, resulting in a distribution of capital of
$
527.0
million
. The distribution of Vitesse Energy resulted in a
reduction at the time of spin-off of Total assets of
$
699.5
million
,
Total liabilities of
$
141.1
million
and Total equity of
$
558.4
million
inclusive of the distribution of capital to
noncontrolling interest holders.
During the year ended
November 30, 2022
, we sold all of our
interests in Idaho Timber and Oak Hill investment management
company, a registered investment adviser and general partner
entity.
During the fourth quarter of
2023
, we acquired Stratos Group
International (“Stratos”) (formerly FXCM Group, LLC, or “FXCM”)
and OpNet S.p.A. (“OpNet,” formerly known as “Linkem”),
investments in our legacy merchant banking portfolio which
became consolidated subsidiaries.
In April 2024, we finalized the
sale of Foursight Capital LLC (“Foursight”). In February 2024,
OpNet agreed to sell substantially all of its wholesale operating
assets to Wind Tre S.p.A., a subsidiary of CK Hutchison Group
Telecom Holdings Ltd. The sale closed in August 2024.
Refer to
Note 4, Business Acquisitions
and
Note 5, Assets Held for Sale
and Discontinued Operations
for further information.
The accompanying Consolidated Financial Statements have been
prepared in accordance with U.S. generally accepted accounting
principles (“U.S. GAAP”) for financial information.
We have made a number of estimates and assumptions relating
to the reporting of assets and liabilities, the disclosure of
contingent assets and liabilities and the reported amounts of
revenues and expenses during the reporting period to prepare
these consolidated financial statements in conformity with U.S.
GAAP. The most important of these estimates and assumptions
relate to fair value measurements, compensation and benefits,
goodwill and intangible assets and the accounting for income
taxes. Although these and other estimates and assumptions are
based on the best available information, actual results could be
materially different from these estimates.
Our policy is to consolidate all entities that we control by
ownership of a majority of the outstanding voting stock. In
addition, we consolidate entities that meet the definition of a
variable interest entity (“VIE”) for which we are the primary
beneficiary. The primary beneficiary is the party who has the
power to direct the activities of a VIE that most significantly
impact the entity’s economic performance and who has an
obligation to absorb losses of the entity or a right to receive
benefits from the entity that could potentially be significant to the
entity. For consolidated entities that are less than wholly-owned,
the third-party’s holding of equity interest is presented as
Noncontrolling interests in our Consolidated Statements of
Financial Condition and Consolidated Statements of Changes in
Equity. The portion of net earnings attributable to the
noncontrolling interests is presented as Net earnings (losses)
attributable to noncontrolling interests in our Consolidated
Statements of Earnings.
In situations in which we have significant influence, but not
control, of an entity that does not qualify as a VIE, we apply either
the equity method of accounting or fair value accounting
pursuant to the fair value option election under U.S. GAAP, with
our portion of net earnings or gains and losses recorded in Other
revenues or Principal transactions revenues, respectively. We
also have formed nonconsolidated investment vehicles with
third-party investors that are typically organized as partnerships
or limited liability companies and are carried at fair value. We act
as general partner or managing member for these investment
vehicles and have generally provided the third-party investors
with termination or “kick-out” rights.
Intercompany accounts and transactions are eliminated in
consolidation.
|
53
|
Jefferies Financial Group Inc.
|
Notes to Consolidated Financial Statements
Commissions and Other Fees.
All customer securities
transactions are reported in our Consolidated Statements of
Financial Condition on a settlement date basis with related
income reported on a trade-date basis. We permit institutional
customers to allocate a portion of their gross commissions to
pay for research products and other services provided by third
parties. The amounts allocated for those purposes are commonly
referred to as soft dollar arrangements. These arrangements are
accounted for on an accrual basis and, as we are acting as an
agent in these arrangements, netted against commission
revenues. In addition, we earn asset-based fees associated with
the management and supervision of assets, account services and
administration related to customer accounts. We also earn
commissions on execution services provided to customers in
facilitating foreign currency spot trades and prime brokerage
services.
Principal Transactions.
Financial instruments owned and
Financial instruments sold, not yet purchased are carried at fair
value with gains and losses reflected in Principal transactions
revenues, except for derivatives accounted for as hedges (refer
to “Hedge Accounting” section herein and
Note 7, Derivative
Financial Instruments
). Fees received on loans carried at fair
value are also recorded in Principal transactions revenues.
Investment Banking
. Advisory fees from mergers and acquisitions
engagements are recognized at a point in time when the related
transaction is completed. Advisory retainer
fees from
restructuring engagements are recognized over time using a time
elapsed measure of progress.
Expenses associated with
investment banking advisory engagements are deferred only to
the extent they are explicitly reimbursable by the client and the
related revenue is recognized at a point in time. All other
investment banking advisory related expenses, including
expenses incurred related to restructuring advisory engagements,
are expensed as incurred. All investment banking advisory
expenses are recognized within their respective expense
category on the Consolidated Statements of Earnings and any
expenses reimbursed by clients are recognized as Investment
banking revenues.
Underwriting and placement agent revenues are recognized at a
point in time on trade-date. Costs associated with underwriting
activities are deferred until the related revenue is recognized or
the engagement is otherwise concluded and are recorded on a
gross basis within Underwriting costs.
Asset Management Fees and Revenues.
Asset management fees
and revenues consist of asset management fees, as well as
revenues from strategic affiliates pursuant to arrangements,
which entitle us to portions of the revenues and/or profits of the
affiliated managers and perpetual rights to certain defined
revenues for a given revenue share period. Revenue from
strategic affiliates pursuant to such arrangements is recognized
at the end of the defined revenue or profit share period when the
revenues have been realized and all contingencies have been
resolved.
Management and administrative fees are generally recognized
over the period that the related service is provided. Performance
fee revenue is generally recognized only at the end of the
performance period to the extent that the benchmark return has
been met.
Interest Revenue and Expense.
We recognize contractual interest
on Financial instruments owned and Financial instruments sold,
not yet purchased, on an accrual basis as a component of
interest revenue and expense. Interest flows on derivative trading
transactions and dividends are included as part of the fair
valuation of these contracts and recognized in Principal
transactions revenues rather than as a component of interest
revenue or expense. We account for our short- and long-term
borrowings at amortized cost, except for those for which we have
elected the fair value option, with related interest recorded on an
accrual basis as Interest expense. Discounts/premiums arising
on our long-term debt are accreted/amortized to Interest expense
using the effective yield method over the remaining lives of the
underlying debt obligations. We recognize interest revenue
related to our securities borrowed and securities purchased
under agreements to resell activities and interest expense related
to our securities loaned and securities sold under agreements to
repurchase activities on an accrual basis
. In addition, we
recognize interest income as earned on brokerage customer
margin balances and interest expense as incurred on credit
balances.
Other
Revenues.
Other revenues include revenue from the sale of
manufactured or remanufactured lumber for which the
transaction price is fixed at the time of sale and revenue is
generally recognized when the customer takes control of the
product. Other revenues also include revenue from the sale of
produced oil and gas and revenue from the sale of real estate.
Contracts for revenue from the sale of produced oil and gas
typically include variable consideration based on monthly pricing
tied to local indices and volumes and revenue is recorded at the
point in time when control of the produced oil and gas transfers
to the customer, which is when the performance obligation is
satisfied and the variable consideration can be reliably estimated
at the end of each month. Revenues from the sales of real estate
are recognized at a point in time when the related transaction is
complete. If performance obligations under the contract with a
customer related to a parcel of real estate are not yet complete
when title transfers to the buyer, revenue associated with the
incomplete performance obligations is deferred until the
performance obligation is completed. Revenues from internet
connection services are recognized based on volume based
pricing and revenue from activating broadband services are
recognized on a straight-line basis over a two year period. Fees
related to selling and licensing information and data to clients is
recognized ratably over the related contract service period.
Cash equivalents include highly liquid investments, including
money market funds and certificates of deposit, not held for
resale with original maturities of three months or less.
Purposes or Deposited with Clearing and Depository
Organizations
In accordance with Rule 15c3-3 of the Securities Exchange Act of
1934, Jefferies LLC as a broker-dealer carrying client accounts, is
subject to requirements related to maintaining cash or qualified
securities in a segregated reserve account for the exclusive
benefit of its clients. Certain other entities are also obligated by
rules mandated by their primary regulators to segregate or set
aside cash or equivalent securities to satisfy regulations,
promulgated to protect customer assets.
In addition, certain
exchange and/or clearing organizations require cash and/or
securities to be deposited by us to conduct day-to-day activities.
|
November
2024
Form
10-K
|
54
|
Notes to Consolidated Financial Statements
Amounts may also include cash and cash equivalents that are
Financial instruments owned and Financial instruments sold, not
yet purchased are recorded at fair value, either as required by
accounting pronouncements or through the fair value option
election. These instruments primarily represent our trading
activities and include both cash and derivative products. Our
derivative products are acquired or originated for trading
purposes and are included within operating activities on our
Consolidated Statements of Cash Flows. Gains and losses are
recognized in Principal transactions revenues. The fair value of a
financial instrument is the amount that would be received to sell
an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date (the exit
price).
In determining fair value, we maximize the use of observable
inputs and minimize the use of unobservable inputs by requiring
that observable inputs be used when available. Observable inputs
are inputs that market participants would use in pricing the asset
or liability based on market data obtained from independent
sources. Unobservable inputs reflect our assumptions that
market participants would use in pricing the asset or liability
developed based on the best information available in the
circumstances. We apply a hierarchy to categorize our fair value
measurements broken down into three levels based on the
transparency of inputs as follows:
|
Level 1:
|
Quoted prices are available in active markets for
identical assets or liabilities at the reported date.
Valuation adjustments and block discounts are not
applied to Level 1 instruments.
|
|
Level 2:
|
Pricing inputs other than quoted prices in active
markets, which are either directly or indirectly
observable at the reported date. The nature of these
financial instruments include cash instruments for
which quoted prices are available but traded less
frequently, derivative instruments for which fair values
have been derived using model inputs that are directly
observable in the market, or can be derived principally
from, or corroborated by, observable market data, and
financial instruments that are fair valued by reference
to other similar financial instruments, the parameters
of which can be directly observed.
|
|
Level 3:
|
Instruments that have little to no pricing observability
at the reported date. These financial instruments are
measured using management’s best estimate of fair
value, where the inputs into the determination of fair
value require significant management judgment or
estimation.
|
Certain financial instruments have bid and ask prices that can be
observed in the marketplace. For financial instruments whose
inputs are based on bid-ask prices, the financial instrument is
valued at the point within the bid-ask range that meets our best
estimate of fair value. We use prices and inputs that are current
at the measurement date. For financial instruments that do not
have readily determinable fair values using quoted market prices,
the determination of fair value is based on the best available
information, taking into account the types of financial
instruments, current financial information, restrictions (if any) on
dispositions, fair values of underlying financial instruments and
quotations for similar instruments.
The valuation of financial instruments may include the use of
valuation models and other techniques. Adjustments to
valuations derived from valuation models are permitted based on
management’s judgment, which takes into consideration the
features of the financial instrument such as its complexity, the
market in which the financial instrument is traded and underlying
risk uncertainties about market conditions. Adjustments from the
price derived from a valuation model reflect management’s
judgment that other participants in the market for the financial
instrument being measured at fair value would also consider in
valuing that same financial instrument. To the extent that
valuation is based on models or inputs that are less observable
or unobservable in the market, the determination of fair value
requires more judgment.
The availability of observable inputs can vary and is affected by a
wide variety of factors, including, for example, the type of
financial instrument and market conditions. As the observability
of prices and inputs may change for a financial instrument from
period to period, this condition may cause a transfer of an
instrument among the fair value hierarchy levels. The degree of
judgment exercised in determining fair value is greatest for
instruments categorized within Level 3
.
Securities borrowed and securities loaned are carried at the
amounts of cash collateral advanced and received in connection
with the transactions and accounted for as collateralized
financing transactions. In connection with both trading and
brokerage activities, we borrow securities to cover short sales
and to complete transactions in which customers have failed to
deliver securities by the required settlement date and lend
securities to other brokers and dealers for similar purposes.
When we borrow securities, we generally provide cash to the
lender as collateral, which is reflected in our Consolidated
Statements of Financial Condition as Securities borrowed. We
earn interest revenues on this cash collateral. Similarly, when we
lend securities to another party, that party provides cash to us as
collateral, which is reflected in our Consolidated Statements of
Financial Condition as Securities loaned. We pay interest expense
on the cash collateral received from the party borrowing the
securities. The initial collateral advanced or received
approximates or is greater than the fair value of the securities
borrowed or loaned. We monitor the fair value of the securities
borrowed and loaned on a daily basis and request additional
collateral or return excess collateral, as appropriate. In instances
where the Company receives securities as collateral in
connection with securities-for-securities transactions in the
which the Company is the lender of securities and is permitted to
sell or repledge the securities received as collateral, the Company
reports the fair value of the collateral received and the related
obligation to return the collateral in the Company’s Consolidated
Statements of Financial Condition.
Sold Under Agreements to Repurchase
Securities purchased under agreements to resell and Securities
sold under agreements to repurchase (collectively “repos”) are
accounted for as collateralized financing transactions and are
recorded at their contracted resale or repurchase amount plus
accrued interest. We earn and incur interest over the term of the
repo, which is reflected in Interest revenue and Interest expense
on an accrual basis. Repos are presented in our Consolidated
Statements of Financial Condition on a net-basis by counterparty,
where permitted by U.S. GAAP. We monitor the fair value of the
|
55
|
Jefferies Financial Group Inc.
|
Notes to Consolidated Financial Statements
underlying securities daily versus the related receivable or
payable balances. Should the fair value of the underlying
securities decline or increase, additional collateral is requested or
excess collateral is returned, as appropriate.
Financing Agreements
To manage our exposure to credit risk associated with our
derivative activities and securities financing transactions, we may
enter into International Swaps and Derivative Association, Inc.
(“ISDA”) master netting agreements, master securities lending
agreements, master repurchase agreements or similar
agreements and collateral arrangements with counterparties. A
master agreement creates a single contract under which all
transactions between two counterparties are executed allowing
for trade aggregation and a single net payment obligation. Master
agreements provide protection in bankruptcy in certain
circumstances and, where legally enforceable, enable receivables
and payables with the same counterparty to be settled or
otherwise eliminated by applying amounts due against all or a
portion of an amount due from the counterparty or a third-party.
Under our ISDA master netting agreements, we typically also
execute credit support annexes, which provide for collateral,
either in the form of cash or securities, to be posted by or paid to
a counterparty based on the fair value of the derivative receivable
or payable based on the rates and parameters established in the
credit support annex.
In the event of the counterparty’s default, provisions of the
master agreement permit acceleration and termination of all
outstanding transactions covered by the agreement such that a
single amount is owed by, or to, the non-defaulting party. In
addition, any collateral posted can be applied to the net
obligations, with any excess returned; and the collateralized party
has a right to liquidate the collateral. Any residual claim after
netting is treated along with other unsecured claims in
bankruptcy court.
The conditions supporting the legal right of offset may vary from
one legal jurisdiction to another and the enforceability of master
netting agreements and bankruptcy laws in certain countries or in
certain industries is not free from doubt. The right of offset is
dependent both on contract law under the governing
arrangement and consistency with the bankruptcy laws of the
jurisdiction where the counterparty is located. Industry legal
opinions with respect to the enforceability of certain standard
provisions in respective jurisdictions are relied upon as a part of
managing credit risk. In cases where we have not determined an
agreement to be enforceable, the related amounts are not offset.
Master netting agreements are a critical component of our risk
management processes as part of reducing counterparty credit
risk and managing liquidity risk.
We are also a party to clearing agreements with various central
clearing parties. Under these arrangements, the central clearing
counterparty facilitates settlement between counterparties based
on the net payable owed or receivable due and, with respect to
daily settlement, cash is generally only required to be deposited
to the extent of the net amount. In the event of default, a net
termination amount is determined based on the market values of
all outstanding positions and the clearing organization or clearing
member provides for the liquidation and settlement of the net
termination amount among all counterparties to the open
contracts or transactions.
Refer to
Note 7, Derivative Financial Instruments
, and
Note 8,
Collateralized Transactions
for further information.
We engage in securitization activities related to corporate loans,
consumer loans, mortgage loans and mortgage-backed and other
asset-backed securities. Transfers of financial assets to secured
funding vehicles are accounted for as sales when we have
relinquished control over the transferred assets. The gain or loss
on sale of such financial assets depends, in part, on the previous
carrying amount of the assets involved in the transfer allocated
between the assets sold and the retained interests, if any, based
upon their respective fair values at the date of sale. We may
retain interests in the securitized financial assets as one or more
tranches of the securitization. These retained interests are
included in Financial instruments owned, at fair value. Any
changes in the fair value of such retained interests are
recognized in Principal transactions revenues.
When a transfer of assets does not meet the criteria of a sale, we
account for the transfer as a secured borrowing and continue to
recognize the assets of a secured borrowing in Financial
instruments owned and recognize the associated financing in
Other secured financings.
Investments in and loans to related parties include investments
in private equity and other operating entities in which we exercise
significant influence over operating and capital decisions and
loans issued in connection with such activities. Investments in
and loans to related parties are accounted for using the equity
method or at cost, as appropriate, and reviewed for impairment
when changes in circumstances may indicate a decrease in value
which is other than temporary. Revenues on Investments in and
Note 11, Investments
, and
Note 24, Related Party Transactions
for additional information regarding certain of these investments.
Financial assets measured at amortized cost are presented at
the net amount expected to be collected and the measurement of
credit losses and any expected increases in expected credit
losses are recognized in earnings. The estimate of expected
credit losses involves judgment and is based on an assessment
over the life of the financial instrument taking into consideration
current market conditions and reasonable and supportable
forecasts of expected future economic conditions.
Goodwill.
Goodwill represents the excess acquisition cost over
the fair value of net tangible and intangible assets
acquired. Goodwill is not amortized and is subject to annual
impairment testing on August 1 for our Investment Banking,
Fixed Income, Equities and Asset Management reporting units,
on November 30 for other identified reporting units or between
annual tests if an event or change in circumstance occurs that
would more likely than not reduce the fair value of a reporting
unit below its carrying value. The goodwill impairment test is
performed at the reporting unit level by comparing the estimated
fair value of a reporting unit with its respective carrying value,
including goodwill and allocated intangible assets. If the
estimated fair value exceeds the carrying value, goodwill at the
reporting unit level is not impaired. If the fair value is less than
the carrying value, then an impairment loss is recognized for the
amount by which the carrying value of the reporting unit exceeds
the reporting unit’s fair value.
|
November
2024
Form
10-K
|
56
|
Notes to Consolidated Financial Statements
The fair value of reporting units is based on widely accepted
valuation techniques that we believe market participants would
use, although the valuation process requires significa
nt judgment
and often involves the use of significant estimates and
assumptions. The methodologies we utilize in estimating the fair
value of reporting units include market valuation methods that
incorporate price-to-earnings and price-to-book multiples of
comparable exchange-traded companies and multiples of merger
and acquisitions of similar businesses and/or projected cash
flows. The estimates and assumptions used in determining fair
value could have a significant effect on whether or not an
impairment charge is recorded and the magnit
ude of such a
charge. Adverse market or economic events could result in
impairment charges in future periods.
Intangible Assets
. Intangible assets deemed to have finite lives
are amortized on a straight-line basis over their estimated useful
lives, where the useful life is the period over which the asset is
expected to contribute directly, or indirectly, to our future cash
flows. Intangible assets are reviewed for impairment on an
interim basis when certain events or circumstances exist. For
intangible assets deemed to be impaired, an impairment loss is
recognized for the amount by which the intangible asset’s
carrying value exceeds its fair value. At least annually, the
remaining useful life is evaluated.
An intangible asset with an indefinite useful life is not amortized
but assessed for impairment annually, or more frequently, when
events or changes in circumstances occur indicating that it is
more likely than not that the indefinite-lived asset is impaired.
Impairment exists when the carrying amount exceeds its fair
value. In testing for impairment, we have the option to first
perform a qualitative assessment to determine whether it is more
likely than not that an impairment exists. If it is determined that it
is not more likely than not that an impairment exists, a
quantitative impairment test is not necessary. If we conclude
otherwise, we are required to perform a quantitative impairment
test.
Intangible assets are included in Other assets. Our annual
indefinite-lived intangible asset impairment testing date is August
1
. To the extent an impairment loss is recognized, the loss
establishes the new cost basis of the asset that is amortized over
the remaining useful life of that asset, if any. Subsequent reversal
of impairment losses is not permitted.
Refer to
Note 13, Goodwill and Intangible Assets
for further
information.
Premises and equipment consist of leasehold improvements,
furniture, fixtures, computer and communications equipment,
capitalized software (externally purchased and developed for
internal use) and owned aircraft. Furniture, fixtures, computer and
communications equipment, capitalized software are
depreciated using the straight-line method over the estimated
useful lives of the related assets (generally
three
to
ten years
).
Leasehold improvements are amortized using the straight-line
method over the term of the related leases or the estimated
useful lives of the assets, whichever is shorter. The carrying
values of internally developed software ready for its intended use
are depreciated over the remaining useful life of each capitalized
software.
At
November 30, 2024
and
2023
, premises and equipment (not
including right-of-use assets) amounted to
$
1.51
billion
and
$
1.16
billion
, respectively. Accumulated depreciation and
amortization was
$
816.1
million
and
$
551.5
million
at
November 30, 2024
and
2023
, respectively.
Depreciation and amortization expense amounted to
$
190.3
million
,
$
112.2
million
and
$
172.9
million
for the years ended
November 30, 2024
,
2023
and
2022
, respectively.
For leases with an original term longer than one year, lease
liabilities are initially recognized on the lease commencement
date based on the present value of the future minimum lease
payments over the lease term, including non-lease components
such as fixed common area maintenance costs and other fixed
costs for generally all leases. A corresponding right-of-use
(“ROU”) asset is initially recognized equal to the lease liability
adjusted for any lease prepayments, initial direct costs and lease
incentives. The ROU assets are included within Premises and
equipment on our Consolidated Statements of Financial
Condition. The ROU assets are amortized over the lease term and
is included in Occupancy and equipment rental in our Statements
of Consolidated Earnings and Other adjustments in our
Consolidated Statements of Cash Flows.
The discount rates used in determining the present value of
leases represent our collateralized borrowing rate considering
each lease’s term and currency of payment. The lease term
includes options to extend or terminate the lease when it is
reasonably certain that we will exercise that option. Certain
leases have renewal options that can be exercised at the
discretion of the Company. Lease expense is generally
recognized on a straight-line basis over the lease term and
Other real estate is classified within Other assets and includes all
expenditures incurred in connection with the acquisition,
development and construction of properties. Interest, payroll
related to construction, property taxes and other professional
fees attributable to land and property construction are capitalized
and added to the cost of those properties when active
development begins and ends when the property development is
ended
November 30, 2024
,
2023
and
2022
, capitalized interest of
$
14.2
million
,
$
12.9
million
and
$
13.5
million
, respectively, was
allocated among real estate projects that are currently under
development.
We have investments in entities that are consolidated by us that
are engaged in real estate activities and, prior to the sale of Idaho
Timber during the year ended November 30, 2022,
were engaged
in manufacturing activities
. Inventories arising from these
consolidated entities are classified as Other assets and are
stated at the lower of cost or net realizable value, with cost
principally determined under the first-in-first-out method. Cost of
goods sold, which is recognized within Non-interest expenses in
connection with sales of such inventories, principally includes
product and manufacturing costs, inbound and outbound
|
57
|
Jefferies Financial Group Inc.
|
Notes to Consolidated Financial Statements
We evaluate our long-lived assets for impairment whenever
events or changes in circumstances indicate, in management’s
judgment, that the carrying value of such assets may not be
recoverable. When testing for impairment, we group our long-
lived assets with other assets and liabilities at the lowest level for
which identifiable cash flows are largely independent of the cash
flows of other assets and liabilities (or asset group). The
determination of whether an asset group is recoverable is based
on management’s estimate of undiscounted future cash flows
directly attributable to the asset group as compared to its
carrying value. If the
carrying amount of the asset group is
greater than the undiscounted cash flows, an impairment loss
would be recognized for the amount by which the carrying
amount of the asset group exceeds its estimated fair value.
We classify assets and related liabilities as held for sale when: (i)
management has committed to a plan to sell the assets, (ii) the
net assets are available for immediate sale, (iii) there is an active
program to locate a buyer and (iv) the sale and transfer of the net
assets is probable within one year. Assets and liabilities held for
sale generally are presented separately on our Consolidated
Statements of Financial Condition with a valuation allowance, if
necessary, to recognize the net carrying amount at the lower of
cost or fair value, less costs to sell. Depreciation of property,
plant and equipment and amortization of finite-lived intangible
assets and right-of-use assets are not recorded while these
assets are classified as held for sale. For each period that assets
are classified as being held for sale, they are tested for
Discontinued Operations
for additional information.
Share-based awards are measured based on the fair value of the
award and recognized over the required service or vesting period.
Certain executive and employee share-based awards contain
market, performance and/or service conditions. Market
conditions are incorporated into the grant-date fair value using a
Monte Carlo valuation model. Compensation expense for awards
with market conditions is recognized over the service period and
is not reversed if the market condition is not met. Awards with
performance conditions are amortized over the service period if it
is determined that it is probable that the performance condition
will be achieved. The fair value of options is estimated at the date
of grant using the Black-Scholes option pricing model. We
account for forfeitures as they occur, which results in dividends
and dividend equivalents originally charged against retained
earnings for forfeited shares to be reclassified to compensation
expense in the period in which the forfeiture occurs.
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and for tax loss
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to
be recovered or settled. The effect of a change in tax rates on
deferred tax assets and liabilities is recognized in income in the
period that includes the enactment date. The realization of
deferred tax assets is assessed and a valuation allowance is
recorded to the extent that it is more likely than not that any
portion of the deferred tax asset will not be realized on the basis
of its projected tax return results.
We record uncertain tax positions using a two-step process:
(i) we determine whether it is more likely than not that each tax
position will be sustained on the basis of the technical merits of
the position; and (ii) for those tax positions that meet the more-
likely-than-not recognition threshold, we recognize the largest
amount of tax benefit that is more than
50 percent
likely to be
realized upon ultimate settlement with the related tax authority.
We use the portfolio approach relating to the release of stranded
tax effects recorded in accumulated other comprehensive
Basic earnings per share is calculated using the two-class
method and is computed by dividing net earnings available to
common shareholders by the weighted average number of
common shares outstanding and certain other shares committed
to be, but not yet issued. Net earnings available to common
shareholders represent net earnings to common shareholders
reduced by the allocation of earnings to participating
securities. Losses are not allocated to participating
securities. Common shares outstanding and certain other shares
committed to be, but not yet issued, include restricted stock and
restricted stock units (“RSUs”) for which no future service is
required.
Diluted earnings per share is calculated using the two-class
method using the
treasury stock or if-converted
method, with the
more dilutive amount being reported. Diluted earnings per share
is computed by taking the sum of net earnings available to
common shareholders, dividends on preferred shares and
dividends on dilutive mandatorily redeemable convertible
preferred shares, divided by the weighted average number of
common shares outstanding and certain other shares committed
to be, but not yet issued, plus all dilutive common stock
equivalents outstanding during the period.
Preferred shares and unvested share-based payment awards that
contain nonforfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and,
therefore, are included in the earnings allocation in computing
earnings per share under the two-class method of earnings per
share. Restricted stock and RSUs granted as part of share-based
compensation contain nonforfeitable rights to dividends and
dividend equivalents, respectively, and therefore, prior to the
requisite service being rendered for the right to retain the award,
restricted stock and RSUs meet the definition of a participating
security. RSUs granted under the senior executive compensation
plan are not considered participating securities as the rights to
dividend equivalents are forfeitable. Refer to
Note 15,
Compensation Plans
for more information regarding the senior
executive compensation plan.
Refer to
Note 19, Total Equity
for further information.
|
November
2024
Form
10-K
|
58
|
Notes to Consolidated Financial Statements
In the normal course of business, we have been named, from
time to time, as a defendant in legal and regulatory proceedings.
We are also involved, from time to time, in other exams,
investigations and similar reviews (both formal and informal) by
governmental and self-regulatory agencies regarding our
businesses, certain of which may result in judgments,
settlements, fines, penalties or other injunctions.
We recognize a liability for a contingency in Accrued expenses
and other liabilities when it is probable that a liability has been
incurred and the amount of loss can be reasonably estimated. If
the reasonable estimate of a probable loss is a range, we accrue
the most likely amount of such loss, and if such amount is not
determinable, then we accrue the minimum in the range as the
loss accrual. The determination of the outcome and loss
estimates requires significant judgment on the part of
management. We believe that any other matters for which we
have determined a loss to be probable and reasonably estimable
are not material to our consolidated financial statements.
In many instances, it is not possible to determine whether any
loss is probable or even possible or to estimate the amount of
any loss or the size of any range of loss. We believe that, in the
aggregate, the pending legal actions or regulatory proceedings
and any other exams, investigations or similar reviews (both
formal and informal) should not have a material adverse effect
on our consolidated results of operations, cash flows or financial
condition. In addition, we believe that any amount of potential
loss or range of potential loss in excess of what has been
provided in our consolidated financial statements that could be
reasonably estimated is not material.
Hedge accounting is applied using interest rate swaps
designated as fair value hedges of changes in the benchmark
interest rate of fixed rate senior long-term debt. The interest rate
swaps are included as derivative contracts in Financial
instruments owned and Financial instruments sold, not yet
purchased. We use regression analysis to perform ongoing
prospective and retrospective assessments of the effectiveness
of these hedging relationships. A hedging relationship is deemed
effective if the change in fair value of the interest rate swap and
the change in the fair value of the long-term debt due to changes
in the benchmark interest rate offset within a range of
80
%
-
credit spreads and counterparty credit spreads are included in
the assessment of effectiveness.
For qualifying fair value hedges of benchmark interest rates, the
change in the fair value of the derivative and the change in fair
value of the long-term debt provide offset of one another and,
together with any resulting ineffectiveness, are recorded in
Interest expense.
We seek to reduce the impact of fluctuations in foreign exchange
rates on our net investments in certain non-U.S. operations
through the use of foreign exchange contracts. The foreign
exchange contracts are included as derivative contracts in
Financial instruments owned and Financial instruments sold, not
yet purchased. For foreign exchange contracts designated as
hedges, the effectiveness of the hedge is assessed based on the
overall changes in the fair value of the forward contracts (
i.e.
,
based on changes in forward rates). For qualifying net
investment hedges, all gains or losses on the hedging
instruments are included in Currency translation adjustments and
other in our Consolidated Statements of Comprehensive Income.
Refer to
Note 7, Derivative Financial Instruments
for further
information.
Assets and liabilities of foreign subsidiaries having non-U.S.
dollar functional currencies are translated at exchange rates at
the end of a period. Revenues and expenses are translated at
average exchange rates during the period. The gains or losses
resulting from translating foreign currency financial statements
into U.S. dollars, net of hedging gains or losses and taxes, if any,
are included in Other comprehensive income. Gains or losses
resulting from foreign currency transactions are included in
Principal transactions revenues.
Segment Reporting
. In November 2023, the Financial Accounting
Standards Board (“FASB”) issued ASU No. 2023-07 (“ASU
2023-07”), Improvements to Reportable Segment Disclosures.
The guidance primarily will require enhanced disclosures about
significant segment expenses. The amendments in ASU 2023-07
are effective for fiscal years beginning after December 15, 2023,
and interim periods within fiscal years beginning after December
15, 2024, with early adoption permitted, and are to be applied on
a retrospective basis. We are evaluating the impact of the
standard on our segment reporting disclosures.
Income Taxes
. In December 2023, the FASB issued ASU No.
2023-09 (“ASU 2023-09”), Improvements to Income Tax
Disclosures. The guidance is intended to improve income tax
disclosure requirements by requiring (i) consistent categories
and greater disaggregation of information in the rate
reconciliation and (ii) the disaggregation of income taxes paid by
jurisdiction. The guidance makes several other changes to the
income tax disclosure requirements. The amendments in ASU
2023-09 are effective for fiscal years beginning after December
15, 2024, with early adoption permitted, and are required to be
applied prospectively with the option of retrospective application.
We are evaluating the impact of the standard on our income tax
disclosures.
Expenses
. In November 2024, the FASB issued ASU No. 2024-03
(“ASU 2024-03”), Disaggregation of Income Statement Expenses.
The guidance primarily will require enhanced disclosures about
certain types of expenses. The amendments in ASU 2024-03 are
effective for fiscal years beginning after December 15, 2026, and
interim periods within fiscal years beginning after December 15,
2027 and may be applied either on a prospective or retrospective
basis. We are evaluating the impact of the standard on our
disclosures.
Adopted Accounting Standards
Reference Rate Reform
. The FASB issued guidance which
provides optional exceptions for applying U.S. GAAP to certain
contract modifications, hedge accounting relationships or other
transactions affected by reference rate reform. There was no
impact to our financial statements as a result of this guidance
upon the completion of our transition away from the London
Interbank Offered Rate (“LIBOR”) on
June 30, 2023
.
|
59
|
Jefferies Financial Group Inc.
|
Notes to Consolidated Financial Statements
Financial Instruments—Credit Losses.
In June 2016, the FASB
issued ASU No. 2016-13, Measurement of Credit Losses on
Financial Instruments. The guidance provides for estimating
credit losses on financial assets measured at amortized cost by
introducing an approach based on expected losses over the
financial asset’s entire life, recorded at inception or purchase. On
January 1, 2023
, Berkadia, our equity method investee, adopted
this guidance and applied a modified retrospective approach
through a cumulative-effect adjustment to retained earnings
upon adoption, which resulted in a decrease in retained earnings
of
$
14.8
million
, net of tax attributable to an increase in the
allowance for credit losses. Our equity method investee, Jefferies
Finance, adopted the guidance on December 1, 2023, and the
impact on our consolidated financial statements was not
material.
We acquired Stratos and OpNet during the fourth quarter of 2023.
Stratos is a global provider of online foreign exchange services.
OpNet is a fixed wireless broadband service provider in Italy and
also owns a majority of the common shares of Tessellis S.p.A.
(“Tessellis”), a telecommunications company publicly listed on
the Italian stock exchange. These companies were investments
in our legacy merchant banking portfolio, and these transactions
have been accounted for under the acquisition method of
accounting which requires that the assets acquired, including
identifiable intangible assets, and liabilities assumed to be
recognized at their respective fair values as of the acquisition
date.
acquisition dates:
|
$ in thousands
|
Stratos
|
OpNet
|
Total
|
|
Cash and cash equivalents
......................
|
$
|
$
|
$
|
|
Cash and securities segregated and on
deposit for regulatory purposes or
deposited with clearing and
depository organizations
.....................
|
|
|
|
|
Financial instruments owned, at fair
value
.......................................................
|
|
|
|
|
Investments in and loans to related
parties
....................................................
|
|
|
|
|
Receivables:
|
|||
|
Brokers, dealers and clearing
organizations
..........................................
|
|
|
|
|
Fees, interest and other
.........................
|
|
|
|
|
Property and equipment, net
....................
|
|
|
|
|
Goodwill (1)
................................................
|
|
|
|
|
Assets held for sale (2)
.............................
|
|
|
|
|
Other assets (3)
.........................................
|
|
|
|
|
Total assets acquired
...............................
|
$
|
$
|
$
|
|
Financial instruments sold, net yet
purchased, at fair value
.......................
|
$
|
$
|
$
|
|
Payables:
|
|||
|
Brokers, dealers and clearing
organizations
........................................
|
|
|
|
|
Customers payables
.................................
|
|
|
|
|
Short-term borrowings
..............................
|
|
|
|
|
Lease liabilities
...........................................
|
|
|
|
|
Liabilities held for sale (2)
........................
|
|
|
|
|
Accrued expenses and other liabilities
...
|
|
|
|
|
Long-term debt
...........................................
|
|
|
|
|
Total liabilities assumed
..........................
|
$
|
$
|
$
|
|
Net assets acquired
..................................
|
$
|
$
|
$
|
|
Noncontrolling interests
..........................
|
$
|
$
|
$
|
(1)
All goodwill is attributed to the Asset Management reportable segment.
(2)
Relates to the net operating assets of the wholesale operations of OpNet.
(3)
Includes intangible assets in the form of purchased technology, trademarks
and trade names, and customer relationships related to Tessellis that was
acquired as part of obtaining control of OpNet. These intangible assets are
being amortized over a finite life of up to
20
years
.
|
November
2024
Form
10-K
|
60
|
Notes to Consolidated Financial Statements
Stratos
We historically held a
49.9
%
voting interest in Stratos. In March
2023, certain noteholders of Global Brokerage Inc. (“GLBR”) filed
an involuntary bankruptcy petition against GLBR and its
subsidiary, Global Brokerage Holdings LLC (“Holdings”), which
holds a
50.1
%
voting equity interest in Stratos. On September 14,
2023, we completed a foreclosure on the collateral that GLBR had
pledged to secure its obligations under a credit facility, which
consisted of GLBR’s equity interest in Stratos. As a result of the
foreclosure, we own
100
%
of the outstanding interests of Stratos;
and Stratos has become a consolidated subsidiary.
In connection with the acquisition of the additional
50.1
%
interests in Stratos, we extinguished our senior secured term loan
to Stratos of
$
39.2
million
and recognized a gain of
$
5.6
million
,
which is reflected in Principal transactions revenues. Upon the
acquisition, we remeasured our previously existing
49.9
%
interest
at fair value and recognized a loss of
$
4.7
million
, in Other
revenues, representing the excess of the carrying value of the
over its fair value at the date of acquisition. The fair value of the
previously existing equity interest was measured using an
income approach based on estimates of future expected cash
flows applying a risk-adjusted discount rate of
24.5
%
. Critical
estimates to derive future expected cash flows includes the use
of projected revenues and expenses, applicable tax rates and
depreciation factors with the risk-adjusted discount rate based
upon an estimated weighted average cost of capital for the
acquired business.
senior secured term loan, was transferred in connection with the
foreclosure, which resulted in us obtaining
100
%
ownership of
the outstanding interests of Stratos. In applying acquisition
accounting, we estimated the overall enterprise fair value of
Stratos consistent with the methodology utilized to fair value our
previously existing
49.9
%
equity interest. The enterprise fair value
was allocated based on the fair values of the acquired assets and
assumed liabilities resulting in a gain of
$
0.9
million
and goodwill
of
$
5.5
million
.
The results of Stratos’ operations have been included in our
Consolidated Statements of Earnings from the date of
acquisition on September 14, 2023.
OpNet
We historically owned
47.4
%
of the common shares and
50.0
%
of
the voting rights of OpNet and various classes of convertible
preferred stock issued by OpNet (the “preferred shares”). On
November 30, 2023, we provided notice of our intent to convert
certain classes of our preferred shares into common shares and,
as a result, we obtained control of OpNet.
Upon conversion on
May 7, 2024, our ownership increased to
57.5
%
of the common
shares and our voting rights increased to
72.5
%
of the aggregate
voting rights of OpNet.
Additionally, during the first quarter of
2024, we exchanged
€
115.1
million
of our shareholder loans for
additional preferred shares and also subscribed to additional
preferred shares of
€
25.0
million
at a price per share of
€
10.00
.
During the second quarter of 2024, we provided an additional
shareholder loan of
€
20.0
million
and subscribed to additional
preferred shares of
€
18.7
million
at a price per share of
€
10.00
. In
June 2024, we provided an additional shareholder loan of
€
20.0
million
.
Upon obtaining control of OpNet on November 30, 2023 the
assets and liabilities of OpNet are included in our consolidated
financial statements
. Additionally, OpNet was considered to be a
variable interest entity and we determined that we were the
primary beneficiary of OpNet. The initial consolidation of OpNet
was accounted for under the acquisition method of accounting
and we remeasured our previously existing interests at fair value
and recognized a gain of
$
115.8
million
, representing the excess
of the fair value of our previously existing interests over the
carrying value of our investment of
$
201.6
million
. The fair value
of the previously existing interests was measured based on an
estimate of what could be recognized in a sale transaction for
certain net operating assets of OpNet, which have been classified
as held for sale, and OpNet’s percentage ownership of Tessellis
common shares based on the publicly listed exchange price of
Tessellis on November 30, 2023.
No
consideration was
transferred in connection with the consolidation.
The remaining identifiable assets and assumed liabilities of
OpNet primarily represent the assets and liabilities of Tessellis.
An enterprise value for Tessellis was estimated based on its
market capitalization at November 30, 2023, which was then
allocated to the identifiable assets, including intangible assets,
liabilities, and noncontrolling interests of Tessellis using an
income approach, which calculates the present value of the
estimated economic benefit of future cash flows, in order to
determine the fair value of the identified customer relationships
and Tessellis trade name. Property and equipment and developed
technology assets were valued using a replacement cost
methodology. Critical estimates included future expected cash
flows, including forecasted revenues and expenses, and
applicable discount rates. Discount rates used to compute the
present value of expected net cash flows were based upon
estimated weighted average cost of capital. The initial allocation
of the purchase price resulted in the recognition of goodwill
relating to Tessellis of
$
127.1
million
.
The initial estimated purchase price allocation as of November
30, 2023 for OpNet was revised during the first quarter of 2024 as
new information was received and analyzed resulting in an
increase in intangible assets of
$
39.3
million
, a decrease in
property and equipment of
$
12.3
million
, and a decrease in
goodwill of
$
27.0
million
.
In February 2024, OpNet agreed to sell substantially all of its
wholesale operating assets to Wind Tre S.p.A., a subsidiary of CK
Hutchison Group Telecom Holdings Ltd. The sale closed in
August 2024 and we received net cash proceeds of
$
322.8
million
and recognized a pre-tax gain on sale of
$
3.5
million
. The sale of OpNet did not include our interest in
Tessellis.
During 2024, Tessellis executed various acquisitions and, as a
result, recognized assets and liabilities of
$
24.5
million
and
$
18.8
million
, respectively, on the acquisition dates. Total assets
primarily relate to goodwill, property and equipment, intangible
assets, and short-term trade receivables. Total liabilities primarily
relate to financial debt assumed and trade payables. The primary
acquisition executed during 2024 was the acquisition of a
97.2
%
ownership interest in Go Internet S.p.A. (“Go Internet”) for a total
consideration of
€
4.1
million
. We are in the process of finalizing
purchase price allocation adjustments related to the identified
assets and may adjust these amounts upon completion of our
assessment in subsequent reporting periods.
|
61
|
Jefferies Financial Group Inc.
|
Notes to Consolidated Financial Statements
Foursight
On November 20, 2023, we entered into an agreement to sell
Foursight. Assets held for sale are recorded initially at the lower
of their carrying value or estimated fair value, less estimated
costs to sell. Upon designation as an asset held for sale, we
discontinue recording depreciation expense on such asset.
|
$ in thousands
|
November 30,
2023
|
|
Assets held for sale:
|
|
|
Cash and cash equivalents
.....................................................................
|
$
|
|
Other receivables
......................................................................................
|
|
|
Premises and equipment, net
.................................................................
|
|
|
Operating lease assets
............................................................................
|
|
|
Goodwill (1)
................................................................................................
|
|
|
Other assets (2)
........................................................................................
|
|
|
Total assets held for sale
........................................................................
|
$
|
|
Liabilities held for sale:
|
|
|
Other secured financings
.........................................................................
|
$
|
|
Lease liabilities
..........................................................................................
|
|
|
Accrued expenses and other liabilities
..................................................
|
|
|
Long-term debt
..........................................................................................
|
|
|
Total liabilities held for sale
...................................................................
|
$
|
(1)
Goodwill was allocated based on the relative fair values of the applicable
reporting units prior to being reclassified as held for sale.
(2)
Includes
$
850.8
million
of automobile loan receivables and
$
42.1
million
in
deposits required under Foursight’s warehouse credit facilities and amounts
During
2024, we closed the sale of Foursight and recognized a
gain on sale of
$
24.2
million
, which is included within
Other
revenues
.
OpNet
We classified certain net operating assets of OpNet as held for
sale in our Consolidated Statements of Financial Condition at
November 30, 2023. The net operating assets that were
classified as held for sale were recognized at their estimated fair
values pursuant to the step-acquisition accounting related to our
interests in OpNet. Refer to
Note 4, Business Acquisitions
for
further information.
The major components of the held for sale assets and liabilities
in the disposal group primarily consisted of intangible assets
relating to radio frequency networks, customer relationships and
other branding rights. The liabilities held for sale consisted
primarily of OpNet’s outstanding publicly listed notes. The fair
value of the intangible assets was based on the estimated sale
price of the disposal group and the fair value of the publicly listed
notes were based on observations of quoted transaction prices.
Effective with the designation of the disposal group as held for
sale, we suspended recording depreciation of property, plant and
equipment and amortization of finite-lived intangible assets and
right-of-use assets while these assets were classified as held for
sale.
The activities of OpNet’s wholesale operations have been
classified as discontinued operations for the year ended
November 30, 2024 and OpNet’s results are presented in Net
earnings (losses) from discontinued operations (including gain
on disposal), net of tax.
In February 2024, we agreed to sell substantially all of OpNet’s
wholesale operating assets. The sale closed in August 2024.
Airplanes
During 2024
, we classified certain airplanes related to sale
leaseback transaction executed by our subsidiary, Aircadia
Leasing II LLC as held for sale. The airplanes are included within
Assets held for sale on our Consolidated Statements of Financial
Condition and have a carrying amount of
$
51.9
million
at
November 30, 2024
.
We are actively pursuing avenues to dispose
of the airplanes through a sale process. Effective with the
designation of the airplanes as held for sale, we suspended
recording depreciation on these assets.
|
November
2024
Form
10-K
|
62
|
Notes to Consolidated Financial Statements
|
November 30, 2024
(1)
|
|||||
|
$ in thousands
|
Level 1
|
Level 2
|
Level 3
|
Counterparty
and Cash
Collateral
Netting (2)
|
Total
|
|
Assets:
|
|||||
|
Financial instruments owned:
|
|||||
|
Corporate equity securities
................................................................................
|
$
|
$
|
$
|
$
—
|
$
|
|
Corporate debt securities
...................................................................................
|
|
|
|
—
|
|
|
Collateralized debt obligations and collateralized loan obligations
............
|
|
|
|
—
|
|
|
U.S. government and federal agency securities
.............................................
|
|
|
|
—
|
|
|
Municipal securities
............................................................................................
|
|
|
|
—
|
|
|
Sovereign obligations
.........................................................................................
|
|
|
|
—
|
|
|
Residential mortgage-backed securities
.........................................................
|
|
|
|
—
|
|
|
Commercial mortgage-backed securities
.......................................................
|
|
|
|
—
|
|
|
Other asset-backed securities
...........................................................................
|
|
|
|
—
|
|
|
Loans and other receivables
..............................................................................
|
|
|
|
—
|
|
|
Derivatives
............................................................................................................
|
|
|
|
(
|
|
|
Investments at fair value
....................................................................................
|
|
|
|
—
|
|
|
Total financial instruments owned, excluding Investments at fair value
based on NAV
.................................................................................................
|
$
|
$
|
$
|
$
(
|
$
|
|
Securities segregated and on deposit for regulatory purposes or
deposited with clearing and depository organizations
............................
|
$
|
$
|
$
|
$
—
|
$
|
|
Securities received as collateral
.......................................................................
|
|
|
|
—
|
|
|
Liabilities:
|
|||||
|
Financial instruments sold, not yet purchased:
|
|||||
|
Corporate equity securities
................................................................................
|
$
|
$
|
$
|
$
—
|
$
|
|
Corporate debt securities
...................................................................................
|
|
|
|
—
|
|
|
U.S. government and federal agency securities
.............................................
|
|
|
|
—
|
|
|
Sovereign obligations
.........................................................................................
|
|
|
|
—
|
|
|
Commercial mortgage-backed securities
.......................................................
|
|
|
|
—
|
|
|
Loans
.....................................................................................................................
|
|
|
|
—
|
|
|
Derivatives
............................................................................................................
|
|
|
|
(
|
|
|
Total financial instruments sold, not yet purchased
....................................
|
$
|
$
|
$
|
$
(
|
$
|
|
Other secured financings
...................................................................................
|
|
|
|
—
|
|
|
Obligation to return securities received as collateral
....................................
|
|
|
|
—
|
|
|
Long-term debt
....................................................................................................
|
|
|
|
—
|
|
(1)
Excludes investments at fair value based on net asset value (“NAV”) of
$
1.25
billion
at
November 30, 2024
by level within the fair value hierarchy.
(2)
Represents counterparty and cash collateral netting across the levels of the fair value hierarchy for positions with the same counterparty.
|
63
|
Jefferies Financial Group Inc.
|
Notes to Consolidated Financial Statements
|
November 30, 2023
(1)
|
|||||
|
$ in thousands
|
Level 1
|
Level 2
|
Level 3
|
Counterparty
and Cash
Collateral
Netting (1)
|
Total
|
|
Assets:
|
|||||
|
Financial instruments owned:
|
|||||
|
Corporate equity securities
................................................................................
|
$
|
$
|
$
|
$
—
|
$
|
|
Corporate debt securities
...................................................................................
|
|
|
|
—
|
|
|
Collateralized debt obligations and collateralized loan obligations
............
|
|
|
|
—
|
|
|
U.S. government and federal agency securities
.............................................
|
|
|
|
—
|
|
|
Municipal securities
............................................................................................
|
|
|
|
—
|
|
|
Sovereign obligations
.........................................................................................
|
|
|
|
—
|
|
|
Residential mortgage-backed securities
.........................................................
|
|
|
|
—
|
|
|
Commercial mortgage-backed securities
.......................................................
|
|
|
|
—
|
|
|
Other asset-backed securities
...........................................................................
|
|
|
|
—
|
|
|
Loans and other receivables
..............................................................................
|
|
|
|
—
|
|
|
Derivatives
............................................................................................................
|
|
|
|
(
|
|
|
Investments at fair value
....................................................................................
|
|
|
|
—
|
|
|
Total financial instruments owned, excluding Investments at fair value
based on NAV
.................................................................................................
|
$
|
$
|
$
|
$
(
|
$
|
|
Securities segregated and on deposit for regulatory purposes or
deposited with clearing and depository organizations
.............................
|
$
|
$
|
$
|
$
—
|
$
|
|
Securities received as collateral
.......................................................................
|
|
|
|
—
|
|
|
Liabilities:
|
|||||
|
Financial instruments sold, not yet purchased:
|
|||||
|
Corporate equity securities
................................................................................
|
$
|
$
|
$
|
$
—
|
$
|
|
Corporate debt securities
...................................................................................
|
|
|
|
—
|
|
|
Collateralized debt obligations and collateralized loan obligations
............
|
|
|
|
—
|
|
|
U.S. government and federal agency securities
.............................................
|
|
|
|
—
|
|
|
Sovereign obligations
.........................................................................................
|
|
|
|
—
|
|
|
Residential mortgage-backed securities
.........................................................
|
|
|
|
—
|
|
|
Commercial mortgage-backed securities
......................................................
|
|
|
|
—
|
|
|
Loans
.....................................................................................................................
|
|
|
|
—
|
|
|
Derivatives
............................................................................................................
|
|
|
|
(
|
|
|
Total financial instruments sold, not yet purchased
....................................
|
$
|
$
|
$
|
$
(
|
$
|
|
Other secured financings
...................................................................................
|
$
|
$
|
$
|
$
—
|
$
|
|
Obligation to return securities received as collateral
...................................
|
|
|
|
—
|
|
|
Long-term debt
....................................................................................................
|
|
|
|
—
|
|
(1)
Excludes investments at fair value based on net asset value (“NAV”) of
$
1.21
billion
at
November 30, 2023
by level within the fair value hierarchy.
(2)
Represents counterparty and cash collateral netting across the levels of the fair value hierarchy for positions with the same counterparty.
valuation techniques and inputs, used in measuring our financial
assets and liabilities that are accounted for at fair value on a
recurring basis:
Cash and securities segregated and on deposit for regulatory
purposes or deposited with clearing and depository organizations
Segregated U.S. Treasury securities are measured based on
quoted market prices obtained from external pricing services and
categorized within Level 1 of the fair value hierarchy.
Corporate Equity Securities
•
Exchange-Traded Equity Securities:
Exchange-traded equity
securities are measured based on quoted closing exchange
prices, which are generally obtained from external pricing
services, and are categorized within Level 1 of the fair value
hierarchy, otherwise they are categorized within Level 2 of the
fair value hierarchy.
•
Non-Exchange-Traded Equity Securities:
Non-exchange-traded
equity securities are measured, where available, using broker
quotations, pricing data from external pricing services and
prices observed from recently executed market transactions
and are categorized within Level 2 of the fair value hierarchy.
Where such information is not available, non-exchange-traded
equity securities are categorized within Level 3 of the fair value
hierarchy and measured using valuation techniques involving
quoted prices of or market data for comparable companies,
similar company ratios and multiples (
e.g.
, price/Earnings
before interest, taxes, depreciation and amortization
(“EBITDA”), price/book value), discounted cash flow analyses
and transaction prices observed from subsequent financing or
|
November
2024
Form
10-K
|
64
|
Notes to Consolidated Financial Statements
capital issuance by the company. When using pricing data of
comparable companies, judgment must be applied to adjust
the pricing data to account for differences between the
measured security and the comparable security (
e.g.
, issuer
market capitalization, yield, dividend rate, geographical
concentration).
•
Equity Warrants:
Non-exchange-traded equity warrants are
measured primarily from observed prices on recently executed
market transactions and broker quotations and are categorized
within Level 2 of the fair value hierarchy. Where such
information is not available, non-exchange-traded equity
warrants are generally categorized within Level 3 of the fair
value hierarchy and can be measured using third-party
valuation services or the Black-Scholes model with key inputs
impacting the valuation including the underlying security price,
implied volatility, dividend yield, interest rate curve, strike price
and maturity date.
Corporate Debt Securities
•
Investment Grade Corporate Bonds:
Investment grade
corporate bonds are measured primarily using pricing data
from external pricing services and broker quotations, where
available, prices observed from recently executed market
transactions and bond spreads. Investment grade corporate
bonds measured using these valuation methods are
categorized within Level 2 of the fair value hierarchy. If broker
quotes, pricing data or spread data is not available, alternative
valuation techniques may be used. Investment grade corporate
bonds measured using alternative valuation techniques are
categorized within Level 2 or Level 3 of the fair value hierarchy.
•
High Yield Corporate and Convertible Bonds:
A significant
portion of our high yield corporate and convertible bonds are
categorized within Level 2 of the fair value hierarchy and are
measured primarily using broker quotations and pricing data
from external pricing services, where available, and prices
observed from recently executed market transactions of
institutional size. Where pricing data is less observable,
valuations are categorized within Level 3 of the fair value
hierarchy and are based on pending transactions involving the
issuer or comparable issuers, prices implied from an issuer’s
subsequent financing or recapitalization, models incorporating
financial ratios and projected cash flows of the issuer and
market prices for comparable issuers.
Collateralized Debt Obligations and Collateralized Loan
Obligations
Collateralized debt obligations (“CDOs”) and collateralized loan
obligations (“CLOs”) are measured based on prices observed
from recently executed market transactions of the same or
similar security or based on valuations received from third-party
brokers or data providers and are categorized within Level 2 or
Level 3 of the fair value hierarchy depending on the observability
and significance of the pricing inputs. Valuation that is based on
recently executed market transactions of similar securities
incorporates additional review and analysis of pricing inputs and
comparability criteria, including, but not limited to, collateral type,
tranche type, rating, origination year, prepayment rates, default
rates and loss severity.
U.S. Government and Federal Agency Securities
•
U.S. Treasury Securities:
U.S. Treasury securities are measured
based on quoted market prices obtained from external pricing
services and categorized within Level 1 of the fair value
hierarchy.
•
U.S. Agency Debt Securities:
Callable and non-callable U.S.
agency debt securities are measured primarily based on
quoted market prices obtained from external pricing services
and are generally categorized within Level 1 or Level 2 of the
fair value hierarchy.
Municipal Securities
Municipal securities are measured based on quoted prices
obtained from external pricing services, where available, or
recently executed independent transactions of comparable size
and are generally categorized within Level 2 of the fair value
hierarchy.
Sovereign Obligations
Sovereign government obligations are measured based on
quoted market prices obtained from external pricing services,
where available, or recently executed independent transactions of
comparable size. Sovereign government obligations, with
consideration given to the country of issuance, are generally
categorized within Level 1 or Level 2 of the fair value hierarchy.
Residential Mortgage-Backed Securities
•
Agency Residential Mortgage-Backed Securities (“RMBS”):
Agency RMBS include mortgage pass-through securities (fixed
and adjustable rate), collateralized mortgage obligations and
principal-only and interest-only (including inverse interest-only)
securities. Agency RMBS are generally measured using recent
transactions, pricing data from external pricing services or
expected future cash flow techniques that incorporate
prepayment models and other prepayment assumptions to
amortize the underlying mortgage loan collateral and are
categorized within Level 2 or Level 3 of the fair value hierarchy.
We use prices observed from recently executed transactions to
develop market-clearing spread and yield assumptions.
Valuation inputs with regard to the underlying collateral
incorporate factors such as weighted average coupon, loan-to-
value, credit scores, geographic location, maximum and
average loan size, originator, servicer and weighted average
loan age.
•
Non-Agency RMBS:
The fair value of non-agency RMBS is
determined primarily using pricing data from external pricing
services, where available, and discounted cash flow
methodologies and securities are categorized within Level 2 or
Level 3 of the fair value hierarchy based on the observability
and significance of the pricing inputs used. Performance
attributes of the underlying mortgage loans are evaluated to
estimate pricing inputs, such as prepayment rates, default
rates and the severity of credit losses. Attributes of the
underlying mortgage loans that affect the pricing inputs
include, but are not limited to, weighted average coupon;
average and maximum loan size; loan-to-value; credit scores;
documentation type; geographic location; weighted average
loan age; originator; servicer; historical prepayment, default
and loss severity experience of the mortgage loan pool; and
delinquency rate. Yield curves used in the discounted cash flow
models are based on observed market prices for comparable
securities and published interest rate data to estimate market
yields. In addition, broker quotes, where available, are also
referenced to compare prices.
|
65
|
Jefferies Financial Group Inc.
|
Notes to Consolidated Financial Statements
Commercial Mortgage-Backed Securities
•
Agency Commercial Mortgage-Backed Securities (“CMBS”):
Government National Mortgage Association (“Ginnie Mae”)
project loan bonds are measured based on inputs corroborated
from and benchmarked to observed prices of recent
securitization transactions of similar securities with
adjustments incorporating an evaluation of various factors,
including prepayment speeds, default rates and cash flow
structures. Federal National Mortgage Association (“Fannie
Mae”) Delegated Underwriting and Servicing (“DUS”) mortgage-
backed securities are generally measured by using prices
observed from recently executed market transactions to
estimate market-clearing spread levels for purposes of
estimating fair value. Ginnie Mae project loan bonds and
Fannie Mae DUS mortgage-backed securities are categorized
within Level 2 of the fair value hierarchy.
•
Non-Agency CMBS:
Non-agency CMBS are measured using
pricing data obtained from external pricing services, prices
observed from recently executed market transactions or based
on expected cash flow models that incorporate underlying loan
collateral characteristics and performance. Non-Agency CMBS
are categorized within Level 2 or Level 3 of the fair value
hierarchy depending on the observability of the underlying
inputs.
Other Asset-Backed Securities
Other asset-backed securities (“ABS”) include, but are not limited
to, securities backed by auto loans, credit card receivables,
student loans and other consumer loans and are categorized
within Level 2 or Level 3 of the fair value hierarchy. Valuations are
primarily determined using pricing data obtained from external
pricing services, broker quotes and prices observed from recently
executed market transactions. In addition, recent transaction
data from comparable deals is deployed to develop market
clearing yields and cumulative loss assumptions. The cumulative
loss assumptions are based on the analysis of the underlying
collateral and comparisons to earlier deals with similar collateral
to gauge the relative performance of the deal.
Loans and Other Receivables
•
Corporate Loans:
Corporate loans categorized within Level 2 of
the fair value hierarchy are measured based on market
consensus pricing service quotations. Where available, market
price quotations from external pricing services are reviewed to
ensure they are supported by transaction data. Corporate loans
categorized within Level 3 of the fair value hierarchy are
measured based on price quotations that are considered to be
less transparent. Price quotations are derived using market
prices for debt securities of the same creditor and estimates of
future cash flows. Future cash flows use assumptions
regarding creditor default and recovery rates, credit rating,
effective yield and consideration of the issuer’s capital
structure.
•
Participation Certificates in Agency Residential Loans:
Valuations of participation certificates in agency residential
loans are based on observed market prices of recently
executed purchases and sales of similar loans and data
provider pricing. The loan participation certificates are
categorized within Level 2 of the fair value hierarchy given the
observability and volume of recently executed transactions and
availability of data provider pricing.
•
Project Loans and Participation Certificates in Ginnie Mae
Project and Construction Loans:
Valuations of participation
certificates in Ginnie Mae project and construction loans are
based on inputs corroborated from and benchmarked to
observed prices of recent securitizations with similar
underlying loan collateral to derive an implied spread.
Securitization prices are adjusted to estimate the fair value of
the loans to account for the arbitrage that is realized at the
time of securitization. The measurements are categorized
within Level 2 of the fair value hierarchy given the observability
and volume of recently executed transactions.
•
Consumer Loans and Funding Facilities:
Consumer and small
business whole loans and related funding facilities are valued
based on observed market transactions and incorporating
valuation inputs including, but not limited to, delinquency and
default rates, prepayment rates, borrower characteristics, loan
risk grades and loan age. These assets are categorized within
Level 2 or Level 3 of the fair value hierarchy.
•
Escrow and Claim Receivables:
Escrow and claim receivables
are categorized within Level 2 of the fair value hierarchy where
fair value is based on recent observations in the same
receivable. Escrow and claim receivables are categorized
within Level 3 of the fair value hierarchy where fair value is
estimated based on reference to market prices and implied
yields of debt securities of the same or similar issuers.
Derivatives
•
Listed Derivative Contracts:
Listed derivative contracts that are
actively traded are measured based on quoted exchange
prices, broker quotes or vanilla option valuation models, such
as Black-Scholes, using observable valuation inputs from the
principal market or consensus pricing services. Exchange
quotes and/or valuation inputs are generally obtained from
external vendors and pricing services. Broker quotes are
validated directly through observable and tradeable quotes.
Listed derivative contracts that use exchange close prices are
generally categorized within Level 1 of the fair value hierarchy.
All other listed derivative contracts are generally categorized
within Level 2 of the fair value hierarchy.
•
Over-the-Counter (“OTC”) Derivative Contracts:
OTC derivative
contracts are generally valued using models, whose inputs
reflect assumptions that we believe market participants would
use in valuing the derivative in a current transaction. Where
available, valuation inputs are calibrated from observable
market data. For many OTC derivative contracts, the valuation
models do not involve material subjectivity as the
methodologies do not entail significant judgment and the
inputs to valuation models do not involve a high degree of
subjectivity as the valuation model inputs are readily
observable or can be derived from actively quoted markets.
OTC derivative contracts are primarily categorized within Level
2 of the fair value hierarchy given the observability and
significance of the inputs to the valuation models. Where
significant inputs to the valuation are unobservable, derivative
instruments are categorized within Level 3 of the fair value
hierarchy.
|
November
2024
Form
10-K
|
66
|
Notes to Consolidated Financial Statements
OTC options include OTC equity, foreign exchange, interest rate
and commodity options measured using various valuation
models, such as Black-Scholes, with key inputs including the
underlying security price, foreign exchange spot rate,
commodity price, implied volatility, dividend yield, interest rate
curve, strike price and maturity date. Discounted cash flow
models are utilized to measure certain OTC derivative
contracts including the valuations of our interest rate swaps,
which incorporate observable inputs related to interest rate
curves, valuations of our foreign exchange forwards and
swaps, which incorporate observable inputs related to foreign
currency spot rates and forward curves and valuations of our
commodity swaps and forwards, which incorporate observable
inputs related to commodity spot prices and forward curves.
Credit default swaps include both index and single-name credit
default swaps. Where available, external data is used in
measuring index credit default swaps and single-name credit
default swaps. For commodity and equity total return swaps,
market prices are generally observable for the underlying asset
and used as the basis for measuring the fair value of the
derivative contracts. Total return swaps executed on other
underlyings are measured based on valuations received from
external pricing services.
Securities Received as Collateral / Obligations to Return Securities
Received as Collateral
In connection with securities-for-securities transactions in which
we are the lender of securities and are permitted to sell or
repledge the securities received as collateral, we report the fair
value of the collateral received and the related obligation to
return the collateral. Valuation is based on the price of the
underlying security and is categorized within the corresponding
leveling guidance above. These financial instruments are typically
categorized within Level 1 of the fair value hierarchy.
Other Secured Financings
Other secured financings that are accounted for at fair value are
classified within Level 2 or Level 3 of the fair value hierarchy. Fair
value is based on estimates of future cash flows incorporating
assumptions regarding recovery rates.
Long-term Debt
Long-term debt includes variable rate, fixed-to-floating rate,
equity-linked notes, constant maturity swap, digital, callable,
collared floating rate and Bermudan structured notes. These are
valued using various valuation models that incorporate our own
credit spread, market price quotations from external pricing
sources referencing the appropriate interest rate curves,
volatilities and other inputs as well as prices for transactions in a
given note during the period. Long-term debt notes are generally
categorized within Level 2 of the fair value hierarchy where
market trades have been observed during the period or model
pricing is available, otherwise the notes are categorized within
Level 3.
Investments at fair value includes investments in hedge funds
and private equity funds, which are measured at the NAV of the
funds, provided by the fund managers and are excluded from the
fair value hierarchy. Investments at fair value also include direct
equity investments in private companies, which are measured at
fair value using valuation techniques involving quoted prices of or
market data for comparable companies, similar company ratios
and multiples (
e.g.
, price/EBITDA, price/book value), discounted
cash flow analyses and transaction prices observed for
subsequent financing or capital issuance by the company. Direct
equity investments in private companies are categorized within
Level 2 or Level 3 of the fair value hierarchy.
characteristics of an investment company:
|
November 30, 2024
|
||||
|
$ in thousands
|
Fair Value
(1)
|
Unfunded
Commitments
|
Redemption
Frequency
|
Redemption
Notice Period
|
|
Equity Long/
Short Hedge
Funds (2)
............
|
$
|
$
|
Quarterly (
|
|
|
Equity Funds (3)
|
|
|
N/R (
|
N/R
|
|
Commodity
Fund (4)
..............
|
|
|
Quarterly (
|
|
|
Multi-asset
Funds (5)
............
|
|
|
Monthly (
Quarterly (
|
|
|
Other Funds (6)
.
|
|
|
Quarterly (
Monthly (
N/R (
|
30 days
N/R
|
|
Total
...................
|
$
|
$
|
||
|
November 30, 2023
|
||||
|
$ in thousands
|
Fair Value
(1)
|
Unfunded
Commitments
|
Redemption
Frequency
|
Redemption
Notice Period
|
|
Equity Long/
Short Hedge
Funds (2)
............
|
$
|
$
|
Quarterly (
N/R (
|
|
|
Equity Funds (3)
|
|
|
N/R (
|
N/R
|
|
Commodity
Fund (4)
..............
|
|
|
Quarterly (
|
|
|
Multi-asset
Funds (5)
............
|
|
|
Monthly (
Quarterly (
N/R (
|
N/R
|
|
Other Funds (6)
.
|
|
|
Quarterly (
N/R (
|
N/R
|
|
Total
...................
|
$
|
$
|
||
N/R - Not redeemable
(1)
Where fair value is calculated based on NAV, fair value has been derived from
each of the funds’ capital statements.
(2)
Includes investments in hedge funds that invest, long and short, primarily in
both public and private equity securities in domestic and international
markets.
The non-redeemable investments at
November 30, 2023
included
restrictions before
November 30, 2023
or
August 31, 2025
.
(3)
Includes investments in equity funds that invest in the equity of various U.S.
and foreign private companies in a broad range of industries. These
investments cannot be redeemed; instead, distributions are received through
the liquidation of the underlying assets of the funds which are primarily
expected to be liquidated in approximately
one
to
ten years
.
(4)
Includes investments in a hedge fund that invests, long and short, primarily in
commodities.
(5)
Includes investments in hedge funds that invest, long and short, primarily in
multi-asset securities in domestic and international markets in both the public
and private sectors.
The non-redeemable investments at
November 30, 2023
included restrictions before
April, 1 2024
.
(6)
Primarily includes investments in a fund that invests in short-term trade
receivables and payables that are expected to generally be outstanding
between
90
to
120
days
and short-term credit instruments, as well as
investments in a fund that invests, long and short, in distressed and special
|
67
|
Jefferies Financial Group Inc.
|
Notes to Consolidated Financial Statements
year ended November 30, 2024
:
|
For instruments still held at
November 30, 2024
, changes
in unrealized gains/(losses)
included in:
|
||||||||||
|
$ in thousands
|
Balance at
November 30,
2023
|
Total gains/
losses
(realized
and
unrealized)
(1)
|
Purchases
|
Sales
|
Settlements
|
Issuances
|
Net
transfers
into/
(out of)
Level 3
|
Balance at
November 30,
2024
|
Earnings (1)
|
Other
comprehensive
income (1)
|
|
Assets:
|
||||||||||
|
Financial instruments
owned:
|
||||||||||
|
Corporate equity securities
...
|
$
|
$
(
|
$
|
$
(
|
$
|
$
|
$
|
$
|
$
(
|
$
|
|
Corporate debt securities
......
|
|
(
|
|
(
|
(
|
|
(
|
|
(
|
|
|
CDOs and CLOs
.......................
|
|
(
|
|
(
|
(
|
|
(
|
|
(
|
|
|
Sovereign obligations
.............
|
|
|
|
|
|
|
|
|
|
|
|
RMBS
........................................
|
|
(
|
|
(
|
(
|
|
(
|
|
(
|
|
|
CMBS
........................................
|
|
(
|
|
|
|
|
|
|
(
|
|
|
Other ABS
.................................
|
|
(
|
|
(
|
(
|
|
|
|
(
|
|
|
Loans and other receivables
.
|
|
(
|
|
(
|
(
|
|
|
|
(
|
|
|
Investments at fair value
.......
|
|
(
|
|
|
(
|
|
(
|
|
(
|
|
|
Liabilities:
|
||||||||||
|
Financial instruments sold,
not yet purchased:
|
||||||||||
|
Corporate equity securities
...
|
$
|
$
|
$
(
|
$
|
$
|
$
|
$
|
$
|
$
|
$
|
|
Corporate debt securities
......
|
|
(
|
|
|
(
|
|
|
|
|
|
|
CMBS
........................................
|
|
(
|
(
|
|
|
|
(
|
|
|
|
|
Loans
........................................
|
|
(
|
(
|
|
|
|
(
|
|
|
|
|
Net derivatives (2)
...................
|
|
(
|
|
|
(
|
|
(
|
|
|
|
|
Other secured financings
.......
|
|
|
|
|
(
|
|
|
|
(
|
|
|
Long-term debt
........................
|
|
|
|
|
(
|
|
(
|
|
(
|
(
|
(1)
Realized and unrealized gains/losses are primarily reported in
Principal transactions revenues
. Changes in instrument-specific credit risk related to structured notes
within Long-term debt are presented net of tax in our Consolidated Statements of Comprehensive Income.
(2)
Net derivatives represent Financial instruments owned—Derivatives and Financial instruments sold, not yet purchased —Derivatives.
Analysis of Level 3 Assets and Liabilities for the Year Ended
November 30, 2024
Transfers of assets of
$
90.5
million
from Level 2 to Level 3 of the
fair value hierarchy are primarily attributed to:
•
Other ABS of
$
47.6
million
, corporate equity securities of
$
22.7
million
, loans and other receivables of
$
14.9
million
, CDOs and
CLOs of
$
2.7
million
and corporate debt securities of
$
2.0
million
due to reduced pricing transparency.
Transfers of assets of
$
66.9
million
from Level 3 to Level 2 are
primarily attributed to:
•
Other ABS of
$
19.0
million
, RMBS of
$
14.6
million
, corporate
equity securities of
$
9.7
million
, CDOs and CLOs of
$
8.2
million
and loans and other receivables of
$
8.1
million
due to greater
pricing transparency.
Transfers of liabilities of
$
30.1
million
from Level 2 to Level 3 of
the fair value hierarchy are primarily attributed to:
•
Structured notes within long-term debt of
$
26.8
million
and net
derivatives of
$
3.1
million
due to reduced pricing and market
transparency.
Transfers of liabilities of
$
40.4
million
from Level 3 to Level 2 of
the fair value hierarchy are primarily attributed to:
•
Structured notes within long-term debt of
$
27.8
million
and net
derivatives of
$
13.6
million
due to greater pricing and market
transparency.
Net
losses
on Level 3 assets were
$
52.0
million
and net
losses
on Level 3 liabilities were
$
47.1
million
for the
year ended
November 30, 2024
. Net
losses
on Level 3 assets were primarily
due to
decreased
market values in loans and other receivables,
other ABS, investments at fair value, CDOs and CLOs, corporate
equity securities and corporate debt securities. Net
losses
on
Level 3 liabilities were primarily due to
increased
market
valuations of certain structured notes within long-term debt and
other secured financings, partially offset by decreases in certain
derivatives.
|
November
2024
Form
10-K
|
68
|
Notes to Consolidated Financial Statements
year ended November 30, 2023
:
|
For instruments still held at
November 30, 2023
, changes in
unrealized gains/(losses)
included in:
|
||||||||||
|
$ in thousands
|
Balance at
November 30,
2022
|
Total gains/
losses
(realized
and
unrealized)
(1)
|
Purchases
|
Sales
|
Settlements
|
Issuances
|
Net
transfers
into/
(out of)
Level 3
|
Balance at
November 30,
2023
|
Earnings (1)
|
Other
comprehensive
income (1)
|
|
Assets:
|
||||||||||
|
Financial instruments
owned:
|
||||||||||
|
Corporate equity
securities
.......................
|
$
|
$
(
|
$
|
$
(
|
$
|
$
|
$
(
|
$
|
$
(
|
$
|
|
Corporate debt securities
|
|
|
|
(
|
(
|
|
|
|
(
|
|
|
CDOs and CLOs
.................
|
|
|
|
(
|
(
|
|
(
|
|
(
|
|
|
RMBS
..................................
|
|
(
|
|
|
(
|
|
(
|
|
(
|
|
|
CMBS
..................................
|
|
(
|
|
|
|
|
|
|
(
|
|
|
Other ABS
...........................
|
|
(
|
|
(
|
(
|
|
|
|
(
|
|
|
Loans and other
receivables
....................
|
|
|
|
(
|
(
|
|
(
|
|
|
|
|
Investments at fair value
.
|
|
|
|
(
|
(
|
|
(
|
|
(
|
|
|
Liabilities:
|
||||||||||
|
Financial instruments
sold, not yet
purchased:
|
||||||||||
|
Corporate equity
securities
.......................
|
$
|
$
|
$
(
|
$
|
$
|
$
|
$
|
$
|
$
|
$
|
|
Corporate debt securities
|
|
(
|
(
|
|
|
|
(
|
|
|
|
|
CMBS
..................................
|
|
|
|
|
|
|
|
|
|
|
|
Loans
..................................
|
|
(
|
(
|
|
|
|
|
|
(
|
|
|
Net derivatives (2)
.............
|
|
(
|
(
|
|
(
|
|
|
|
|
|
|
Other secured financings
.
|
|
|
|
|
|
|
|
|
(
|
|
|
Long-term debt
..................
|
|
|
|
|
|
|
(
|
|
(
|
(
|
(1)
Realized and unrealized gains/losses are primarily reported in Principal transactions revenues. Changes in instrument-specific credit risk related to structured notes
within Long-term debt are presented net of tax in our Consolidated Statements of Comprehensive Income.
(2)
Net derivatives represent Financial instruments owned—Derivatives and Financial instruments sold, not yet purchased—Derivatives.
Analysis of Level 3 Assets and Liabilities for the Year Ended
November 30, 2023
Transfers of assets of
$
88.5
million
from Level 2 to Level 3 of the
fair value hierarchy are primarily attributed to:
•
Other ABS of
$
57.8
million
, loans and other receivables of
$
16.5
million
, corporate debt securities of
$
8.9
million
and
corporate equity securities of
$
5.3
million
due to reduced
pricing transparency.
Transfers of assets of
$
78.2
million
from Level 3 to Level 2 are
primarily attributed to:
•
Loans and other receivables of
$
32.4
million
, other ABS of
$
24.3
million
, CDOs and CLOs of
$
14.0
million
and corporate
equity securities of
$
6.0
million
due to greater pricing
transparency supporting classification into Level 2.
Transfers of liabilities of
$
60.8
million
from Level 2 to Level 3 of
the fair value hierarchy are primarily attributed to:
•
Net derivatives of
$
35.6
million
and structured notes within
long-term debt of
$
25.2
million
due to reduced pricing and
market transparency.
Transfers of liabilities of
$
62.0
million
from Level 3 to Level 2 of
the fair value hierarchy are primarily attributed to:
•
Net derivatives of
$
32.0
million
and structured notes within
long-term debt of
$
29.8
million
due to greater pricing and
market transparency.
Net
gains
on Level 3 assets were
$
38.5
million
and net
losses
on
Level 3 liabilities were
$
62.9
million
for the
year ended November
30, 2023
. Net
gains
on Level 3 assets were primarily due to
increased
market values in investments at fair value, CDOs and
CLOs and loans and other receivables, partially offset by
decreases in corporate equity securities and other ABS. Net
losses
on Level 3 liabilities were primarily due to
increased
market valuations of certain structured notes within long-term
debt, partially offset by decreases in certain derivatives.
|
69
|
Jefferies Financial Group Inc.
|
Notes to Consolidated Financial Statements
year ended November 30, 2022
:
|
For instruments still held at
November 30, 2022
, changes
in unrealized gains/(losses)
included in:
|
||||||||||
|
$ in thousands
|
Balance at
November 30,
2021
|
Total gains/
losses
(realized
and
unrealized)
(1)
|
Purchases
|
Sales
|
Settlements
|
Issuances
|
Net
transfers
into/
(out of)
Level 3
|
Balance at
November 30,
2022
|
Earnings (1)
|
Other
comprehensive
income (1)
|
|
Assets:
|
||||||||||
|
Financial instruments
owned:
|
||||||||||
|
Corporate equity
securities
.......................
|
$
|
$
(
|
$
|
$
(
|
$
(
|
$
|
$
|
$
|
$
|
$
|
|
Corporate debt securities
|
|
|
|
(
|
(
|
|
|
|
(
|
|
|
CDOs and CLOs
.................
|
|
|
|
(
|
(
|
|
|
|
(
|
|
|
RMBS
..................................
|
|
(
|
|
(
|
(
|
|
|
|
(
|
|
|
CMBS
..................................
|
|
(
|
|
(
|
|
|
(
|
|
(
|
|
|
Other ABS
...........................
|
|
(
|
|
(
|
(
|
|
(
|
|
(
|
|
|
Loans and other
receivables
....................
|
|
(
|
|
(
|
(
|
|
|
|
(
|
|
|
Investments, at fair value
.
|
|
|
|
(
|
(
|
|
(
|
|
|
|
|
Liabilities:
|
||||||||||
|
Financial instruments
sold, not yet
purchased:
|
||||||||||
|
Corporate equity
securities
.......................
|
$
|
$
(
|
$
(
|
$
|
$
|
$
|
$
(
|
$
|
$
|
$
|
|
Corporate debt securities
|
|
|
(
|
|
|
|
|
|
(
|
|
|
CMBS
..................................
|
|
|
|
|
|
|
|
|
|
|
|
Loans
..................................
|
|
|
(
|
|
|
|
(
|
|
(
|
|
|
Net derivatives (2)
.............
|
|
(
|
(
|
|
|
|
|
|
|
|
|
Other secured financings
.
|
|
(
|
|
|
(
|
|
|
|
|
|
|
Long-term debt
..................
|
|
(
|
|
|
(
|
|
(
|
|
|
|
(1)
Realized and unrealized gains/losses are primarily reported in Principal transactions revenues. Changes in instrument-specific credit risk related to structured notes
within long-term debt are presented net of tax in our Consolidated Statements of Comprehensive Income.
(2)
Net derivatives represent Financial instruments owned—Derivatives and Financial instruments sold, not yet purchased —Derivatives.
Analysis of Level 3 Assets and Liabilities for the Year Ended
November 30, 2022
Transfers of assets of
$
111.7
million
from Level 2 to Level 3 of
the fair value hierarchy are primarily attributed to:
•
Loans and other receivables of
$
33.2
million
, corporate debt
securities of
$
22.8
million
, other ABS of
$
22.6
million
,
corporate equity securities of
$
17.9
million
and CDOs and
CLOs of
$
11.0
million
due to reduced price transparency.
Transfers of assets of
$
61.5
million
from Level 3 to Level 2 are
primarily attributed to:
•
Other ABS of
$
29.3
million
, investments at fair value of
$
23.4
million
, loans and other receivables of
$
4.5
million
and
corporate equity securities of
$
4.3
million
due to greater
pricing transparency supporting classification into Level 2.
Transfers of liabilities of
$
172.1
million
from Level 2 to Level 3
are primarily attributed to:
•
Net derivatives of
$
152.8
million
and structured notes within
long-term debt of
$
19.3
million
due to reduced pricing and
market transparency.
Transfers of liabilities of
$
53.6
million
from Level 3 to Level 2 are
primarily attributed to:
•
Structured notes within long-term debt of
$
38.9
million
, net
derivatives of
$
7.5
million
and corporate equity securities of
$
4.3
million
due to greater pricing transparency.
Net
gains
on Level 3 assets were
$
31.8
million
and net
gains
on
Level 3 liabilities were
$
465.7
million
for the
year ended
November 30, 2022
. Net
gains
on Level 3 assets were primarily
due to
increased
market values in investments at fair value and
CDOs and CLOs, partially offset by decreases in RMBS and Other
ABS. Net
gains
on Level 3 liabilities were primarily due to
decreased
market valuations of certain structured notes within
long-term debt and certain derivatives.
Measurements
The tables below present information on the valuation
techniques, significant unobservable inputs and their ranges for
our financial assets and liabilities, subject to threshold levels
related to the market value of the positions held, measured at fair
value on a recurring basis with a significant Level 3 balance. The
range of unobservable inputs could differ significantly across
different firms given the range of products across different firms
in the financial services sector. The inputs are not representative
of the inputs that could have been used in the valuation of any
|
November
2024
Form
10-K
|
70
|
Notes to Consolidated Financial Statements
one financial instrument (
i.e.,
the input used for valuing one
financial instrument within a particular class of financial
instruments may not be appropriate for valuing other financial
instruments within that given class). Additionally, the ranges of
inputs presented below should not be construed to represent
uncertainty regarding the fair values of our financial instruments;
rather, the range of inputs is reflective of the differences in the
underlying characteristics of the financial instruments in each
category.
For certain categories, we have provided a weighted average of
the inputs allocated based on the fair values of the financial
instruments comprising the category. We do not believe that the
range or weighted average of the inputs is indicative of the
reasonableness of uncertainty of our Level 3 fair values. The
range and weighted average are driven by the individual financial
instruments within each category and their relative distribution in
the population. The disclosed inputs when compared to the
inputs as disclosed in other periods should not be expected to
necessarily be indicative of changes in our estimates of
unobservable inputs for a particular financial instrument as the
population of financial instruments comprising the category will
vary from period to period based on purchases and sales of
financial instruments during the period as well as transfers into
and out of Level 3 each period.
|
November 30, 2024
|
|||||||
|
Financial Instruments Owned
|
Fair Value
(in
thousands)
|
Valuation
Technique
|
Significant Unobservable Input(s)
|
Input / Range
|
Weighted
Average
|
||
|
Corporate equity securities
.....................
|
$
|
||||||
|
Non-exchange-traded securities
|
Market approach
|
Price
|
$
|
-
|
$
|
$
|
|
|
Corporate debt securities
........................
|
$
|
Market approach
|
Price
|
$
|
-
|
$
|
$
|
|
CDOs and CLOs
..........................................
|
$
|
Discounted cash
flows
|
Constant prepayment rate
|
|
|
||
|
Constant default rate
|
|
—
|
|||||
|
Loss severity
|
|
|
|||||
|
Discount rate/yield
|
|
-
|
|
|
|||
|
Market approach
|
Price
|
$
|
-
|
$
|
$
|
||
|
RMBS
|
$
|
Discounted cash
flows
|
Constant prepayment rate
|
|
—
|
||
|
Loss severity
|
|
—
|
|||||
|
Discount rate/yield
|
|
—
|
|||||
|
Other ABS
...................................................
|
$
|
Discounted cash
flows
|
Discount rate/yield
|
|
-
|
|
|
|
Cumulative loss rate
|
|
-
|
|
|
|||
|
Duration (years)
|
|
-
|
|
|
|||
|
Market approach
|
Price
|
$
|
-
|
$
|
$
|
||
|
Scenario analysis
|
Estimated recovery percentage
|
|
—
|
||||
|
Loans and other receivables
...................
|
$
|
Market approach
|
Price
|
$
|
-
|
$
|
$
|
|
Scenario analysis
|
Estimated recovery percentage
|
|
-
|
|
|
||
|
Derivatives
..................................................
|
$
|
||||||
|
Embedded options
|
Market approach
|
Basis points upfront
|
|
—
|
|||
|
Investments at fair value
..........................
|
$
|
||||||
|
Private equity securities
|
Market approach
|
Price
|
$
|
-
|
$
|
$
|
|
|
Discount rate/yield
|
|
—
|
|||||
|
Revenue
|
$
|
—
|
|||||
|
Financial Instruments Sold, Not Yet Purchased:
|
|||||||
|
Loans
..........................................................
|
$
|
Market approach
|
Price
|
$
|
-
|
$
|
$
|
|
Scenario analysis
|
Estimated recovery percentage
|
|
-
|
|
|
||
|
Derivatives
..................................................
|
$
|
||||||
|
Equity options
|
Volatility
benchmarking
|
Volatility
|
|
-
|
|
|
|
|
Options
|
Market approach
|
Basis points upfront
|
|
-
|
|
|
|
|
Other secured financings
.........................
|
$
|
Scenario analysis
|
Estimated recovery percentage
|
|
-
|
|
|
|
Market approach
|
Price
|
$
|
—
|
||||
|
Long-term debt
..........................................
|
$
|
||||||
|
Structured notes
|
Market approach
|
Price
|
$
|
-
|
$
|
$
|
|
|
71
|
Jefferies Financial Group Inc.
|
Notes to Consolidated Financial Statements
|
November 30, 2023
|
|||||||
|
Financial Instruments Owned
|
Fair Value
(in
thousands)
|
Valuation
Technique
|
Significant Unobservable Input(s)
|
Input / Range
|
Weighted
Average
|
||
|
Corporate equity securities
.....................
|
$
|
||||||
|
Non-exchange-traded securities
|
Market approach
|
Price
|
$
|
-
|
$
|
$
|
|
|
Corporate debt securities
........................
|
$
|
Market approach
|
Price
|
$
|
-
|
$
|
$
|
|
Discounted cash
flow
|
Discount rate/yield
|
|
—
|
||||
|
Scenario analysis
|
Estimated recovery percentage
|
|
—
|
||||
|
CDOs and CLOs
..........................................
|
$
|
Discounted cash
flows
|
Constant prepayment rate
|
|
-
|
|
|
|
Constant default rate
|
|
—
|
|||||
|
Loss severity
|
|
-
|
|
|
|||
|
Discount rate/yield
|
|
-
|
|
|
|||
|
Market approach
|
Price
|
$
|
-
|
$
|
$
|
||
|
CMBS
...........................................................
|
$
|
Scenario analysis
|
Estimated recovery percentage
|
|
—
|
||
|
Other ABS
...................................................
|
$
|
Discounted cash
flows
|
Discount rate/yield
|
|
-
|
|
|
|
Cumulative loss rate
|
|
-
|
|
|
|||
|
Duration (years)
|
|
-
|
|
|
|||
|
Market approach
|
Price
|
$
|
—
|
||||
|
Loans and other receivables
...................
|
$
|
Market approach
|
Price
|
$
|
-
|
$
|
$
|
|
Scenario analysis
|
Estimated recovery percentage
|
|
-
|
|
|
||
|
Derivatives
|
$
|
||||||
|
Equity options
|
Volatility
benchmarking
|
Volatility
|
|
—
|
|||
|
Investments at fair value
..........................
|
$
|
||||||
|
Private equity securities
|
Market approach
|
Price
|
$
|
-
|
$
|
$
|
|
|
Discount rate/yield
|
|
—
|
|||||
|
Revenue
|
$
|
—
|
|||||
|
Financial Instruments Sold, Not Yet Purchased:
|
|||||||
|
Corporate debt securities
|
|||||||
|
$
|
Scenario analysis
|
Estimated recovery percentage
|
|
—
|
|||
|
Loans
|
$
|
Market approach
|
Price
|
$
|
—
|
||
|
Derivatives
..................................................
|
$
|
||||||
|
Equity options
|
Volatility
benchmarking
|
Volatility
|
|
-
|
|
|
|
|
Options
|
Market approach
|
Basis points upfront
|
|
-
|
|
|
|
|
Other secured financings
.........................
|
$
|
Scenario analysis
|
Estimated recovery percentage
|
|
-
|
|
|
|
Long-term debt
..........................................
|
$
|
||||||
|
Structured notes
|
Market approach
|
Price
|
$
|
-
|
$
|
$
|
|
|
Price
|
€
|
-
|
€
|
€
|
|||
The fair values of certain Level 3 assets and liabilities that were
determined based on third-party pricing information, unadjusted
past transaction prices or a percentage of the reported enterprise
fair value are excluded from the above tables. At
November 30,
2024
and
2023
, asset exclusions consisted of
$
23.9
million
and
$
45.6
million
, respectively, primarily composed of CDOs and
CLOs, Other ABS, Investments at fair value, certain derivatives,
RMBS, CMBS and sovereign obligations. At
November 30, 2024
and
2023
, liability exclusions consisted of
$
2.7
million
and
$
4.0
million
, respectively, primarily composed of certain derivatives,
loans, CMBS, corporate equity securities and corporate debt
securities.
Uncertainty of Fair Value Measurement from Use of Significant
Unobservable Inputs
For recurring fair value measurements categorized within Level 3
of the fair value hierarchy, the uncertainty of the fair value
measurement due to the use of significant unobservable inputs
and interrelationships between those unobservable inputs (if any)
are described below:
•
Non-exchange-traded securities, corporate debt securities,
CDOs and CLOs, loans and other receivables, other ABS, private
equity securities, certain derivatives, other secured financings
and structured notes using a market approach valuation
technique. A significant increase (decrease) in the price of the
private equity securities, nonexchange-traded securities,
corporate debt securities, CDOs and CLOs, other ABS, loans
|
November
2024
Form
10-K
|
72
|
Notes to Consolidated Financial Statements
and other receivables, other secured financings or structured
notes would result in a significantly higher (lower) fair value
measurement. A significant increase (decrease) in the revenue
multiple related to private equity securities would result in a
significantly higher (lower) fair value measurement. A
significant increase (decrease) in the discount rate/security
yield related to private equity securities would result in a
significantly lower (higher) fair value measurement. Depending
on whether we are a receiver or (payer) of basis points upfront,
a significant increase in basis points would result in a
significant increase (decrease) in the fair value measurement
of options.
•
Loans and other receivables, corporate debt securities, CMBS,
other ABS and other secured financings using scenario
analysis. A significant increase (decrease) in the possible
recovery rates of the cash flow outcomes underlying the
financial instrument would result in a significantly higher
(lower) fair value measurement for the financial instrument.
•
CDOs and CLOs, corporate debt securities, RMBS and other
ABS using a discounted cash flow valuation technique. A
significant increase (decrease) in isolation in the constant
default rate, loss severity or cumulative loss rate would result
in a significantly lower (higher) fair value measurement. The
impact of changes in the constant prepayment rate and
duration would have differing impacts depending on the capital
structure and type of security. A significant increase
(decrease) in the discount rate/security yield would result in a
significantly lower (higher) fair value measurement.
•
Derivative equity options using volatility benchmarking. A
significant increase (decrease) in volatility would result in a
significantly higher (lower) fair value measurement.
We have elected the fair value option for all loans and loan
commitments made by our investment banking and capital
markets businesses. These loans and loan commitments include
loans entered into by our investment banking division in
connection with client bridge financing and loan syndications,
loans purchased by our leveraged credit trading desk as part of
its bank loan trading activities and mortgage and consumer loan
commitments, purchases and fundings in connection with
mortgage-backed and other asset-backed securitization
activities. Loans and loan commitments originated or purchased
by our leveraged credit and mortgage-backed businesses are
managed on a fair value basis. Loans are included in Financial
instruments owned and loan commitments are included in
Financial instruments owned and Financial instruments sold, not
yet purchased. The fair value option election is not applied to
loans made to affiliate entities as such loans are entered into as
part of ongoing, strategic business ventures. Loans to affiliate
entities are included in Investments in and loans to related
parties and are accounted for on an amortized cost basis. We
have also elected the fair value option for certain of our
structured notes which are managed by our investment banking
and capital markets businesses and are included in Long-term
debt. We have elected the fair value option for certain financial
instruments held by subsidiaries as the investments are risk
managed by us on a fair value basis. The fair value option has
been elected for certain other secured financings that arise in
connection with our securitization activities and other structured
financings. Other secured financings, Receivables – Brokers,
dealers and clearing organizations, Receivables – Customers,
Receivables – Fees, interest and other, Payables – Brokers,
dealers and clearing organizations and Payables – Customers,
are accounted for at cost plus accrued interest rather than at fair
value; however, the recorded amounts approximate fair value due
to their liquid or short-term nature.
specific credit risk on loans, other receivables and debt
instruments and gains (losses) due to other changes in fair value
on Long-term debt measured at fair value under the fair value
option:
|
Year Ended November 30,
|
|||
|
$ in thousands
|
2024
|
2023
|
2022
|
|
Financial instruments owned:
|
|||
|
Loans and other receivables
..........
|
$
(
|
$
|
$
(
|
|
Other secured financings:
|
|||
|
Other changes in fair value (2)
......
|
(
|
(
|
|
|
Long-term debt:
|
|||
|
Changes in instrument-specific
credit risk (1)
....................................
|
(
|
(
|
|
|
Other changes in fair value (2)
......
|
(
|
|
|
(1)
Changes in fair value of structured notes related to instrument-specific credit
risk are presented net of tax in our Consolidated Statements of
Comprehensive Income.
(2)
Other changes in fair value are included in Principal transactions revenues.
Amounts by which contractual principal is greater than (less
than) fair value for loans and other receivables, Other secured
financings and Long-term debt measured at fair value under the
fair value option:
|
November 30,
|
||
|
$ in thousands
|
2024
|
2023
|
|
Financial instruments owned:
|
||
|
Loans and other receivables (1)
................................
|
$
|
$
|
|
Loans and other receivables on nonaccrual status
and/or 90 days or greater past due (1) (2)
...............
|
|
|
|
Long-term debt
.............................................................
|
|
|
|
Other secured financings
............................................
|
|
|
(1)
Interest income is recognized separately from other changes in fair value and
is included in Interest revenues.
(2)
Amounts include loans and other receivables
90
days or greater past due by
which contractual principal exceeds fair value of
$
48.8
million
and
$
187.4
million
at
November 30, 2024
and
2023
, respectively.
The aggregate fair value of loans and other receivables on
nonaccrual status and/or
90
days or greater past due was
$
126.9
million
and
$
98.1
million
at
November 30, 2024
and
2023
,
respectively, which includes loans and other receivables
90
days
or greater past due of
$
120.0
million
and
$
37.6
million
at
November 30, 2024
and
2023
, respectively.
Certain assets were measured at fair value on a non-recurring
basis and are not included in the tables above.
Assets measured
at fair value on a non-recurring basis for which we recognized a
non-recurring fair value adjustment for the periods presented:
|
November 30, 2024
|
Level 3
|
Gains
(Losses)
|
|
Premises and equipment (1)
.........................................
|
$
|
$
(
|
|
Exchange ownership interests and registrations (2)
.
|
|
(
|
|
Other assets (3)
..............................................................
|
|
|
|
73
|
Jefferies Financial Group Inc.
|
Notes to Consolidated Financial Statements
|
November 30, 2023
|
Level 3
|
Gains
(Losses)
|
|
Exchange ownership interests and registrations (2)
.
|
$
|
$
(
|
|
Investments in and loans to related parties (4)
.........
|
|
(
|
|
Other assets (5)
..............................................................
|
|
(
|
|
November 30, 2022
|
Level 3
|
Gains
(Losses)
|
|
Exchange ownership interests and registrations (2)
.
|
$
|
$
(
|
|
Investments in and loans to related parties (6)
|
|
(
|
|
Other assets (7)
|
|
(
|
(1)
Premises and equipment losses represent impairments of leasehold
improvements, furniture, fixtures, computer and communications equipment
and capitalized software and were recognized in Technology and
communications and Occupancy and equipment rental in our Consolidated
Statements of Earnings.
(2)
These impairment losses, which represent ownership interests in market
exchanges on which trading business is conducted, and registrations, were
recognized in
Other expenses
and the assets were in the Investment Banking
and Capital Markets reportable business segment. The fair value is based on
observed quoted sales prices for each individual membership. Refer to
Note
13, Goodwill and Intangible Assets
.
(3)
Our shares in Monashee, an equity method investment, were converted to a
newly created class of nonmarketable preferred shares. Our equity method
investment was remeasured in connection with its nonmonetary exchange
into the preferred shares, which are accounted for at cost pursuant to the
measurement alternative subsequent to the nonmonetary exchange.
The gain
was recognized in Other revenues and the asset was in the Asset
Management reportable business segment.
(4)
These impairment losses, which are related to an equity method investments,
were recognized in Other revenues and the asset was in the Asset
Management reportable business segment. Fair value was based on our best
estimate of what could be recognized in a sale transaction for the investment.
(5)
These impairment losses, which are related to real estate held for
development, were recognized in Other revenues and are held in the Asset
Management reportable business segment. Fair value was based on
estimated future cash flows using discounts rates ranging from
10.0
%
to
(6)
These impairment losses, which are related to certain equity method
investments, were recognized in Other revenues and the assets were in the
Asset Management reportable business segment. The fair values were based
on estimated future cash flows using discount rates ranging from
10.0
%
to
(7)
These impairment losses, which relate to a real estate property, were
recognized in Other expenses and the assets were in the Asset Management
reportable business segment. The fair values were based on estimated future
Certain of our financial instruments are not carried at fair value
but are recorded at amounts that approximate fair value due to
their liquid or short-term nature and generally negligible credit
risk. These financial assets include Cash and cash equivalents
and Cash and securities segregated and on deposit for regulatory
purposes or deposited with clearing and depository organizations
and would generally be presented within Level 1 of the fair value
hierarchy.
We have equity securities without readily determinable fair
values, which we account for at cost, minus impairment, which
are presented within Other assets and were
$
21.9
million
and
$
0.0 million
at
November 30, 2024
and
2023
, respectively. Net
gains (losses) of
$
0.0 million
,
$(
122.2
) million
and
$
3.6
million
were recognized on these investments during the years ended
November 30, 2024
,
2023
and
2022
, respectively. Impairments
and downward adjustments on these investments during the year
ended
November 30, 2023
were
$
80.3
million
. There were
no
impairments and downward adjustments on these investments
during the years ended
November 30, 2024
and
2022
. These
investments would generally be presented within Level 3 of the
fair value hierarchy.
Our derivative activities are recorded at fair value in our
Consolidated Statements of Financial Condition in
Financial
instruments owned
and
Financial instruments sold, not yet
purchased
, net of cash paid or received under credit support
agreements and on a net counterparty basis when a legally
enforceable right to offset exists under a master netting
agreement. We enter into derivative transactions to satisfy the
needs of our clients and to manage our own exposure to market
and credit risks. In addition, we apply hedge accounting to: (1)
interest rate swaps that have been designated as fair value
hedges of the changes in fair value due to the benchmark interest
rate for certain fixed rate senior long-term debt, and (2) forward
foreign exchange contracts designated as hedges to offset the
change in the value of certain net investments in foreign
operations.
Derivatives are subject to various risks similar to other financial
instruments, including market, credit and operational risk. The
risks of derivatives should not be viewed in isolation, but rather
should be considered on an aggregate basis along with our other
trading-related activities. We manage the risks associated with
derivatives on an aggregate basis along with the risks associated
with proprietary trading as part of our firm wide risk management
policies.
In connection with our derivative activities, we may enter into
International Swaps and Derivatives Association, Inc. master
netting agreements or similar agreements with counterparties.
Refer to
Note 2, Summary of Significant Accounting Policies
for
additional information regarding the offsetting of derivative
contracts.
extent to which, under enforceable master netting arrangements,
such balances are presented net in our Consolidated Statements
of Financial Condition as appropriate under U.S. GAAP and (2)
the extent to which other rights of setoff associated with these
arrangements exist and could have an effect on our financial
position.
The fair value of assets/liabilities in the following tables
represent our receivable/payable for derivative financial
instruments, gross of counterparty netting and cash collateral
received and pledged.
|
November
2024
Form
10-K
|
74
|
Notes to Consolidated Financial Statements
|
November 30, 2024 (1)
|
||||
|
Assets
|
Liabilities
|
|||
|
$ in thousands
|
Fair Value
|
Number of
Contracts (2)
|
Fair Value
|
Number of
Contracts (2)
|
|
Derivatives designated as
accounting hedges:
|
||||
|
Interest rate contracts:
|
||||
|
Cleared OTC
........................................
|
$
|
|
$
|
|
|
Foreign exchange contracts:
|
||||
|
Bilateral OTC
.......................................
|
|
|
|
|
|
Total derivatives designated as
accounting hedges
............................
|
|
|
||
|
Derivatives not designated as
accounting hedges:
|
||||
|
Interest rate contracts:
|
||||
|
Exchange-traded
................................
|
|
|
|
|
|
Cleared OTC
........................................
|
|
|
|
|
|
Bilateral OTC
.......................................
|
|
|
|
|
|
Foreign exchange contracts:
|
||||
|
Bilateral OTC
.......................................
|
|
|
|
|
|
Equity contracts:
|
||||
|
Exchange-traded
................................
|
|
|
|
|
|
Bilateral OTC
.......................................
|
|
|
|
|
|
Commodity contracts:
|
||||
|
Exchange-traded
................................
|
|
|
|
|
|
Bilateral OTC
.......................................
|
|
|
|
|
|
Credit contracts:
|
||||
|
Cleared OTC
........................................
|
|
|
|
|
|
Bilateral OTC
.......................................
|
|
|
|
|
|
Total derivatives not designated
as accounting hedges
.......................
|
|
|
||
|
Total gross derivative assets/
liabilities:
|
||||
|
Exchange-traded
................................
|
|
|
||
|
Cleared OTC
........................................
|
|
|
||
|
Bilateral OTC
.......................................
|
|
|
||
|
Amounts offset in our
Consolidated Statements of
Financial Condition (3):
|
||||
|
Exchange-traded
................................
|
(
|
(
|
||
|
Cleared OTC
........................................
|
(
|
(
|
||
|
Bilateral OTC
.......................................
|
(
|
(
|
||
|
Net amounts per Consolidated
Statements of Financial
Condition (4)
.................................
|
$
|
$
|
||
|
November 30, 2023 (1)
|
||||
|
Assets
|
Liabilities
|
|||
|
$ in thousands
|
Fair Value
|
Number of
Contracts (2)
|
Fair Value
|
Number of
Contracts (2)
|
|
Derivatives designated as
accounting hedges:
|
||||
|
Interest rate contracts:
|
||||
|
Cleared OTC
.........................................
|
$
|
|
$
|
|
|
Foreign exchange contracts:
|
||||
|
Bilateral OTC
........................................
|
|
|
|
|
|
Total derivatives designated as
accounting hedges
.............................
|
|
|
||
|
Derivatives not designated as
accounting hedges:
|
||||
|
Interest rate contracts:
|
||||
|
Exchange-traded
.................................
|
|
|
|
|
|
Cleared OTC
.........................................
|
|
|
|
|
|
Bilateral OTC
........................................
|
|
|
|
|
|
Foreign exchange contracts:
|
||||
|
Exchange-traded
.................................
|
|
|
|
|
|
Bilateral OTC
........................................
|
|
|
|
|
|
Equity contracts:
|
||||
|
Exchange-traded
.................................
|
|
|
|
|
|
Bilateral OTC
........................................
|
|
|
|
|
|
Commodity contracts:
|
||||
|
Exchange-traded
.................................
|
|
|
|
|
|
Bilateral OTC
.......................................
|
|
|
|
|
|
Credit contracts:
|
||||
|
Cleared OTC
.........................................
|
|
|
|
|
|
Bilateral OTC
........................................
|
|
|
|
|
|
Total derivatives not designated as
accounting hedges
.............................
|
|
|
||
|
Total gross derivative assets/
liabilities:
|
||||
|
Exchange-traded
.................................
|
|
|
||
|
Cleared OTC
.........................................
|
|
|
||
|
Bilateral OTC
........................................
|
|
|
||
|
Amounts offset in our
Consolidated Statements of
Financial Condition (3):
|
||||
|
Exchange-traded
.................................
|
(
|
(
|
||
|
Cleared OTC
.........................................
|
(
|
(
|
||
|
Bilateral OTC
........................................
|
(
|
(
|
||
|
Net amounts per Consolidated
Statements of Financial
Condition (4)
..................................
|
$
|
$
|
||
(1)
Exchange-traded derivatives include derivatives executed on an organized exchange. Cleared OTC derivatives include derivatives executed bilaterally and subsequently
novated to and cleared through central clearing counterparties. Bilateral OTC derivatives include derivatives executed and settled bilaterally without the use of an
organized exchange or central clearing counterparty.
(2)
The number of exchange-traded contracts may include open futures contracts. The unsettled fair value of these futures contracts is included in Receivables from/
Payables to brokers, dealers and clearing organizations.
(3)
Amounts netted include both netting by counterparty and for cash collateral paid or received.
(4)
We have not received or pledged additional collateral under master netting agreements and/or other credit support agreements that is eligible to be offset beyond what
has been offset in our Consolidated Statements of Financial Condition.
|
75
|
Jefferies Financial Group Inc.
|
Notes to Consolidated Financial Statements
hedges:
|
$ in thousands
|
Year Ended November 30,
|
||
|
Gains (Losses)
|
2024
|
2023
|
2022
|
|
Interest rate swaps (1)
....................
|
$
(
|
$
(
|
$
(
|
|
Long-term debt
................................
|
(
|
|
|
|
Total
..................................................
|
$
(
|
$
(
|
$
|
(1)
Includes net settlements of
$(
62.3
) million
,
$(
55.6
) million
and
$
1.4
million
for
the years ended
November 30,
2024
,
2023
and
2022
, respectively.
Gains (losses) on our net investment hedges recognized in
Currency translation and other adjustments, a component of
Other comprehensive income (loss), in our Consolidated
Statements of Comprehensive Income:
|
$ in thousands
|
Year Ended November 30,
|
||
|
Gains (Losses)
|
2024
|
2023
|
2022
|
|
Foreign exchange contracts
..........
|
$
(
|
$
(
|
$
|
|
Total
..................................................
|
$
(
|
$
(
|
$
|
Unrealized and realized gains (losses) on derivative contracts
recognized primarily in Principal transactions revenues, which are
utilized in connection with our client activities and our economic
risk management activities:
|
$ in thousands
|
Year Ended November 30,
|
||
|
Gains (Losses)
|
2024
|
2023
|
2022
|
|
Interest rate contracts
....................
|
$
|
$
|
$
(
|
|
Foreign exchange contracts
..........
|
|
|
(
|
|
Equity contracts
...............................
|
(
|
(
|
(
|
|
Commodity contracts
.....................
|
|
|
(
|
|
Credit contracts
...............................
|
(
|
(
|
|
|
Total
..................................................
|
$
(
|
$
|
$
(
|
The net gains (losses) on derivative contracts in the table above
are one of a number of activities comprising our business
activities and are before consideration of economic hedging
transactions, which generally offset the net gains (losses)
included above. We substantially mitigate our exposure to market
risk on our cash instruments through derivative contracts, which
generally provide offsetting revenues, and we manage the risk
associated with these contracts in the context of our overall risk
management framework.
OTC Derivatives
|
OTC Derivative Assets (1) (2) (3)
|
|||||
|
$ in thousands
|
0 – 12
Months
|
1 – 5
Years
|
Greater
Than 5
Years
|
Cross-
Maturity
Netting (4)
|
Total
|
|
Commodity swaps, options
and forwards
.....................
|
$
|
$
|
$
|
$
|
$
|
|
Equity options and forwards
|
|
|
|
(
|
|
|
Total return swaps
.................
|
|
|
|
(
|
|
|
Foreign currency forwards,
swaps and options
...........
|
|
|
|
|
|
|
Fixed income forwards
.........
|
|
|
|
|
|
|
Interest rate swaps, options
and forwards
.....................
|
|
|
|
(
|
|
|
Total
.........................................
|
$
|
$
|
$
|
$
(
|
|
|
Cross-product counterparty
netting
................................
|
(
|
||||
|
Total OTC derivative assets
included in Financial
instruments owned
..........
|
$
|
||||
|
OTC Derivative Liabilities (1) (2) (3)
|
|||||
|
$ in thousands
|
0 – 12
Months
|
1 – 5
Years
|
Greater
Than 5
Years
|
Cross-
Maturity
Netting
(4)
|
Total
|
|
Commodity swaps, options and
forwards
......................................
|
$
|
$
|
$
|
$
|
$
|
|
Equity options and forwards
..........
|
|
|
|
(
|
|
|
Credit default swaps
........................
|
|
|
|
|
|
|
Total return swaps
...........................
|
|
|
|
(
|
|
|
Foreign currency forwards, swaps
and options
.................................
|
|
|
|
|
|
|
Fixed income forwards
...................
|
|
|
|
|
|
|
Interest rate swaps, options and
forwards
......................................
|
|
|
|
(
|
|
|
Total
...................................................
|
$
|
$
|
$
|
$
(
|
|
|
Cross-product counterparty
netting
..........................................
|
(
|
||||
|
Total OTC derivative liabilities
included in Financial
instruments sold, not yet
purchased
...................................
|
$
|
||||
(1)
At
November 30, 2024
, we held net exchange-traded derivative assets and
liabilities and other credit agreements with a fair value of
$
206.3
million
and
$
46.6
million
, respectively, which are not included in these tables.
(2)
OTC derivative assets and liabilities in the tables above are gross of collateral
pledged. OTC derivative assets and liabilities are recorded net of collateral
pledged in our Consolidated Statements of Financial Condition. At
November 30, 2024
, cash collateral received and pledged was
$
400.1
million
and
$
526.0
million
, respectively.
(3)
Derivative fair values include counterparty netting within product category.
(4)
Amounts represent the netting of receivable balances with payable balances
for the same counterparty within product category across maturity categories.
OTC derivative assets at
November 30, 2024
:
|
Counterparty credit quality (1):
|
$ in thousands
|
|
A- or higher
...............................................................................................
|
$
|
|
BBB- to BBB+
...........................................................................................
|
|
|
BB+ or lower
.............................................................................................
|
|
|
Unrated
.....................................................................................................
|
|
|
Total
..........................................................................................................
|
$
|
(1)
We utilize internal credit ratings determined by our Risk Management
department. Credit ratings determined by Risk Management use
methodologies that produce ratings generally consistent with those produced
by external rating agencies.
Credit Related Derivative Contracts
our written credit related derivative contracts:
|
November 30, 2024
|
|||
|
External Credit Rating
|
|||
|
$ in millions
|
Investment
Grade
|
Non-
investment
Grade
|
Total
Notional
|
|
Credit protection sold:
|
|||
|
Index credit default swaps
.....................
|
$
|
$
|
$
|
|
November 30, 2023
|
|||
|
External Credit Rating
|
|||
|
$ in millions
|
Investment
Grade
|
Non-
investment
Grade
|
Total
Notional
|
|
Credit protection sold:
|
|||
|
Index credit default swaps
.....................
|
$
|
$
|
$
|
|
November
2024
Form
10-K
|
76
|
Notes to Consolidated Financial Statements
Contingent Features
Certain of our derivative instruments contain provisions that
require our debt to maintain an investment grade credit rating
from each of the major credit rating agencies. If our debt were to
fall below investment grade, it would be in violation of these
provisions and the counterparties to the derivative instruments
could request immediate payment or demand immediate and
ongoing full overnight collateralization on our derivative
instruments in liability positions.
The following table presents the
aggregate fair value of all derivative instruments with such credit-
risk-related contingent features that are in a liability position, the
collateral amounts we have posted or received in the normal
course of business and the potential collateral we would have
been required to return and/or post additionally to our
counterparties if the credit-risk-related contingent features
underlying these agreements were triggered:
|
November 30,
|
||
|
$ in millions
|
2024
|
2023
|
|
Derivative instrument liabilities with credit-risk-
related contingent features
...................................
|
$
|
$
|
|
Collateral posted
..........................................................
|
(
|
(
|
|
Collateral received
.......................................................
|
|
|
|
Return of and additional collateral required in the
event of a credit rating downgrade below
investment grade (1)
..............................................
|
|
|
(1)
These potential outflows include initial margin received from counterparties at
the execution of the derivative contract. The initial margin will be returned if
counterparties elect to terminate the contract after a downgrade.
Our repurchase agreements and securities borrowing and lending
arrangements are generally recorded at cost in our Consolidated
Statements of Financial Condition, which is a reasonable
approximation of their fair values due to their short-term nature.
We enter into secured borrowing and lending arrangements to
obtain collateral necessary to effect settlement, finance inventory
positions, meet customer needs or re-lend as part of our dealer
operations. We monitor the fair value of the securities loaned and
borrowed on a daily basis as compared to the related payable or
receivable, and request additional collateral or return excess
collateral, as appropriate. We pledge financial instruments as
collateral under repurchase agreements, securities lending
agreements and other secured arrangements, including clearing
arrangements. Our agreements with counterparties generally
contain contractual provisions allowing the counterparty the right
to sell or repledge the collateral. Pledged securities owned that
can be sold or repledged by the counterparty are included in
Financial instruments owned, at fair value and noted
parenthetically as Securities pledged in our Consolidated
Statements of Financial Condition.
In instances where we receive securities as collateral in
connection with securities-for-securities transactions in which we
are the lender of securities and are permitted to sell or repledge
the securities received as collateral, we report the fair value of
the collateral received and the related obligation to return the
collateral in our Consolidated Statements of Financial Condition.
|
November 30, 2024
|
||||
|
$ in millions
|
Securities
Lending
Arrangements
|
Repurchase
Agreements
|
Obligation to
Return
Securities
Received as
Collateral, at
Fair Value
|
Total
|
|
Collateral Pledged:
|
||||
|
Corporate equity
securities
.....................
|
$
|
$
|
$
|
$
|
|
Corporate debt
securities
.....................
|
|
|
|
|
|
Mortgage-backed and
asset-backed
securities
.....................
|
|
|
|
|
|
U.S. government and
federal agency
securities
.....................
|
|
|
|
|
|
Municipal securities
........
|
|
|
|
|
|
Sovereign obligations
.....
|
|
|
|
|
|
Loans and other
receivables
..................
|
|
|
|
|
|
Total
..................................
|
$
|
$
|
$
|
$
|
|
November 30, 2023
|
||||
|
$ in millions
|
Securities
Lending
Arrangements
|
Repurchase
Agreements
|
Obligation to
Return
Securities
Received as
Collateral, at
Fair Value
|
Total
|
|
Collateral Pledged:
|
||||
|
Corporate equity
securities
.....................
|
$
|
$
|
$
|
$
|
|
Corporate debt
securities
.....................
|
|
|
|
|
|
Mortgage-backed and
asset-backed
securities
.....................
|
|
|
|
|
|
U.S. government and
federal agency
securities
.....................
|
|
|
|
|
|
Municipal securities
........
|
|
|
|
|
|
Sovereign obligations
.....
|
|
|
|
|
|
Loans and other
receivables
..................
|
|
|
|
|
|
Total
..................................
|
$
|
$
|
$
|
$
|
|
November 30, 2024
|
|||||
|
$ in millions
|
Overnight
and
Continuous
|
Up to 30
Days
|
31-90
Days
|
Greater
than 90
Days
|
Total
|
|
Securities lending
arrangements
..............
|
$
|
$
|
$
|
$
|
$
|
|
Repurchase agreements
.
|
|
|
|
|
|
|
Obligation to return
securities received as
collateral, at fair
value
.............................
|
|
|
|
|
|
|
Total
...................................
|
$
|
$
|
$
|
$
|
$
|
|
November 30, 2023
|
|||||
|
$ in millions
|
Overnight
and
Continuous
|
Up to 30
Days
|
31-90
Days
|
Greater
than 90
Days
|
Total
|
|
Securities lending
arrangements
..............
|
$
|
$
|
$
|
$
|
$
|
|
Repurchase agreements
.
|
|
|
|
|
|
|
Obligation to return
securities received as
collateral, at fair
value
.............................
|
|
|
|
|
|
|
Total
...................................
|
$
|
$
|
$
|
$
|
$
|
|
77
|
Jefferies Financial Group Inc.
|
Notes to Consolidated Financial Statements
We receive securities as collateral under resale agreements, securities borrowing transactions, customer margin loans, and in
connection with securities-for-securities transactions in which we are the lender of securities. We also receive securities as initial
margin on certain derivative transactions. In many instances, we are permitted by contract to rehypothecate the securities received as
collateral. These securities may be used to secure repurchase agreements, enter into securities lending transactions, satisfy margin
requirements on derivative transactions or cover short positions. At
November 30, 2024
and
2023
, the approximate fair value of
securities received as collateral by us that may be sold or repledged was
$
37.63
billion
and
$
33.99
billion
, respectively. At
November 30,
2024
and
2023
, a substantial portion of the securities received by us had been sold or repledged.
Securities Financing Agreements
To manage our exposure to credit risk associated with securities financing transactions, we may enter into master netting agreements
and collateral arrangements with counterparties. Generally, transactions are executed under standard industry agreements, including,
but not limited to, master securities lending agreements (securities lending transactions) and master repurchase agreements
(repurchase transactions).
The following tables provide information regarding repurchase agreements, securities borrowing and lending arrangements and
securities received as collateral, at fair value, and obligation to return securities received as collateral, at fair value, that are recognized
in our Consolidated Statements of Financial Condition and (1) the extent to which, under enforceable master netting arrangements,
such balances are presented net in our Consolidated Statements of Financial Condition as appropriate under U.S.GAAP and (2) the
extent to which other rights of setoff associated with these arrangements exist and could have an effect on our financial position.
|
November 30, 2024
|
||||||
|
$ in millions
|
Gross
Amounts
|
Netting in
Consolidated
Statements
of Financial
Condition
|
Net Amounts in
Consolidated
Statements of
Financial
Condition
|
Additional
Amounts
Available for
Setoff (1)
|
Available
Collateral (2)
|
Net
Amount (3)
|
|
Assets:
|
||||||
|
Securities borrowing arrangements
...................................
|
$
|
$
|
$
|
$
(
|
$
(
|
$
|
|
Reverse repurchase agreements
.........................................
|
|
(
|
|
(
|
(
|
|
|
Securities received as collateral, at fair value
...................
|
|
|
|
|
(
|
|
|
Liabilities:
|
||||||
|
Securities lending arrangements
........................................
|
$
|
$
|
$
|
$
(
|
$
(
|
$
|
|
Repurchase agreements
.......................................................
|
|
(
|
|
(
|
(
|
|
|
Obligation to return securities received as collateral, at
fair value
.............................................................................
|
|
|
|
|
(
|
|
|
November 30, 2023
|
||||||
|
$ in millions
|
Gross
Amounts
|
Netting in
Consolidated
Statements
of Financial
Condition
|
Net Amounts in
Consolidated
Statements of
Financial
Condition
|
Additional
Amounts
Available for
Setoff (1)
|
Available
Collateral (2)
|
Net
Amount (4)
|
|
Assets:
|
||||||
|
Securities borrowing arrangements
...................................
|
$
|
$
|
$
|
$
(
|
$
(
|
$
|
|
Reverse repurchase agreements
.........................................
|
|
(
|
|
(
|
(
|
|
|
Securities received as collateral, at fair value
...................
|
|
|
|
|
(
|
|
|
Liabilities:
|
||||||
|
Securities lending arrangements
........................................
|
$
|
$
|
$
|
$
(
|
$
(
|
$
|
|
Repurchase agreements
.......................................................
|
|
(
|
|
(
|
(
|
|
|
Obligation to return securities received as collateral, at
fair value
.............................................................................
|
|
|
|
|
(
|
|
(1)
Under master netting agreements with our counterparties, we have the legal right of offset with a counterparty, which incorporates all of the counterparty’s outstanding
rights and obligations under the arrangement. These balances reflect additional credit risk mitigation that is available by a counterparty in the event of a counterparty’s
default, but which are not netted in our Consolidated Statements of Financial Condition because other netting provisions of U.S. GAAP are not met.
(2)
Includes securities received or paid under collateral arrangements with counterparties that could be liquidated in the event of a counterparty default and thus offset
against a counterparty’s rights and obligations under the respective repurchase agreements or securities borrowing or lending arrangements.
(3)
Includes
$
5.31
billion
of securities borrowing arrangements, for which we have received securities collateral of
$
5.19
billion
, and
$
645.0
million
of repurchase
agreements, for which we have pledged securities collateral of
$
656.9
million
, which are subject to master netting agreements, but we have not determined the
agreements to be legally enforceable.
(4)
Includes
$
5.17
billion
of securities borrowing arrangements, for which we have received securities collateral of
$
5.04
billion
, and
$
505.0
million
of repurchase
agreements, for which we have pledged securities collateral of
$
520.4
million
, which are subject to master netting agreements, but we have not determined the
agreements to be legally enforceable.
|
November
2024
Form
10-K
|
78
|
Notes to Consolidated Financial Statements
Cash and Securities Segregated and on Deposit for Regulatory
Purposes or Deposited with Clearing and Depository
Organizations
Cash and securities segregated in accordance with regulatory
regulations and deposited with clearing and depository
organizations primarily consist of deposits in accordance with
Rule 15c3-3 of the Securities Exchange Act of 1934, which
subjects Jefferies LLC as a broker-dealer carrying customer
accounts to requirements related to maintaining cash or qualified
securities in segregated special reserve bank accounts for the
exclusive benefit of its customers.
|
November 30,
|
||
|
$ in thousands
|
2024
|
2023
|
|
Cash and securities segregated and
on deposit for regulatory purposes
or deposited with clearing and
depository organizations
...................
|
$
|
$
|
We engage in securitization activities related to corporate loans,
mortgage loans, consumer loans and mortgage-backed and other
asset-backed securities. In our securitization transactions, we
transfer these assets to special purpose entities (“SPEs”) and act
as the placement or structuring agent for the beneficial interests
sold to investors by the SPE. A portion of our securitization
transactions are the securitization of assets issued or
guaranteed by U.S. government agencies. These SPEs generally
meet the criteria of VIEs; however, we generally do not
consolidate the SPEs as we are not considered the primary
beneficiary for these SPEs. Refer to
Note 10, Variable Interest
Entities
for further discussion on VIEs and our determination of
the primary beneficiary.
We account for our securitization transactions as sales, provided
we have relinquished control over the transferred assets.
Transferred assets are carried at fair value with unrealized gains
and losses reflected in Principal transactions revenues prior to
the identification and isolation for securitization. Subsequently,
revenues recognized upon securitization are reflected as net
underwriting revenues. We generally receive cash proceeds in
connection with the transfer of assets to an SPE. We may,
however, have continuing involvement with the transferred
assets, which is limited to retaining one or more tranches of the
securitization (primarily senior and subordinated debt securities
in the form of mortgage-backed and other-asset backed
securities or CLOs). These securities are included in Financial
instruments owned, at fair value and are generally initially
categorized as Level 2 within the fair value hierarchy.
continuing involvement:
|
Year Ended November 30,
|
|||
|
$ in millions
|
2024
|
2023
|
2022
|
|
Transferred assets
..........................
|
$
|
$
|
$
|
|
Proceeds on new securitizations
..
|
|
|
|
|
Cash flows received on retained
interests
............................................
|
|
|
|
We have no explicit or implicit arrangements to provide additional
financial support to these SPEs, have no liabilities related to
these SPEs and do not have any outstanding derivative contracts
executed in connection with these securitization activities at
November 30, 2024
and
2023
.
have continuing involvement and received sale accounting
treatment:
|
November 30,
|
||||
|
$ in millions
|
2024
|
2023
|
||
|
Securitization Type
|
Total
Assets
|
Retained
Interests
|
Total
Assets
|
Retained
Interests
|
|
U.S. government agency RMBS
...
|
$
|
$
|
$
|
$
|
|
U.S. government agency CMBS
...
|
|
|
|
|
|
CLOs
.................................................
|
|
|
|
|
|
Consumer and other loans
...........
|
|
|
|
|
Total assets represent the unpaid principal amount of assets in
the SPEs in which we have continuing involvement and are
presented solely to provide information regarding the size of the
transactions and the size of the underlying assets supporting our
retained interests and are not considered representative of the
risk of potential loss. Assets retained in connection with a
securitization transaction represent the fair value of the
securities of one or more tranches issued by an SPE, including
senior and subordinated tranches. Our risk of loss is limited to
this fair value amount which is included in total Financial
instruments owned in our Consolidated Statements of Financial
Condition.
Although not obligated, in connection with secondary market-
making activities we may make a market in the securities issued
by these SPEs. In these market-making transactions, we buy
these securities from and sell these securities to investors.
Securities purchased through these market-making activities are
not considered to be continuing involvement in these SPEs. To
the extent we purchased securities through these market-making
activities, and we are not deemed to be the primary beneficiary of
the VIE, these securities are included in agency and non-agency
mortgage-backed and asset-backed securitizations in the
nonconsolidated VIEs section presented in
Note 10, Variable
Interest Entities
.
VIEs are entities in which equity investors lack the characteristics
of a controlling financial interest. VIEs are consolidated by the
primary beneficiary. The primary beneficiary is the party who has
both (1) the power to direct the activities of a VIE that most
significantly impact the entity’s economic performance and (2)
an obligation to absorb losses of the entity or a right to receive
benefits from the entity that could potentially be significant to the
entity.
Our variable interests in VIEs include debt and equity interests,
commitments, guarantees and certain fees. Our involvement with
VIEs arises primarily from:
•
Purchases of securities in connection with our trading and
secondary market making activities;
•
Retained interests held as a result of securitization activities;
•
Acting as placement agent and/or underwriter in connection
with client-sponsored securitizations;
•
Financing of agency and non-agency mortgage-backed and
other asset-backed securities;
•
Acting as servicer for a fee to automobile loan financing
vehicles;
•
Warehouse funding arrangements for client-sponsored
consumer and mortgage loan vehicles and CLOs through
|
79
|
Jefferies Financial Group Inc.
|
Notes to Consolidated Financial Statements
participation agreements, forward sale agreements, reverse
repurchase agreements, and revolving loan and note
commitments; and
•
Loans to, investments in and fees from various investment
vehicles.
We determine whether we are the primary beneficiary of a VIE
upon our initial involvement with the VIE and we reassess
whether we are the primary beneficiary of a VIE on an ongoing
basis. Our determination of whether we are the primary
beneficiary of a VIE is based upon the facts and circumstances
for each VIE and requires judgment. Our considerations in
determining the VIE’s most significant activities and whether we
have power to direct those activities include, but are not limited
to, the VIE’s purpose and design and the risks passed through to
investors, the voting interests of the VIE, management, service
and/or other agreements of the VIE, involvement in the VIE’s
initial design and the existence of explicit or implicit financial
guarantees. In situations where we have determined that the
power over the VIE’s significant activities is shared, we assess
whether we are the party with the power over the most significant
activities. If we are the party with the power over the most
significant activities, we meet the “power” criteria of the primary
beneficiary. If we do not have the power over the most significant
activities or we determine that decisions require consent of each
sharing party, we do not meet the “power” criteria of the primary
beneficiary.
We assess our variable interests in a VIE both individually and in
aggregate to determine whether we have an obligation to absorb
losses of or a right to receive benefits from the VIE that could
potentially be significant to the VIE. The determination of whether
our variable interest is significant to the VIE requires judgment. In
determining the significance of our variable interest, we consider
the terms, characteristics and size of the variable interests, the
design and characteristics of the VIE, our involvement in the VIE
and our market-making activities related to the variable interests.
|
November 30, 2024
(1)
|
||
|
$ in millions
|
Secured
Funding
Vehicles
|
Other
|
|
Cash
...................................................................................
|
$
|
$
|
|
Financial instruments owned
........................................
|
|
|
|
Securities purchased under agreements to resell (2)
|
|
|
|
Receivables from brokers (3)
.........................................
|
|
|
|
Other receivables
.............................................................
|
|
|
|
Other assets (4)
...............................................................
|
|
|
|
Total assets
......................................................................
|
$
|
$
|
|
Financial instruments sold, not yet purchased
...........
|
$
|
$
|
|
Other secured financings (5)
.........................................
|
|
|
|
Other liabilities (6)
...........................................................
|
|
|
|
Long-term debt
................................................................
|
|
|
|
Total liabilities
.................................................................
|
$
|
$
|
|
November 30, 2023
(1)
|
||
|
$ in millions
|
Secured
Funding
Vehicles
|
Other
|
|
Cash
...................................................................................
|
$
|
$
|
|
Financial instruments owned
.........................................
|
|
|
|
Securities purchased under agreements to resell (2)
|
|
|
|
Receivables from brokers (3)
.........................................
|
|
|
|
Assets held for sale (7)
...................................................
|
|
|
|
Other assets (4)
...............................................................
|
|
|
|
Total assets
......................................................................
|
$
|
$
|
|
Financial instruments sold, not yet purchased
...........
|
$
|
$
|
|
Other secured financings (5)
.........................................
|
|
|
|
Liabilities held for sale (7)
..............................................
|
|
|
|
Other liabilities (6)
...........................................................
|
|
|
|
Long-term debt
................................................................
|
|
|
|
Total liabilities
.................................................................
|
$
|
$
|
(1)
Assets and liabilities are presented prior to consolidation and thus a portion of
these assets and liabilities are eliminated in consolidation.
(2)
Securities purchased under agreements to resell primarily represent amounts
due under collateralized transactions from related consolidated entities, which
are all eliminated in consolidation.
(3)
$
1.5
million
and
$
1.4
million
of receivables from brokers at
November 30,
2024
and
2023
,
respectively, are with related consolidated entities, which are
eliminated in consolidation.
(4)
$
3.4
million
and
$
56.1
million
of the other assets at
November 30, 2024
and
2023
,
respectively, represent intercompany receivables with related
consolidated entities, which are eliminated in consolidation.
(5)
$
719.0
million
and
$
681.0
million
of the other secured financings at
November 30, 2024
and
2023
, respectively, are with related consolidated
entities and are eliminated in consolidation.
(6)
$
22.0
million
and
$
247.9
million
of the other liabilities amounts at
November 30, 2024
and
2023
,
respectively, are with related consolidated
entities, which are eliminated in consolidation.
(7)
At
November 30, 2023
, Assets held for sale and Liabilities held for sale in our
Consolidated Statements of Financial Condition relate to the net operating
assets of the wholesale operations of OpNet and Foursight’s automobile
financing vehicles. Both entities were considered to be VIEs.
$
31.9
million
of
Assets held for sale and
$
5.3
million
Liabilities held for sale were with related
consolidated entities and were eliminated in consolidation. Refer to
Note 5,
Assets Held for Sale and Discontinued Operations
for further information.
|
November
2024
Form
10-K
|
80
|
Notes to Consolidated Financial Statements
Secured Funding Vehicles.
We are the primary beneficiary of
asset-backed financing vehicles to which we sell agency and non-
agency residential and commercial mortgage loans, and asset-
backed securities pursuant to the terms of a master repurchase
agreement. Our variable interests in these vehicles consist of our
collateral margin maintenance obligations under the master
repurchase agreement, which we manage, and retained interests
in securities issued. The assets of these VIEs consist of reverse
repurchase agreements, which are available for the benefit of the
vehicle’s debt holders. In addition, we also from time to time
securitize other financial instruments and own variable interests
in the securitization vehicles to the extent that we consolidate
such vehicles.
Prior to the sale of Foursight in April 2024, we were the primary
beneficiary of automobile loan financing vehicles to which we
transferred automobile loans, acted as servicer of the automobile
loans for a fee and retained equity interests in the vehicles. The
assets of these VIEs primarily consisted of automobile loans,
which were accounted for as loans held for investment at
amortized cost included within Other assets. The liabilities of
these VIEs consisted of notes issued by the VIEs, which were
accounted for at amortized cost and included within Other
secured financings and did not have recourse to our general
credit. The automobile loans were pledged as collateral for the
related notes and available only for the benefit of the note
holders.
Other
. We are the primary beneficiary of certain investment
vehicles that we manage for external investors and certain
investment vehicles set up for the benefit of our employees as
well as investment vehicles managed by third parties where we
have a controlling financial interest. The assets of these VIEs
consist primarily of equity securities and broker receivables. Our
variable interests in these vehicles consist of equity securities,
management and performance fees and revenue share. The
creditors of these VIEs do not have recourse to our general credit
and each such VIE’s assets are not available to satisfy any other
debt.
We are the primary beneficiary of a real estate syndication entity
that develops multi-family residential property and manages the
property. The assets of the VIE consist primarily of real estate
and its liabilities primarily consist of accrued expenses and long-
term debt secured by the real estate property. Our variable
interest in the VIE primarily consists of our limited liability
company interest, a sponsor promote and development and
asset management fees for managing the project.
We are the primary beneficiary of special purpose vehicles that
hold risk retention notes issued as part of unsecured loan asset-
backed transactions. Our variable interest in the VIEs primarily
consists of our ownership of certificates issued by the VIEs.
During the fourth quarter of 2023, we became the primary
beneficiary of OpNet’s wholesale wireless broadband business,
which was classified as held for sale during the fourth quarter of
2023 and subsequently sold during the third quarter of 2024.
Refer to
Note 4, Business Acquisitions
and
Note 5, Assets Held
for Sale and Discontinued Operations
for further information.
|
November 30, 2024
|
||||
|
Carrying Amount
|
Maximum
Exposure to
Loss
|
VIE Assets
|
||
|
$ in millions
|
Assets
|
Liabilities
|
||
|
CLOs
......................................
|
$
|
$
|
$
|
$
|
|
Asset-backed vehicles
........
|
|
|
|
|
|
Related party private equity
vehicles
............................
|
|
|
|
|
|
Other investment vehicles
..
|
|
|
|
|
|
Total
.......................................
|
$
|
$
|
$
|
$
|
|
November 30, 2023
|
||||
|
Carrying Amount
|
Maximum
Exposure to
Loss
|
VIE Assets
|
||
|
$ in millions
|
Assets
|
Liabilities
|
||
|
CLOs
......................................
|
$
|
$
|
$
|
$
|
|
Asset-backed vehicles
........
|
|
|
|
|
|
Related party private equity
vehicles
............................
|
|
|
|
|
|
Other investment vehicles
..
|
|
|
|
|
|
Total
.......................................
|
$
|
$
|
$
|
$
|
Our maximum exposure to loss often differs from the carrying
value of the variable interests. The maximum exposure to loss is
dependent on the nature of our variable interests in the VIEs and
is limited to the notional amounts of certain loan and equity
commitments and guarantees. Our maximum exposure to loss
does not include the offsetting benefit of any financial
instruments that may be utilized to hedge the risks associated
with our variable interests and is not reduced by the amount of
collateral held as part of a transaction with a VIE.
Collateralized Loan Obligations
. Assets collateralizing the CLOs
include bank loans, participation interests, sub-investment grade
and senior secured U.S. loans, and senior secured Euro
denominated corporate leveraged loans and bonds. We
underwrite securities issued in CLO transactions on behalf of
sponsors and provide advisory services to the sponsors. We may
also sell corporate loans to the CLOs. Our variable interests in
connection with CLOs where we have been involved in providing
underwriting and/or advisory services consist of the following:
•
Forward sale agreements whereby we commit to sell, at a fixed
price, corporate loans and ownership interests in an entity
holding such corporate loans to CLOs;
•
Warehouse funding arrangements in the form of:
◦
Participation interests in corporate loans held by CLOs and
commitments to fund such participation interests;
◦
Reverse repurchase agreements with collateral margin
maintenance obligations and commitments to fund such
reverse repurchase agreements; and
◦
Senior and subordinated notes issued in connection with
CLO warehousing activities.
•
Trading positions in securities issued in CLO transactions; and
•
Investments in variable funding notes issued by CLOs.
|
81
|
Jefferies Financial Group Inc.
|
Notes to Consolidated Financial Statements
Asset-Backed Vehicles.
We provide financing and lending related
services to certain client-sponsored VIEs in the form of revolving
funding note agreements, revolving credit facilities, forward
purchase agreements and reverse repurchase agreements. We
also may transfer originated corporate loans to certain VIEs and
hold subordinated interests issued by the vehicle. The underlying
assets, which are collateralizing the vehicles, are primarily
composed of unsecured consumer loans, mortgage loans and
corporate loans. In addition, we may provide structuring and
advisory services and act as an underwriter or placement agent
for securities issued by the vehicles. We do not control the
activities of these entities.
Related Party Private Equity Vehicles
. We have committed to
invest in private equity funds, (the “JCP Funds”, including JCP
Fund V (refer to
Note 11, Investments
for further information))
managed by Jefferies Capital Partners, LLC (the “JCP Manager”).
Additionally, we have committed to invest in the general partners
of the JCP Funds (the “JCP General Partners”) and the JCP
Manager. Our variable interests in the JCP Funds, JCP General
Partners and JCP Manager (collectively, the “JCP Entities”)
consist of equity interests that, in total, provide us with limited
and general partner investment returns of the JCP Funds, a
portion of the carried interest earned by the JCP General Partners
and a portion of the management fees earned by the JCP
Manager. At
November 30, 2024
and
2023
,
our total equity
commitment in the JCP Entities was
$
133.0
million
, of which
$
123.2
million
and
$
122.6
million
had been funded, respectively.
The carrying value of our equity investments in the JCP Entities
was
$
3.2
million
and
$
3.1
million
at
November 30, 2024
and
2023
, respectively. Our exposure to loss is limited to the total of
our carrying value and unfunded equity commitment. The assets
of the JCP Entities primarily consist of private equity and equity
related investments. We have also committed to invest
$
1.0
million
, of which
$
0.5
million
was funded,
in a private equity fund
managed by us for the benefit of our employees. The carrying
value of our equity was
$
0.5
million
.
Other Investment Vehicles.
At
November 30, 2024
and
2023
, we
had equity commitments to invest
$
1.43
billion
and
$
1.26
billion
,
respectively, in various other investment vehicles, of which
$
1.17
billion
and
$
1.10
billion
was funded, respectively. The carrying
value of our equity investments was
$
1.11
billion
and
$
1.07
billion
at
November 30, 2024
and
2023
, respectively. Our
exposure to loss is limited to the total of our carrying value and
unfunded equity commitment. These investment vehicles have
assets primarily consisting of private and public equity
investments, debt instruments, trade and insurance claims and
various oil and gas assets.
Mortgage-Backed and Other Asset-Backed Secured Funding
Vehicles.
In connection with our secondary trading and market-
making activities, we buy and sell agency and non-agency
mortgage-backed securities and other asset-backed securities,
which are issued by third-party securitization SPEs and are
generally considered variable interests in VIEs. Securities issued
by securitization SPEs are backed by residential mortgage loans,
U.S. agency collateralized mortgage obligations, commercial
mortgage loans, CDOs and CLOs and other consumer loans, such
as installment receivables, automobile loans and student loans.
These securities are accounted for at fair value and included in
Financial instruments owned. We have no other involvement with
the related SPEs and therefore do not consolidate these entities.
We also engage in underwriting, placement and structuring
activities for third-party-sponsored securitization trusts generally
through agency (Fannie Mae, Federal Home Loan Mortgage
Corporation (“Freddie Mac”) or Ginnie Mae) or non-agency-
sponsored SPEs and may purchase loans or mortgage-backed
securities from third-parties that are subsequently transferred
into the securitization trusts. The securitizations are backed by
residential and commercial mortgage, home equity and
automobile loans. We do not consolidate agency-sponsored
securitizations as we do not have the power to direct the
activities of the SPEs that most significantly impact their
economic performance. Further, we are not the servicer of non-
agency-sponsored securitizations and therefore do not have
power to direct the most significant activities of the SPEs and
accordingly, do not consolidate these entities. We may retain
unsold senior and/or subordinated interests at the time of
securitization in the form of securities issued by the SPEs.
At
November 30, 2024
and
November 30, 2023
, we held
$
1.84
billion
and
$
1.89
billion
of agency mortgage-backed securities,
respectively, and
$
201.1
million
and
$
261.2
million
of non-agency
mortgage-backed and other asset-backed securities, respectively,
as a result of our secondary trading and market-making activities,
and underwriting, placement and structuring activities. Our
maximum exposure to loss on these securities is limited to the
carrying value of our investments in these securities. These
mortgage-backed and other asset-backed secured funding
vehicles discussed are not included in the above table containing
information about our variable interests in nonconsolidated VIEs.
investee are accounted for under the equity method of
accounting with our shares of the investees’ earnings recognized
in Other revenues.
Equity method investments, including any
loans to the investees, are reported within Investments in and
loans to related parties.
|
November 30,
|
||
|
$ in millions
|
2024
|
2023
|
|
Total Investments in and loans to related parties
...
|
$
|
$
|
|
Year Ended November 30,
|
|||
|
$ in millions
|
2024
|
2023
|
2022
|
|
Total equity method pickup
earnings (losses) recognized in
Other revenues
.............................
|
$
|
$
(
|
$
(
|
The following presents summarized financial information about
our significant equity method investees. For certain investees, we
receive financial information on a lag and the summarized
information provided for these investees is based on the latest
financial information available as of
November 30, 2024
,
2023
and
2022
, respectively.
|
November
2024
Form
10-K
|
82
|
Notes to Consolidated Financial Statements
Jefferies Finance
Jefferies Finance, our
50
/50 joint venture with Massachusetts
Mutual Life Insurance Company (“MassMutual”) structures,
underwrites and syndicates primarily senior secured loans to
corporate borrowers; and manages proprietary and third-party
investments in both broadly syndicated and direct lending loans.
In connection with its Leveraged Finance business, loans are
originated primarily through our investment banking efforts and
Jefferies Finance typically syndicates to third-party investors
substantially all of its arranged volume through us. The Asset
Management business is a multi-strategy private credit platform
that manages proprietary and third-party capital across
commingled funds, funds-of-one, separately managed accounts,
business development companies, CLOs and levered balance
sheet funds. Broadly syndicated loan investments are sourced
through transactions arranged by Jefferies Finance and third-
party arrangers and managed through its subsidiary, Apex Credit
Partners LLC. Direct lending investments are primarily sourced
through us. Jefferies Finance and its subsidiaries that are
involved in investment management are registered investment
advisers with the SEC.
At
November 30, 2024
, we and MassMutual each had equity
commitments to Jefferies Finance of
$
750.0
million
, for a
combined total commitment of
$
1.5
billion
. The equity
commitment is reduced quarterly based on our share of any
undistributed earnings from Jefferies Finance and the
commitment is increased only to the extent the share of such
earnings are distributed. At
November 30, 2024
, our remaining
commitment to Jefferies Finance was
$
15.4
million
. The
investment commitment is scheduled to expire on
March 1, 2025
with automatic
one year
extensions absent a
60
days
termination
notice by either party.
Jefferies Finance has executed a Secured Revolving Credit
Facility with us and MassMutual, to be funded equally, to support
loan underwritings by Jefferies Finance, which bears interest
based on the interest rates of the related Jefferies Finance
underwritten loans and is secured by the underlying loans funded
by the proceeds of the facility. The total Secured Revolving Credit
Facility is a committed amount of
$
500.0
million
at
November 30,
2024
. Advances are shared equally between us and MassMutual.
The facility is scheduled to mature on
March 1, 2025
with
automatic
one year
extensions absent a
60
days
termination
notice by either party. At
November 30, 2024
, we had funded
$
0.0
million
of our
$
250.0
million
commitment.
|
Year Ended November 30,
|
|||
|
$ in millions
|
2024
|
2023
|
2022
|
|
Interest income
................................
|
$
|
$
|
$
|
|
Unfunded commitment fees
..........
|
|
|
|
Selected financial information for Jefferies Finance:
|
November 30,
|
||
|
$ in millions
|
2024
|
2023
|
|
Total assets
..................................................................
|
$
|
$
|
|
Total liabilities
..............................................................
|
|
|
|
November 30,
|
||
|
$ in millions
|
2024
|
2023
|
|
Our total equity balance
..............................................
|
$
|
$
|
|
Year Ended November 30,
|
|||
|
$ in millions
|
2024
|
2023
|
2022
|
|
Net earnings (losses)
.......................
|
$
|
$
(
|
$
(
|
Activity related to our other transactions with Jefferies Finance:
|
Year Ended November 30,
|
|||
|
$ in millions
|
2024
|
2023
|
2022
|
|
Origination and syndication fee
revenues (1)
.....................................
|
$
|
$
|
$
|
|
Origination fee expenses (1)
..........
|
|
|
|
|
CLO placement and structuring
fee revenues (2)
...............................
|
|
|
|
|
Investment fund placement fee
revenues (3)
......................................
|
|
|
|
|
Underwriting fees (4)
......................
|
|
|
|
|
Service fees (5)
................................
|
|
|
|
(1)
We engage in the origination and syndication of loans underwritten by
Jefferies Finance. In connection with such services, we earned fees, which are
recognized in Investment banking revenues. In addition, we paid fees to
Jefferies Finance in respect of certain loans originated by Jefferies Finance,
which are recognized as Business development expenses.
(2)
We act as a placement and/or structuring agent for CLOs managed by
Jefferies Finance, for which we recognized fees and are included in
Investment banking revenues.
(3)
We act as a placement agent for investment funds managed by Jefferies
Finance, for which we recognized fees, and are included in Commissions and
other fees.
(4)
We acted as underwriter in connection with term loans issued by Jefferies
Finance. The fees are included in Investment banking revenues. In addition, at
November 30, 2024, we held
$
16.0
million
of a syndicated Jefferies Finance
term loan pending settlement of committed sales.
(5)
Under a service agreement, we charge Jefferies Finance for various
administrative services provided.
In connection with non-U.S. dollar loans originated by Jefferies
Finance to borrowers who are investment banking clients of ours,
we have entered into an agreement to indemnify Jefferies
Finance with respect to any foreign currency exposure.
Receivables from Jefferies Finance, included in Other assets,
were
$
1.9
million
and
$
3.5
million
at
November 30, 2024
and
2023
, respectively. At
November 30, 2024
and
2023
, payables to
Jefferies Finance related to cash deposited with us and included
in Payables to customers, were
$
13.7
million
and
$
2.6
million
,
respectively.
Berkadia
Berkadia is a commercial real estate finance and investment
sales joint venture that was formed by us and Berkshire
Hathaway Inc. We are entitled to receive
45.0
%
of the profits of
Berkadia. Berkadia originates commercial and multifamily real
estate loans that are sold to U.S. government agencies or other
investors with Berkadia retaining the servicing rights. Berkadia
also provides advisory services in connection with sales of
multifamily assets. Berkadia is a servicer of commercial real
estate loans in the U.S., performing primary, master and special
servicing functions for U.S. government agency programs and
financial services companies.
Commercial paper issued by Berkadia is supported by a
$
1.50
billion
surety policy issued by a Berkshire Hathaway
insurance subsidiary and corporate guaranty, and we have
agreed to reimburse Berkshire Hathaway for one-half of any
losses incurred thereunder. At
November 30, 2024
, the aggregate
amount of commercial paper outstanding was
$
1.47
billion
.
|
83
|
Jefferies Financial Group Inc.
|
Notes to Consolidated Financial Statements
|
November 30,
|
||
|
$ in millions
|
2024
|
2023
|
|
Total assets
..................................................................
|
$
|
$
|
|
Total liabilities
..............................................................
|
|
|
|
Total noncontrolling interest
......................................
|
|
|
|
November 30,
|
||
|
$ in millions
|
2024
|
2023
|
|
Our total equity balance
..............................................
|
$
|
$
|
|
Year Ended November 30,
|
|||
|
$ in millions
|
2024
|
2023
|
2022
|
|
Gross revenues
.................................
|
$
|
$
|
$
|
|
Net earnings
......................................
|
|
|
|
|
Our share of net earnings
................
|
|
|
|
|
Year Ended November 30,
|
|||
|
$ in millions
|
2024
|
2023
|
2022
|
|
Distributions we received
................
|
$
|
$
|
$
|
At
November 30, 2024
and
2023
, we had commitments to
purchase
$
21.8
million
and
$
77.5
million
, respectively, of agency
CMBS from Berkadia.
|
Year Ended November 30,
|
|||
|
$ in millions
|
2024
|
2023
|
2022
|
|
Transaction referral fee revenue (1)
..
|
$
|
$
|
$
|
|
Loan origination fees paid (2)
.............
|
|
|
|
(1)
We refer Berkadia to our clients to act as a transaction servicer and receive
fees, which are included in Commissions and other fees.
(2)
We pay fees to Berkadia for loan originations and realty sales. Loan origination
fees are capitalized as debt issuance costs and amortized over the life of the
Real Estate Investments
Our real estate equity method investments primarily consist of
our equity interests in Brooklyn Renaissance Plaza and Hotel and
54 Madison. Brooklyn Renaissance Plaza is composed of a hotel,
office building complex and parking garage located in Brooklyn,
New York. We have a
25.4
%
equity interest in the hotel and a
we have a majority interest in the office building and garage, we
do not have control, but only have the ability to exercise
significant influence on this investment. We are amortizing our
basis difference between the estimated fair value and the
underlying book value of Brooklyn Renaissance office building
and garage over the respective useful lives (weighted average life
of
39
years
).
We own a
48.1
%
equity interest in 54 Madison, a fund that most
recently owned an interest in one real estate project and the fund
is in the process of being liquidated.
investments:
|
November 30,
|
||
|
$ in millions
|
2024
|
2023
|
|
Total assets
..................................................................
|
$
|
$
|
|
Total liabilities
..............................................................
|
|
|
|
November 30,
|
||
|
$ in millions
|
2024
|
2023
|
|
Our total equity balance
..............................................
|
$
|
$
|
|
Year Ended November 30,
|
|||
|
$ in millions
|
2024
|
2023
|
2022
|
|
Net earnings
......................................
|
$
|
$
|
$
|
|
Year Ended November 30,
|
|||
|
$ in millions
|
2024
|
2023
|
2022
|
|
Distributions we received from
Brooklyn Renaissance Hotel
...........
|
$
|
$
|
$
|
|
Distributions we received from 54
Madison
.............................................
|
|
|
|
JCP Fund V
We have limited partnership interests
of
11
%
and
50
%
in Jefferies
Capital Partners V L.P. and Jefferies SBI USA Fund L.P. (together,
“JCP Fund V”), respectively, which are private equity funds
managed by a team led by our President and which are in the
process of being fully liquidated.
The amount of our investments
in JCP Fund V included in Financial instruments owned, at fair
value was
$
2.9
million
and
$
2.2
million
at
November 30, 2024
and
2023
, respectively. We account for these investments at fair
value based on the NAV of the funds provided by the fund
managers (refer to
Note 2, Summary of Significant Accounting
Policies
).
The following summarizes the results from these
investments which are included in Principal transactions
revenues:
|
Year Ended November 30,
|
|||
|
$ in millions
|
2024
|
2023
|
2022
|
|
Net gains (losses) from our
investments in JCP Fund V
.............
|
$
|
$
(
|
$
|
At both
November 30, 2024
and
2023
, we were committed to
invest equity of up to
$
85.0
million
in JCP Fund V. At both
November 30, 2024
and
2023
, our unfunded commitment relating
to JCP Fund V was
$
8.7
million
. We do not expect any further
capital to be called by JCP Fund V.
we owned effectively
35.1
%
of the combined equity interests:
|
September 30,
|
||
|
$ in millions
|
2024 (1)
|
2023 (1)
|
|
Total assets
..................................................................
|
$
|
$
|
|
Total liabilities
..............................................................
|
|
|
|
Total partners’ capital
..................................................
|
|
|
|
Twelve Months Ended
September 30,
|
|||
|
$ in millions
|
2024 (1)
|
2023 (1)
|
2022 (1)
|
|
Net increase (decrease) in net
assets resulting from operations
..
|
$
|
$
|
$
(
|
(1)
Financial information for JCP Fund V included in our financial position at
November 30, 2024
and
2023
and included in our results of operations for the
years ended
November 30,
2024
,
2023
and
2022
is based on the periods
presented.
Asset Management Investments
In July 2024, we invested
$
25.0
million
in the Class A Common
Equity Units of Hildene Insurance Holdings, LLC, an investment
fund with insurance exposures. The investment is accounted for
under the equity method with a carrying amount of
$
27.5
million
at
November 30, 2024
.
|
November
2024
Form
10-K
|
84
|
Notes to Consolidated Financial Statements
Holdings, LLC, in which we own effectively
9.26
%
of the
combined equity interests:
|
$ in millions
|
September 30,
2024 (1)
|
|
Total assets
.......................................................................................
|
$
|
|
Total liabilities
...................................................................................
|
|
|
Total members’ equity
.....................................................................
|
|
|
$ in millions
|
Three Months
Ended
September 30,
2024 (1)
|
|
Net increase (decrease) in members’ equity resulting from
operations
.........................................................................................
|
$
|
(1)
Financial information for Hildene Insurance Holdings, LLC included in our
financial position at
November 30, 2024
and included in our results of
operations for the year ended
November 30,
2024
, is based on the period
presented.
We had an equity method investment with a carrying amount of
$
15.8
million
at
November 30, 2023
, consisting of our shares in
Monashee, an investment management company, registered
investment advisor and general partner of various investment
management funds, which provided us with
50.0
%
voting rights
interest and the rights to distributions of
47.5
%
of the annual net
profits of Monashee’s operations if certain thresholds were met.
A portion of the carrying amount of the investment in Monashee
related to contract and customer relationship intangible assets
and goodwill. The intangible assets were amortized over their
useful life and the goodwill was not amortized.
During the three months ended February 29, 2024, our shares
were converted to preferred shares, which provide us with rights
to be paid dividends based on Monashee’s performance and
management fees, and we recognized a gain of
$
6.0
million
upon
the nonmonetary exchange. In addition, we invested
$
5.2
million
in mandatorily redeemable preferred shares issued by Monashee.
The investment in the preferred shares is accounted for at cost,
less impairment, if any. The investment in the mandatorily
redeemable preferred shares is accounted for at fair value.
We also have an investment management agreement whereby
Monashee provides asset management services to us for certain
separately managed accounts. Our net investment balance in the
separately managed accounts was
$
20.2
million
at November 30,
2023.
|
Year Ended November 30,
|
||
|
$ in millions
|
2023
|
2022
|
|
Investment losses (1)
..................................................
|
$
(
|
$
(
|
|
Management fees (2)
..................................................
|
|
|
(1)
Included in Principal transactions revenues.
(2)
Included in Floor brokerage and clearing fees.
ApiJect
We own shares which represent a
33.6
%
economic interest in
ApiJect at
November 30, 2024
, which is accounted for at fair
value by electing the fair value option available under U.S. GAAP
and is included within corporate equity securities in Financial
instruments owned, at fair value. Additionally, we have a right to
In December 2023, we purchased a
$
4.6
million
secured
convertible promissory note from ApiJect, which matures on
December 14, 2025. In April 2024, we purchased a
$
1.3
million
promissory note from ApiJect. These promissory notes are
accounted for at fair value in Financial instruments owned and
classified within Level 3 of the fair value hierarchy.
We recognized interest income of
$
0.2
million
on the two notes
during the year ended 2024. In May 2024, we converted our notes
into common shares and also paid
$
8.8
million
for an additional
investment in common shares of ApiJect. During the year ended
2024, we recognized a gain of
$
1.2
million
, relating to the
conversion of the convertible promissory notes.
At
November 30, 2024
and 2023, the total fair value of our total
equity investment in common shares of ApiJect was
$
116.1
million
and
$
100.1
million
, respectively, which is
classified within Level 3 of the fair value hierarchy. Additionally,
we own warrants to purchase up to
950,000
shares of common
stock at any time or from time to time on or before April 15, 2032.
We also have a term loan agreement with a principal of ApiJect
for
$
23.3
million
, which matures on
January 31, 2025
. The loan
was accounted for at amortized cost and reported within Other
assets. The loan had a fair value of
$
23.3
million
and
$
30.4
million
at
November 30, 2024
and 2023, respectively, which
would be classified as Level 3 in the fair value hierarchy.
SPAC
Prior to May 2024, we owned
73.4
%
of the publicly traded units of
a special purpose acquisition company (“SPAC”), which
represented
25.7
%
of its voting shares. We considered the SPAC
a VIE and had significant influence over the SPAC but were not
considered to be the primary beneficiary as we did not have
control. Our investment was accounted for at fair value pursuant
to the fair value option and was included within corporate equity
securities in Financial instruments owned. The fair value of the
investment was
$
23.8
million
at November 30, 2023 and included
within Level 1 of the fair value hierarchy. In May 2024, the
company redeemed all of its outstanding units issued in its initial
public offering, and our investment in the SPAC was redeemed in
cash for approximately
$
24.3
million
.
Stratos
We had a
49.9
%
voting interest in Stratos and had the ability to
significantly influence Stratos through our seats on the board of
directors. On September 14, 2023, we acquired the additional
Acquisitions
for further information). As a result, the financial
statements of Stratos are consolidated into our consolidated
financial statements. During 2023, prior to the acquisition, we
contributed additional capital of
$
20.0
million
.
|
Year Ended November 30,
|
||
|
$ in millions
|
2023 (1)
|
2022
|
|
Net earnings (losses)
...................................................
|
$
(
|
$
|
(1) Represents the period prior to the step-acquisition.
|
85
|
Jefferies Financial Group Inc.
|
Notes to Consolidated Financial Statements
Aircadia
In December 2023, Aircadia Leasing II LLC (“Aircadia”), a wholly
owned subsidiary, purchased
airplanes
and simultaneously
entered into a lease with the seller to lease the airplanes for a
term of
42
months
. The transaction was accounted for as a sale
leaseback and the airplanes were recognized within Premises
and equipment at
$
57.7
million
. During the year ended
November 30, 2024
, we recognized
$
20.7
million
of
operating
During 2024
, we classified the airplanes related to the sale
leaseback transaction as held for sale. The airplanes are included
within Assets held for sale on our Consolidated Statements of
Financial Condition and have a carrying amount of
$
51.9
million
at
November 30, 2024
. We are actively pursuing avenues to
dispose of the airplanes through a sale process.
Effective with
the designation of the airplanes as held for sale, we suspended
recording depreciation on these assets.
In December 2023, we provided a loan to the seller for
$
30.0
million
, which matures on
February 3, 2025
. The loan is
accounted for at amortized cost and included within Investments
in and loans to related parties. We recognized interest income of
$
3.1
million
during the year ended 2024. We also hold preferred
shares in the seller, which are accounted for at fair value in
Financial instruments owned with a fair value of
$
37.1
million
at
both
November 30, 2024
and 2023, and are classified within
Level 3 of the fair value hierarchy.
In September 2024, we provided a
€
15.0
million
loan
, maturing in
May 2025, to an individual related to the seller, secured by a
privately owned aircraft and guaranteed by the individual. We
recognized interest income of
$
0.4
million
during the year ended
November 30, 2024
.
OpNet
On November 30, 2023, we provided notice of our intent to
convert certain classes of our preferred shares into common
shares. As a result, we obtained control of OpNet and
consolidated its assets and liabilities in our consolidated
financial statements as of November 30, 2023. Upon conversion
on May 7, 2024, our ownership increased to
57.5
%
of the
common shares and our voting rights increased to
72.6
%
of the
aggregate voting rights of OpNet. From the time we obtained
control of OpNet to its sale in August 2024, its wholesale
business was considered a VIE and classified as held for sale.
We also consolidate Tessellis, a subsidiary of OpNet, which is not
considered to be a VIE. Refer to Note 4, Business Acquisitions for
further information. Prior to the acquisition and consolidation of
OpNet, we accounted for our equity investment in OpNet under
the equity method.
We recognized equity method pickup losses of
$
254.1
million
and
$
59.0
million
for the years ended
November 30,
2023 and
2022, respectively, in Other revenues.
During the year ended
November 30, 2023
, we contributed
$
167.2
million
to OpNet through direct subscription, settlement
of subscription advances, and conversion of a shareholder loan.
|
Year Ended November 30,
|
||
|
$ in millions
|
2023
|
2022
|
|
Net losses
......................................................................
|
$
(
|
$
(
|
Golden Queen Mining Company LLC
We had a
50.0
%
ownership interest in Golden Queen, which owns
and operates a gold and silver mine project located in California.
We sold our interest in Golden Queen in November 2023. During
the year ended 2023, we recognized impairment charges of
$
57.2
million
on our investment within Other revenues. We sold
our interest in Golden Queen in November 2023 and recognized a
gain of
$
1.7
million
.
|
Year Ended November 30,
|
||
|
$ in millions
|
2023
|
2022
|
|
Net losses
......................................................................
|
$
(
|
$
(
|
Amortized Cost
Automobile Loans.
On November 20, 2023
, we entered into an
agreement to sell our auto
mobile loans business, Foursight. As a
result, we reclassified all automobile loans to assets held for sale
in our Consolidated Statements of Financial Condition at
November 30, 2023. Refer to
Note 5, Assets Held for Sale and
Discontinued Operations
for additional details.
|
Year Ended November 30,
|
||
|
$ in thousands
|
2023
|
2022
|
|
Beginning balance
.......................................................
|
$
|
$
|
|
Provision for doubtful accounts
................................
|
|
|
|
Charge-offs, net of recoveries
....................................
|
(
|
(
|
|
Reclassified as held for sale (1)
.................................
|
(
|
|
|
Ending balance
.............................................................
|
$
|
$
|
(1)
Refer to
Note 5, Assets Held for Sale and Discontinued Operations
.
Secured Financing Receivables
. In evaluating secured financing
receivables (reverse repurchases agreements, securities
borrowing arrangements, and margin loans), the underlying
collateral maintenance provisions are taken into consideration.
The underlying contractual collateral maintenance for
significantly all of our secured financing receivables requires that
the counterparty continually adjust the collateralization amount,
securing the credit exposure on these contracts. Collateralization
levels for our secured financing receivables are initially
established based upon the counterparty, the type of acceptable
collateral that is monitored daily and adjusted to mitigate the
potential of any credit losses. Credit losses are not recognized
for secured financing receivables where the underlying
collateral’s fair value is equal to or exceeds the asset’s amortized
cost basis. In cases where the collateral’s fair value does not
equal or exceed the amortized cost basis, the allowance for
credit losses, if any, is limited to the difference between the fair
value of the collateral at the reporting date and the amortized
cost basis of the financial assets.
Broker Receivables
. Our receivables from brokers, dealers, and
clearing organizations include deposits of cash with exchange
clearing organizations to meet margin requirements, amounts
due from clearing organizations for daily variation settlements,
securities failed-to-deliver or receive, receivables and payables
for fees and commissions, and receivables arising from unsettled
securities or loans transactions. These receivables generally do
not give rise to material credit risk and have a remote probability
of default either because of their short-term nature or due to the
credit protection framework inherent in the design and
operations of brokers, dealers and clearing organizations. As
|
November
2024
Form
10-K
|
86
|
Notes to Consolidated Financial Statements
such, generally, no allowance for credit losses is held against
these receivables.
Other Financial Assets
. For all other financial assets measured at
amortized cost, we estimate expected credit losses over the
financial assets’ life as of the reporting date based on relevant
information about past events, current conditions, and
reasonable and supportable forecasts. During the year ended
November 30, 2024, we recognized bad debt expense of
$
26.2
million
related to receivables associated with our asset
management arrangements with Weiss Multi-Strategy Advisers.
Investment Banking Fee Receivables.
Our allowance for credit
losses on our investment banking fee receivables uses a
provisioning matrix based on the shared risk characteristics and
historical loss experience for such receivables. In some
instances, we may adjust the allowance calculated based on the
provision matrix to incorporate a specific allowance based on the
unique credit risk profile of a receivable. The provisioning matrix
is periodically updated to reflect changes in the underlying
portfolio’s credit characteristics and most recent historical loss
data.
|
Year Ended November 30,
|
|||
|
$ in thousands
|
2024
|
2023
|
2022
|
|
Beginning balance
...........................
|
$
|
$
|
$
|
|
Bad debt expense
............................
|
|
|
|
|
Charge-offs
.......................................
|
(
|
(
|
(
|
|
Recoveries collected
.......................
|
(
|
(
|
(
|
|
Ending balance (1)
...........................
|
$
|
$
|
$
|
(1)
Substantially all of the allowance for doubtful accounts relate to mergers and
acquisitions and restructuring fee receivables, which include recoverable
expense receivables.
Goodwill
|
Year Ended November 30, 2024
|
|||
|
$ in thousands
|
Investment
Banking and
Capital
Markets
|
Asset
Management
|
Total
|
|
Balance, at beginning of period
...................
|
$
|
$
|
$
|
|
Currency translation and other
adjustments
..............................................
|
|
(
|
(
|
|
Measurement period adjustments (1)
........
|
|
(
|
(
|
|
Goodwill relating to acquisitions by
Tessellis
..........................................................
|
|
|
|
|
Balance, at end of period
.............................
|
$
|
$
|
$
|
(1)
Includes the impact of
Tessellis and Go Internet. Refer to
Note 4, Business
Acquisitions
for further information.
|
Year Ended November 30, 2023
|
|||
|
$ in thousands
|
Investment
Banking and
Capital
Markets
|
Asset
Management
|
Total
|
|
Balance, at beginning of period
...................
|
$
|
$
|
$
|
|
Currency translation and other
adjustments
..............................................
|
|
|
|
|
Goodwill acquired during the period (1)
.....
|
|
|
|
|
Goodwill reclassified as held for sale (2)
...
|
(
|
|
(
|
|
Balance, at end of period
.............................
|
$
|
$
|
$
|
(1)
Refer to
Note 4, Business Acquisitions
for further discussion.
(2)
Refer to
Note 5, Assets Held for Sale and Discontinued Operations
for further
discussion.
C
arrying values of goodwill by reporting unit:
|
November 30,
|
||
|
$ in millions
|
2024
|
2023
|
|
Investment banking
...................................................................
|
$
|
$
|
|
Equities and wealth management
...........................................
|
|
|
|
Fixed income
..............................................................................
|
|
|
|
Asset management
...................................................................
|
|
|
|
Other investments
.....................................................................
|
|
|
|
Total
.............................................................................................
|
$
|
$
|
Goodwill Impairment Testing
The goodwill impairment test is performed at the level of the
reporting unit. A reporting unit is an operating segment or one
level below an operating segment. The fair value of each
reporting unit is compared with its carrying value, including
goodwill and allocated intangible assets. If the fair value is in
excess of the carrying value, the goodwill for the reporting unit is
considered not to be impaired. If the fair value is less than the
carrying value, then an impairment loss is recognized for the
amount by which the carrying value of the reporting unit exceeds
the reporting unit’s fair value.
We test goodwill allocated to our Investment Banking, Equities,
Fixed Income and Asset Management reporting units annually on
August 1 and test goodwill allocated to other individual
investments annually on
November 30.
Our annual goodwill
impairment testing at August 1, 2024 did not indicate any
goodwill impairment in any of our Investment Banking, Equities
and Fixed Income reporting units, which are part of our
Investment Banking and Capital Markets reportable segment and
did not indicate any goodwill impairment in our Asset
Management reporting unit. The results of our assessment
indicated that each of these reporting units had a fair value in
excess of their carrying amounts based on current projections.
Estimating the fair value of a reporting unit requires management
judgment. Estimated fair values for our reporting units were
determined using methodologies that include a market valuation
method that incorporated price-to-earnings and price-to-book
multiples of comparable public companies and/or projected cash
flows. Under the market valuation approach, the key assumptions
are the selected multiples and our internally developed
projections of future profitability, growth and return on equity for
each reporting unit. The weight assigned to the multiples requires
judgment in qualitatively and quantitatively evaluating the size,
profitability and the nature of the business activities of the
reporting units as compared to the comparable publicly-traded
companies. In addition, as the fair values determined under the
market valuation approach represent a noncontrolling interest,
we applied a control premium to arrive at the estimated fair value
of each reporting unit on a controlling basis. We engaged an
independent valuation specialist to assist us in our valuation
process at
August 1.
|
87
|
Jefferies Financial Group Inc.
|
Notes to Consolidated Financial Statements
Intangible Assets
Intangible assets are included in Other assets.
|
November 30, 2024
|
Weighted
Average
Remaining
Lives
(Years)
|
|||||
|
$ in thousands
|
Gross
Cost
|
Assets
Acquired
(1)
|
Impairment
Losses
|
Accumulated
Amortization
|
Net
Carrying
Amount
|
|
|
Customer relationships
|
$
|
$
|
$
|
$
(
|
$
|
|
|
Trademarks and trade
names
..............................
|
|
|
|
(
|
|
|
|
Exchange and clearing
organization
membership interests
and registrations
............
|
|
|
(
|
—
|
|
N/A
|
|
Other
................................
|
|
|
|
(
|
|
|
|
Total
................................
|
$
|
$
|
$
(
|
$
(
|
$
|
|
(1)
Includes a
$
39.3
million
measurement period adjustment recorded during the
first quarter of 2024 related to the OpNet acquisition. Refer to
Note 4,
Business Acquisitions
for further information.
|
November 30, 2023
|
Weighted
Average
Remaining
Lives
(Years)
|
|||||
|
$ in thousands
|
Gross
Cost
|
Assets
Acquired
|
Impairment
Losses
|
Accumulated
Amortization
|
Net
Carrying
Amount
|
|
|
Customer relationships
|
$
|
$
|
$
|
$
(
|
$
|
|
|
Trademarks and trade
names
..............................
|
|
|
|
(
|
|
|
|
Exchange and clearing
organization
membership interests
and registrations
............
|
|
|
(
|
—
|
|
N/A
|
|
Other
................................
|
|
|
|
(
|
|
|
|
Total
................................
|
$
|
$
|
$
(
|
$
(
|
$
|
|
At August 1,
2024
, we performed our annual impairment testing
of intangible assets with an indefinite useful life consisting of
exchange and clearing organization membership interests and
registrations. We utilized quantitative assessments of
membership interests and registrations that have available
quoted sales prices as well as certain other membership
interests and registrations that have declined in utilization and
qualitative assessments were performed on the remainder of our
indefinite-life intangible assets. In applying our quantitative
assessments, we recognized immaterial impairment losses on
certain exchange membership interests and registrations. With
regard to our qualitative assessments of the remaining indefinite
life intangible assets, based on our assessments of market
conditions, the utilization of the assets and the replacement
costs associated with the assets, we have concluded that it is not
more likely than not that the intangible assets are impaired.
Amortization Expense
For finite life intangible assets, we recognized aggregate
amortization expense of
$
30.3
million
,
$
9.3
million
and
$
10.9
million
for the years ended
November 30, 2024
,
2023
and
2022
,
respectively. These expenses are included in Depreciation and
amortization.
|
Year ending November 30, 2025
............................................................
|
$
|
|
Year ending November 30, 2026
............................................................
|
|
|
Year ending November 30, 2027
............................................................
|
|
|
Year ending November 30, 2028
............................................................
|
|
|
Year ending November 30, 2029
............................................................
|
|
|
Year Ended November 30,
|
|||
|
$ in thousands
|
2024
|
2023
|
2022
|
|
Revenues from contracts with
customers:
|
|||
|
Investment banking
.........................
|
$
|
$
|
$
|
|
Commissions and other fees
........
|
|
|
|
|
Asset management fees
................
|
|
|
|
|
Manufacturing revenues
................
|
|
|
|
|
Oil and gas revenues
.......................
|
|
|
|
|
Real estate revenues
.......................
|
|
|
|
|
Internet connection and
broadband revenues
..................
|
|
|
|
|
Other contracts with customers
....
|
|
|
|
|
Total revenue from contracts
with customers
................................
|
|
|
|
|
Other sources of revenue:
|
|||
|
Principal transactions
.....................
|
|
|
|
|
Revenues from strategic affiliates
|
|
|
|
|
Interest
..............................................
|
|
|
|
|
Other
..................................................
|
|
(
|
|
|
Total revenues
.................................
|
$
|
$
|
$
|
as, we satisfy our performance obligations by transferring the
promised goods or services to the customers. A good or service
is transferred to a customer when, or as, the customer obtains
control of that good or service. A performance obligation may be
satisfied over time or at a point in time. Revenue from a
performance obligation satisfied over time is recognized by
measuring our progress in satisfying the performance obligation
in a manner that depicts the transfer of the goods or services to
the customer. Revenue from a performance obligation satisfied
at a point in time is recognized at the point in time that we
determine the customer obtains control over the promised good
or service. The amount of revenue recognized reflects the
consideration we expect to be entitled to in exchange for those
promised goods or services (
i.e.
, the “transaction price”). In
determining the transaction price, we consider multiple factors,
including the effects of variable consideration. Variable
consideration is included in the transaction price only to the
extent it is probable that a significant reversal in the amount of
cumulative revenue recognized will not occur when the
uncertainties with respect to the amount are resolved. In
determining when to include variable consideration in the
transaction price, we consider the range of possible outcomes,
the predictive value of our past experiences, the time period of
when uncertainties expect to be resolved and the amount of
consideration that is susceptible to factors outside of our
influence, such as market volatility or the judgment and actions
of third-parties.
|
November
2024
Form
10-K
|
88
|
Notes to Consolidated Financial Statements
The following provides detailed information on the recognition of
our revenues from contracts with customers:
•
Investment Banking.
We provide our clients with a full range of
financial advisory and underwriting services. Revenues from
financial advisory services primarily consist of fees generated
in connection with merger, acquisition and restructuring
transactions. Advisory fees from mergers and acquisitions
engagements are recognized at a point in time when the
related transaction is completed, as the performance
obligation is to successfully broker a specific transaction. Fees
received prior to the completion of the transaction are deferred
within Accrued expenses and other liabilities. Advisory fees
from restructuring engagements are recognized over time
using a time elapsed measure of progress as our clients
simultaneously receive and consume the benefits of those
services as they are provided. A significant portion of the fees
we receive for our advisory services are considered variable as
they are contingent upon a future event (
e.g.
, completion of a
transaction or third-party emergence from bankruptcy) and are
excluded from the transaction price until the uncertainty
associated with the variable consideration is subsequently
resolved, which is expected to occur upon achievement of the
specified milestone. Payment for advisory services is generally
due promptly upon completion of a specified milestone or, for
retainer fees, periodically over the course of the engagement.
We recognize a receivable between the date of completion of
the milestone and payment by the customer. Expenses
associated with investment banking advisory engagements are
deferred only to the extent they are explicitly reimbursable by
the client and the related revenue is recognized at a point in
time. All other investment banking advisory related expenses,
including expenses incurred related to restructuring
assignments, are expensed as incurred. All investment banking
advisory expenses are recognized within their respective
expense category in our Consolidated Statements of Earnings
and any expenses reimbursed by our clients are recognized as
Investment banking revenues.
Underwriting services include underwriting and placement
agent services in both the equity and debt capital markets,
including private equity placements, initial public offerings,
follow-on offerings and equity-linked securities transactions
and structuring, underwriting and distributing public and private
debt, including investment grade debt, high yield bonds,
leveraged loans, municipal bonds and mortgage-backed and
asset-backed securities. Underwriting and placement agent
revenues are recognized at a point in time on trade-date, as the
client obtains the control and benefit of the underwriting
offering at that point. Costs associated with underwriting
transactions are deferred until the related revenue is
recognized or the engagement is otherwise concluded and are
recorded on a gross basis within Underwriting costs as we are
acting as a principal in the arrangement. Any expenses
reimbursed by our clients are recognized as Investment
banking revenues.
•
Commissions and Other Fees.
We earn commission and other
fee revenue by executing, settling and clearing transactions for
clients primarily in equity, equity-related and futures products
and facilitating foreign currency spot transactions. Trade
execution and clearing services, when provided together,
represent a single performance obligation as the services are
not separately identifiable in the context of the contract.
Commission revenues associated with combined trade
execution and clearing services, as well as trade execution
services on a standalone basis, are recognized at a point in
time on trade-date. Commissions revenues are generally paid
on settlement date, and we record a receivable between trade-
date and payment on settlement date. We permit institutional
customers to allocate a portion of their gross commissions to
pay for research products and other services provided by third
parties. The amounts allocated for those purposes are
commonly referred to as soft dollar arrangements. We act as
an agent in the soft dollar arrangements as the customer
controls the use of the soft dollars and directs our payments to
third-party service providers on its behalf. Accordingly,
amounts allocated to soft dollar arrangements are netted
against commission revenues in our Consolidated Statements
of Earnings. We also earn investment research fees for the
sales of our proprietary investment research when a contract
with a client has been identified. The delivery of investment
research services represents a distinct performance obligation
that is satisfied over time when the performance obligation is
to provide ongoing access to a research platform or research
analysts, with fees recognized on a straight-line basis over the
period in which the performance obligation is satisfied. The
performance obligation is satisfied at a point in time when the
performance obligation is to provide individual interactions
with research analysts or research events, with fees
recognized on the interaction date.
We earn account advisory and distribution fees in connection
with wealth management services. Account advisory fees are
recognized over time using the time-elapsed method as we
determined that the customer simultaneously receives and
consumes the benefits of investment advisory services as they
are provided. Account advisory fees may be paid in advance of
a specified service period or in arrears at the end of the
specified service period (
e.g.
, quarterly). Account advisory fees
paid in advance are initially deferred within Accrued expenses
and other liabilities. Distribution fees are variable and
recognized when the uncertainties with respect to the amounts
are resolved.
•
Asset Management Fees.
We earn management and
performance fees in connection with investment advisory
services provided to various funds and accounts, which are
satisfied over time and measured using a time elapsed
measure of progress as the customer receives the benefits of
the services evenly throughout the term of the contract.
Management and performance fees are considered variable as
they are subject to fluctuation (
e.g.
, changes in assets under
management, market performance) and/ or are contingent on
a future event during the measurement period (
e.g.
, meeting a
specified benchmark) and are recognized only to the extent it
is probable that a significant reversal in the amount of
cumulative revenue recognized will not occur when the
uncertainty is resolved. Management fees are generally based
on month-end assets under management or an agreed upon
notional amount and are included in the transaction price at
the end of each month when the assets under management or
notional amount is known. Performance fees are received
when the return on assets under management for a specified
performance period exceed certain benchmark returns, “high-
water marks” or other performance targets. The performance
period related to our performance fees is annual or semi-
annual. Accordingly, performance fee revenue will generally be
recognized only at the end of the performance period to the
extent that the benchmark return has been met.
|
89
|
Jefferies Financial Group Inc.
|
Notes to Consolidated Financial Statements
•
Manufacturing Revenues.
We earn revenues from the sale of
manufactured or remanufactured lumber. Agreements with
customers for these sales specify the type, quantity and price
of products to be delivered as well as the delivery date and
payment terms. The transaction price is fixed at the time of
sale and revenue is generally recognized when the customer
takes control of the product.
•
Oil and Gas Revenues.
The sales of oil and natural gas are
made under contracts negotiated with customers, which
typically include variable consideration based on monthly
pricing tied to local indices and volumes. Revenue is recorded
at the point in time when control of the produced oil and gas
transfers to the customer, which is when the performance
obligation is satisfied. The amount of production delivered to
the customer and the price that will be received for the sale of
the product is estimated utilizing production reports, market
indices and estimated differential. The variable consideration
can be reasonably estimated at the end of the month when the
performance obligation is satisfied.
•
Real Estate Revenues.
Revenues from the sales of real estate
are recognized at a point in time when the related transaction
is complete. The majority of our real estate sales of land, lots
and homes transfer the goods and services to the customer at
the close of escrow when the title transfers to the buyer and
the buyer has the benefit and control of the goods and service.
If the performance obligation under the contract with a
customer related to a parcel of real estate is not yet complete
when title transfers to the buyer, revenue associated with the
incomplete performance obligation is deferred until the
performance obligation is completed.
•
Internet Connection and Broadband Revenues.
Revenues
associated with internet connection and mobile voice services
provided to customers are recognized based on the volume of
service provided as of a given date and the related service
charge. Revenues from the activation of broadband services
are recognized on a straight-line basis over a period of
24
months
. Amounts received in advance are deferred and
recognized into revenue over the
24
month service period.
|
Year Ended November 30, 2024
|
|||
|
$ in thousands
|
Investment
Banking and
Capital Markets
|
Asset
Management
|
Total
|
|
Major business activity:
|
|||
|
Investment banking - Advisory
................
|
$
|
$
|
$
|
|
Investment banking - Underwriting
.........
|
|
|
|
|
Equities (1)
.................................................
|
|
|
|
|
Fixed income (1)
........................................
|
|
|
|
|
Asset management
...................................
|
|
|
|
|
Other investments
.....................................
|
|
|
|
|
Total
............................................................
|
$
|
$
|
$
|
|
Primary geographic region:
|
|||
|
Americas
.....................................................
|
$
|
$
|
$
|
|
Europe and the Middle East
.....................
|
|
|
|
|
Asia-Pacific
................................................
|
|
|
|
|
Total
............................................................
|
$
|
$
|
$
|
(1)
Revenues from contracts with customers associated with the equities and
fixed income businesses primarily represent commissions and other fee
revenue.
|
Year Ended November 30, 2023
|
|||
|
$ in thousands
|
Investment
Banking and
Capital Markets
|
Asset
Management
|
Total
|
|
Major business activity:
|
|||
|
Investment banking - Advisory
................
|
$
|
$
|
$
|
|
Investment banking - Underwriting
.........
|
|
|
|
|
Equities (1)
.................................................
|
|
|
|
|
Fixed income (1)
........................................
|
|
|
|
|
Asset management
...................................
|
|
|
|
|
Other investments
.....................................
|
|
|
|
|
Total
............................................................
|
$
|
$
|
$
|
|
Primary geographic region:
|
|||
|
Americas
.....................................................
|
$
|
$
|
$
|
|
Europe and the Middle East
.....................
|
|
|
|
|
Asia-Pacific
................................................
|
|
|
|
|
Total
............................................................
|
$
|
$
|
$
|
(1)
Revenues from contracts with customers associated with the equities and
fixed income businesses primarily represent commissions and other fee
revenue.
|
Year Ended November 30, 2022
|
|||
|
$ in thousands
|
Investment
Banking and
Capital Markets
|
Asset
Management
|
Total
|
|
Major business activity:
|
|||
|
Investment banking - Advisory
................
|
$
|
$
|
$
|
|
Investment banking - Underwriting
.........
|
|
|
|
|
Equities (1)
.................................................
|
|
|
|
|
Fixed income (1)
........................................
|
|
|
|
|
Asset management
...................................
|
|
|
|
|
Other investments
.....................................
|
|
|
|
|
Total
............................................................
|
$
|
$
|
$
|
|
Primary geographic region:
|
|||
|
Americas
.....................................................
|
$
|
$
|
$
|
|
Europe and the Middle East
.....................
|
|
|
|
|
Asia-Pacific
................................................
|
|
|
|
|
Total
............................................................
|
$
|
$
|
$
|
(1)
Revenues from contracts with customers associated with the equities and
fixed income businesses primarily represent commissions and other fee
revenue.
Refer to
Note 23, Segment Reporting
, for a further discussion on
the allocation of revenues to geographic regions.
Information on Remaining Performance Obligations and Revenue
Recognized from Past Performance
We do not disclose information about remaining performance
obligations pertaining to contracts that have an original expected
duration of one year or less. The transaction price allocated to
remaining unsatisfied or partially unsatisfied performance
obligations with an original expected duration exceeding one year
was not material at
November 30, 2024
. Investment banking
advisory fees that are contingent upon completion of a specific
milestone and fees associated with certain distribution services
are also excluded as the fees are considered variable and not
included in the transaction price at
November 30, 2024
.
|
November
2024
Form
10-K
|
90
|
Notes to Consolidated Financial Statements
During the years ended
November 30, 2024
,
2023
and
2022
, we
recognized
$
41.0
million
,
$
38.1
million
and
$
78.9
million
,
respectively, of revenue related to performance obligations
satisfied (or partially satisfied) in previous periods, mainly due to
resolving uncertainties in variable consideration that was
constrained in prior periods. In addition, we recognized
$
32.1
million
,
$
31.5
million
and
$
28.1
million
of revenues primarily
associated with distribution services during the years ended
November 30, 2024
,
2023
and
2022
, respectively, a portion of
which relates to prior periods.
Contract Balances
The timing of our revenue recognition may differ from the timing
of payment by our customers. We record a receivable when
revenue is recognized prior to payment and we have an
unconditional right to payment. Alternatively, when payment
precedes the provision of the related services, we record deferred
revenue until the performance obligations are satisfied.
Our deferred revenue primarily relates to retainer and milestone
fees received in investment banking advisory engagements
where the performance obligation has not yet been satisfied.
Deferred revenue at
November 30, 2024
and
2023
was
$
79.1
million
and
$
48.3
million
, respectively, which is recorded in
Accrued expenses and other liabilities.
During the years ended
November 30, 2024
,
2023
and
2022
, we recognized revenues of
$
34.6
million
,
$
22.7
million
and
$
48.7
million
, respectively, that
were recorded as deferred revenue at the beginning of the year.
We had receivables related to revenues from contracts with
customers of
$
275.9
million
and
$
248.2
million
at
November 30,
2024
and
2023
, respectively.
Contract Costs
We capitalize costs to fulfill contracts associated with
investment banking advisory engagements where the revenue is
recognized at a point in time and the costs are determined to be
recoverable. Capitalized costs to fulfill a contract are recognized
at the point in time that the related revenue is recognized.
At
November 30, 2024
and
2023
, capitalized costs to fulfill a
contract were
$
5.8
million
and
$
5.3
million
, respectively, which
are recorded in Receivables – Fees, interest and other. For the
years ended
November 30, 2024
,
2023
and
2022
, we recognized
expenses of
$
3.6
million
,
$
1.8
million
and
$
1.6
million
,
respectively, related to costs to fulfill a contract that were
capitalized as of the beginning of the year. There were no
significant impairment charges recognized in relation to these
capitalized costs during the years ended
November 30, 2024
,
2023
and
2022
.
Equity Compensation Plan
Our amended and restated Equity Compensation Plan (the “ECP”)
was approved by shareholders on
March 28, 2024
. The ECP
replaced our 2003 Incentive Compensation Plan, as Amended
and Restated (the “Incentive Plan”) and the 1999 Directors’ Stock
Compensation Plan, as Amended and Restated July 25, 2013.
The ECP is an omnibus plan authorizing a variety of equity award
types, as well as cash incentive awards, to be used for
employees, non-employee directors and other service providers.
At
November 30, 2024
,
14.6
million
shares remain available for
new grants under the ECP.
Restricted stock awards are grants of our common shares that
generally require service as a condition of vesting. RSUs give a
participant the right to receive shares if service or performance
conditions are met and may specify an additional deferral period
allowing a participant to hold an interest tied to common stock
on a tax deferred basis. Prior to settlement, RSUs carry no voting
or dividend rights associated with stock ownership, but dividend
equivalents are accrued to the extent there are dividends
declared on the underlying common shares.
Restricted stock and RSUs may be granted to new employees as
“sign-on” awards and to existing employees as either “retention”
awards or pursuant to regulatory requirements outside the U.S.
governing remuneration for certain employees. Restricted stock
and RSUs are also granted to certain senior executive officers as
incentive awards. Employee awards are generally subject to
annual ratable vesting over a multi-year service period and may
also contain performance conditions. Restricted stock and RSUs
granted to certain senior executives may contain market,
performance and/or service conditions. Market conditions are
incorporated into the grant-date fair value of senior executive
awards using a Monte Carlo valuation model. Compensation
expense for awards with market conditions is recognized over
the service period and is not reversed if the market conditions are
not met. Awards with performance conditions are amortized over
the service period if, and to the extent, it is determined to be
probable that the performance condition will be achieved. If
awards are forfeited due to failure to achieve performance
conditions or failure to satisfy service conditions, any previously
recognized expense for such awards is reversed.
Senior Executive Compensation
The Compensation Committee of our Board of Directors
approved executive compensation for our senior executives for
compensation year 2020. For each senior executive, the
Compensation Committee targeted long-term compensation of
$
22.5
million
under the 2020 Plan with a target of
$
16.0
million
in
long-term equity in the form of RSUs with performance goals
measured over the
three
-year
period ending November 30, 2022
and a target of
$
6.5
million
in cash. To receive targeted long-term
equity, our senior executives had to achieve Jefferies’ total
shareholder return (“TSR”) of
9
%
on a multi-year compounded
basis; and to receive targeted cash, our senior executives had to
achieve
9
%
in annual Jefferies’ Return on Tangible Deployable
Equity (“ROTDE”). If TSR and ROTDE were less than
6
%
, our
senior executive
s would receive no incentive compensation. If
TSR was achieved at a level greater than
9
%
, our senior
executives were eligible to receive up to
75
%
additional equity
incentive compensation if Jefferies’ TSR exceeded the 50th
percentile relative to our peer companies’ total shareholder
returns. If ROTDE was greater than
9
%
, our senior executives
were eligible to receive up to
75
%
additional cash incentive
compensation on an interpolated basis, up to
12
%
in ROTDE.
In December 2021, the Board of Directors also granted our senior
executives each a special long-term,
five
-year
retention grant,
termed the Leadership Continuity Grant, with a grant date fair
value of
$
25.0
million
. Our senior executives will gain the benefits
of the retention award after an additional
three
-year
holding
period following the
five
-year
service period.
|
91
|
Jefferies Financial Group Inc.
|
Notes to Consolidated Financial Statements
The senior executives also hold previously awarded stock
options of
2,506,266
stock options, with an exercise price of
$
23.75
, which include rights to “excess dividend
equivalents,” (each share subject to the option is entitled to
two
times the amount of any regular quarterly cash dividend paid in
the 9.5 years after grant to the extent the per share divided
exceeds the quarterly dividend rate in effect at the time of grant
with the dividend equivalent amount converted to non-forfeitable
share units at the dividend payment date.
In connection with our spin-off of Vitesse Energy, Inc. in January
2023, the options and related dividend equivalent rights were
adjusted, resulting in each senior executive holding
2,532,370
Jefferies options exercisable at
$
22.69
per share and
228,933
Vitesse options exercisable at
$
8.97
per share, with
corresponding adjustments such that Vitesse regular quarterly
cash dividends relating to shares underlying the Vitesse options
are taken into consideration in the calculation of the excess
dividend equivalents. The stock options became or become
exercisable in
three
equal annual tranches beginning December
6, 2021, with a final expiration date of December 5, 2030. At
November 30, 2023 and 2022, all options were outstanding. At
November 30, 2023, for each senior executive,
1,688,247
Jefferies options and
152,622
Vitesse options were exercisable.
At both
November 30, 2024
and
2023
,
5.1
million
of our common
shares were designated for the senior executive nonqualified
stock options.
Additionally, in connection with our spin-off of Vitesse Energy,
Inc. shares, we adjusted certain outstanding equity awards to
include like awards for the acquisition of Vitesse common stock
(“Vitesse Awards”). Vesting terms, exercise dates and expiration
dates of the resulting Vitesse Awards and Vitesse options are the
same as those terms of the related Jefferies awards. For those
Vitesse Awards that remain subject to performance or service-
based vesting requirements, we continue to recognize expense
based on the original grant-date fair value and any incremental
fair value resulting from modifications of awards. In fiscal 2023,
$
4.0
million
of incremental compensation expense was
recognized for these modifications connection with the
adjustments relating to the Vitesse spin-off.
performance stock units (“PSUs”) to each of our senior
executives as follows:
|
Period Grant
|
||||
|
$ in millions
|
December
2024
|
December
2023
|
December
2022
|
December
2021
|
|
RSUs
|
||||
|
Aggregate grant date fair
value
.....................................
|
$
|
$
|
$
|
$
|
|
Vesting period
..........................
|
|
|
|
|
|
PSUs
|
||||
|
Aggregate target fair value
.....
|
$
|
$
|
$
|
$
|
|
Service period
...........................
|
|
|
|
|
|
Performance goals
performance period
...........
|
Fiscal
2024
to
Fiscal
2026
|
Fiscal
2023
to
Fiscal
2025
|
Fiscal
2022
to
Fiscal
2024
|
Fiscal
2021
to
Fiscal
2023
|
|
Performance target (1)
.....
|
|
|
|
|
|
Performance range (2)
......
|
ROTE
|
ROTE
|
ROTE
|
ROTE
|
(1)
ROTE is defined as return on tangible equity measured over three years.
(2)
Performance below an ROTE of
7.5
%
results in forfeiture of all PSUs. An ROTE of
15
%
or
greater results in earning
150
%
of target PSUs and between
7.5
%
to
15
%
, the level of
earning PSUs is linearly interpolated.
all plans:
|
In thousands, except per share amounts
|
Restricted
Stock
|
Weighted-
Average
Grant Date
Fair Value
|
|
Balance at November 30,
2021
.................................
|
|
$
|
|
Grants
............................................................................
|
|
|
|
Forfeited
........................................................................
|
|
|
|
Fulfillment of vesting requirement
............................
|
(
|
|
|
Balance at November 30,
2022
.................................
|
|
|
|
Grants
............................................................................
|
|
|
|
Forfeited
........................................................................
|
|
|
|
Fulfillment of vesting requirement
............................
|
(
|
|
|
Balance at November 30,
2023
.................................
|
|
|
|
Grants
............................................................................
|
|
|
|
Forfeited
........................................................................
|
|
|
|
Fulfillment of vesting requirement
............................
|
(
|
|
|
Balance at November 30,
2024
.................................
|
|
$
|
plans:
|
Weighted-Average
Grant Date
Fair Value
|
||||
|
In thousands, except per share amounts
|
Future
Service
Required
|
No Future
Service
Required
|
Future
Service
Required
|
No Future
Service
Required
|
|
Balance at November 30,
2021
...............
|
|
|
$
|
$
|
|
Grants
..........................................................
|
|
|
|
|
|
Distributions of underlying shares
...........
|
|
(
|
|
|
|
Forfeited
......................................................
|
|
|
|
|
|
Fulfillment of vesting requirement (1)
....
|
(
|
|
|
|
|
Balance at November 30,
2022
...............
|
|
|
|
|
|
Grants
..........................................................
|
|
|
|
|
|
Distributions of underlying shares
...........
|
|
(
|
|
|
|
Forfeited
......................................................
|
|
|
|
|
|
Fulfillment of vesting requirement (1)
....
|
(
|
|
|
|
|
Balance at November 30,
2023
...............
|
|
|
|
|
|
Grants
..........................................................
|
|
|
|
|
|
Distributions of underlying shares
...........
|
|
(
|
|
|
|
Forfeited
......................................................
|
|
|
|
|
|
Fulfillment of vesting requirement (1)
....
|
(
|
|
|
|
|
Balance at November 30,
2024
...............
|
|
|
$
|
$
|
(1)
Fulfillment of vesting requirement during the years ended
November 30, 2024
,
2023
and
2022
, includes RSUs of
0
,
2,438,000
, and
1,433,000
, respectively,
related to senior executive compensation.
|
November
2024
Form
10-K
|
92
|
Notes to Consolidated Financial Statements
RSUs related to
senior executive compensation
that contain
performance conditions:
|
In thousands, except per share amounts
|
Target
Number of
Shares
|
Weighted-
Average
Grant Date
Fair Value
|
|
Balance at November 30,
2021
.................................
|
|
$
|
|
Grants
............................................................................
|
|
|
|
Forfeited
........................................................................
|
|
|
|
Fulfillment of vesting requirement
............................
|
(
|
|
|
Balance at November 30,
2022
.................................
|
|
|
|
Grants
............................................................................
|
|
|
|
Forfeited
........................................................................
|
|
|
|
Fulfillment of vesting requirement
............................
|
(
|
|
|
Balance at November 30,
2023
.................................
|
|
|
|
Grants
............................................................................
|
|
|
|
Forfeited
........................................................................
|
|
|
|
Fulfillment of vesting requirement
............................
|
|
|
|
Balance at November 30,
2024
.................................
|
|
$
|
During the years ended
November 30, 2024
,
2023
and
2022
,
grants are shown with the targeted number of shares. In
December
2023
, the Compensation Committee of our Board of
Directors approved a total of
191,757
RSUs relating to above
target performance earned under the PSUs granted in fiscal
2022
,
which remain subject to service-based vesting through December
2024
. In December 2024, based on performance results in the
fiscal 2022 to fiscal 2024 performance period and an equitable
adjustment to PSUs granted in December 2021, a net of
64,369
Jefferies PSUs and
7,476
Vitesse PSUs were forfeited by senior
executives.
Employee Stock Purchase Plan
An Employee Stock Purchase Plan (the “ESPP”) has been
implemented under both the prior Incentive Plan and the ECP. We
consider the ESPP to be noncompensatory effective January 1,
2007. The ESPP allows eligible employees to make payroll
contributions that are used to acquire shares of our stock,
generally at a discounted price.
Deferred Compensation Plan
A Deferred Compensation Plan (the “DCP”), which permits eligible
employees to defer compensation which may be deemed
invested in our common shares usually at a discount or directed
among other investment vehicles available under the DCP. We
often invest directly, as a principal, in investments corresponding
to the other investment vehicles, relating to our obligations to
perform under the DCP. The compensation deferred by our
eligible employees is expensed in the period earned. The change
in fair value of our investments in assets corresponding to the
specified other investment vehicles are recognized in Principal
transactions revenues and changes in the corresponding
deferred compensation liability are reflected as Compensation
and benefits expense.
Profit Sharing Plan
We have a profit sharing plan, covering substantially all
employees, which includes a salary reduction feature designed to
qualify under Section 401(k) of the Internal Revenue Code.
Other Compensation Plans
In connection with the HomeFed LLC (“HomeFed”) merger in
2019, HomeFed stock options were converted into options to
purchase our common shares. During the year ended November
30, 2023, all remaining HomeFed stock options were exercised at
a price of
$
22.20
per common share.
Restricted Cash Awards
We provide compensation to new and existing employees in the
form of loans and/or other cash awards which are subject to
ratable vesting terms with service requirements. We amortize
these awards to compensation expense over the relevant service
period, which is generally considered to start at the beginning of
the annual compensation year.
Compensation Expense
|
Year Ended November 30,
|
|||
|
$ in millions
|
2024
|
2023
|
2022
|
|
Components of compensation cost:
|
|||
|
Restricted cash awards
.....................................
|
$
|
$
|
$
|
|
Restricted stock and RSUs (1)
..........................
|
|
|
|
|
Profit sharing plan
..............................................
|
|
|
|
|
Total compensation cost
..................................
|
$
|
$
|
$
|
(1)
Total compensation cost associated with restricted stock and RSUs include
the amortization of sign-on, retention and senior executive awards, less
forfeitures and clawbacks. Additionally, we recognize compensation costs
related to the discount provided to employees in electing to defer
compensation under the DCP. These compensation costs were approximately
$
0.7
million
,
$
0.5
million
and
$
0.5
million
for the years ended
November 30,
2024
,
2023
and
2022
, respectively.
compensation plans at
November 30, 2024
:
|
$ in millions
|
Remaining
Unamortized
Amounts
|
Weighted
Average
Vesting
Period
(in Years)
|
|
Non-vested share-based awards
...............................
|
$
|
|
|
Restricted cash awards
...............................................
|
|
|
|
Total
...............................................................................
|
$
|
|
In December
2024
,
$
384.5
million
of restricted cash awards,
which contain a future service requirements and are related to
the
2024
performance year were approved and awarded.
Absent
actual forfeitures or cancellations or accelerations, the annual
compensation cost for these awards will be recognized as
follows:
|
Year Ended November 30,
|
|||||
|
$ in millions
|
2024
|
2025
|
2026
|
Thereafter
|
Total
|
|
Restricted cash awards
.
|
$
|
$
|
$
|
$
|
$
|
|
93
|
Jefferies Financial Group Inc.
|
Notes to Consolidated Financial Statements
U.S. Pension Plans
Pursuant to the agreement to sell one of our former subsidiaries,
WilTel Communications Group, LLC (“WilTel”), the responsibility
for WilTel’s defined benefit pension plan was retained by us. All
benefits under this plan were frozen as of October 30,
2005. Jefferies Group LLC Employees’ Pension Plan (the “U.S.
Pension Plan”) is a defined benefit pension plan covering certain
employees; benefits under that plan were frozen as of December
31, 2005. We contributed
$
3.5
million
to the WilTel plan during
the year ended
November 30, 2024
.
We did
no
t contribute to the
U.S. Pension Plan during the year ended
November 30, 2024
and
we do not anticipate making a contribution to the plan for the
year ending November 30,
2025
.
|
Year Ended November 30,
|
||
|
$ in thousands
|
2024
|
2023
|
|
Change in projected benefit obligation:
|
||
|
Projected benefit obligation, beginning of year
.......
|
$
|
$
|
|
Interest cost
..................................................................
|
|
|
|
Actuarial (gains) losses
..............................................
|
|
(
|
|
Settlements
...................................................................
|
|
|
|
Benefits paid
.................................................................
|
(
|
(
|
|
Projected benefit obligation, end of year
................
|
$
|
$
|
|
Change in plan assets:
|
|
|
|
Fair value of plan assets, beginning of year
.............
|
$
|
$
|
|
Actual return on plan assets
.......................................
|
|
|
|
Employer contributions
...............................................
|
|
|
|
Benefits paid
.................................................................
|
(
|
(
|
|
Settlements
...................................................................
|
|
|
|
Administrative expenses paid
....................................
|
(
|
(
|
|
Fair value of plan assets, end of year
.......................
|
$
|
$
|
|
Funded status at end of year
.....................................
|
$
(
|
$
(
|
As of
November 30, 2024
and
2023
,
$
28.6
million
and
$
37.0
million
, respectively, of the net amount recognized in the
Consolidated Statements of Financial Condition was reflected as
a charge to Accumulated other comprehensive income (loss)
(substantially all of which were cumulative losses) and
$
13.4
million
and
$
22.7
million
, respectively, was reflected as
accrued pension cost.
recognized in other comprehensive income (loss) excluding
taxes:
|
Year Ended November 30,
|
|||
|
$ in thousands
|
2024
|
2023
|
2022
|
|
|
$
|
$
|
$
|
|
|
(
|
(
|
(
|
|
Amortization of net losses
.............
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
..............
|
$
|
$
|
$
|
|
Amounts recognized in other
comprehensive income (loss):
|
|||
|
Net (gains) losses arising during
the period
..........................................
|
$
(
|
$
(
|
$
(
|
|
Settlement losses
............................
|
|
|
(
|
|
Amortization of net losses
.............
|
(
|
|
(
|
|
Total recognized in other
comprehensive income (loss)
......
|
$
(
|
$
(
|
$
(
|
|
|
|
|
|
|
Net amount recognized in net
periodic benefit cost and other
comprehensive income (loss)
....
|
$
(
|
$
|
$
(
|
Accumulated other comprehensive income (loss) at
November 30, 2024
and
2023
have not yet been recognized as
components of net periodic pension cost in the Consolidated
Statements of Earnings.
|
November 30,
|
||
|
|
2024
|
2023
|
|
WilTel Plan
|
||
|
Discount rate used to determine benefit obligation
|
|
|
|
Weighted-average assumptions used to
determine net pension cost:
|
||
|
Discount rate
.........................................................
|
|
|
|
Expected long-term return on plan assets
........
|
|
|
|
U.S. Pension Plan
|
||
|
Discount rate used to determine benefit obligation
|
|
|
|
Weighted-average assumptions used to
determine net pension cost:
|
||
|
Discount rate
.........................................................
|
|
|
|
Expected long-term return on plan assets
........
|
|
|
|
November
2024
Form
10-K
|
94
|
Notes to Consolidated Financial Statements
|
Fiscal Year:
|
|
|
2025
............................................................................................................
|
$
|
|
2026
............................................................................................................
|
|
|
2027
............................................................................................................
|
|
|
2028
............................................................................................................
|
|
|
2029
............................................................................................................
|
|
|
Years 2030 - 2034
.....................................................................................
|
|
U.S. Plan Assets
The information below on the plan assets for the WilTel plan and
the U.S. Pension Plan is presented separately for the plans as the
investments are managed independently.
WilTel Plan Assets
The current investment objectives are designed to close the
funding gap while mitigating funded status volatility through a
combination of liability hedging and investment returns. As plan
funded status improves, the asset allocation will move along a
predetermined, de-risking glide path that reallocates capital from
growth assets to liability-hedging assets in order to reduce
funded status volatility and lock in funded status gains. Plan
assets are split into
two
separate portfolios, each with different
asset mixes and objectives. The portfolios are valued at their
NAV as a practical expedient for fair value.
•
The Growth Portfolio consists of global equities and high yield
investments.
•
The Liability-Driven Investing (“LDI”) Portfolio consists of long
duration credit bonds and a suite of long duration, Treasury-
based instruments designed to provide capital-efficient interest
rate exposure as well as target specific maturities. The
objective of the LDI Portfolio is to seek to achieve performance
similar to the WilTel plan’s liability by seeking to match the
interest rate sensitivity and credit sensitivity. The LDI Portfolio
is managed to mitigate volatility in funded status deriving from
changes in the discounted value of benefit obligations from
market movements in the interest rate and credit components
of the underlying discount curve.
U.S. Pension Plan Assets
We have an agreement with an external investment manager to
invest and manage the plan’s assets under a strategy using a
combination of two portfolios. The investment manager allocates
the plan’s assets between a growth portfolio and a liability-driven
portfolio according to certain target allocations and tolerance
bands that are agreed to by the Administrative Committee of the
U.S. Pension Plan. Such target allocations will take into
consideration the plan’s funded ratio. The manager will also
monitor the strategy and, as the plan’s funded ratio changes over
time, will rebalance the strategy, if necessary, to be within the
agreed tolerance bands and target allocations. The portfolios are
composed of certain common collective investment trusts that
are established and maintained by the investment manager. The
common collective trusts are valued at their NAV as a practical
expedient for fair value.
Plan Assumptions
To develop the assumption for the expected long-term rate of
return on plan assets, we considered the following underlying
assumptions:
2.5
%
current expected inflation,
0.0
%
to
1.5
%
real
rate of return for long duration risk free investments and an
additional
0.5
%
to
1.0
%
return premium for corporate credit risk.
For U.S. and international equity, we assume an equity risk
premium over risk-free assets equal to
4.3
%
. We then weighted
these assumptions based on invested assets and assumed that
investment expenses were offset by expected returns in excess
of benchmarks, which resulted in the selection of
6.0
%
and
5.0
%
expected long-term rate of return assumption for WilTel and U.S.
Pension plan, respectively, for
2024
.
Other
We have defined contribution pension plans, including 401(k)
plans, that cover certain employees. Amounts charged to
expense related to such plans were
$
13.6
million
,
$
12.6
million
and
$
12.7
million
for the years ended
November 30, 2024
,
2023
and
2022
, respectively.
We enter into lease and sublease agreements, primarily for office
space, across our geographic locations.
Information related to
operating leases in our Consolidated Statements of Financial
Condition:
|
November 30,
|
||
|
$ in thousands
|
2024
|
2023
|
|
Premises and equipment - ROU assets (1)
..............
|
$
|
$
|
|
Weighted average:
|
||
|
Remaining lease term (in years)
................................
|
|
|
|
Discount rate
.................................................................
|
|
|
(1)
At November 30, 2023, we classified certain operating lease assets and
liabilities as held for sale and discontinued recording amortization on the
related right-of-use assets. Refer to
Note 5, Assets Held for Sale and
Discontinued Operations
for further discussion.
operating leases liabilities reclassified as held for sale, and a
reconciliation to the Lease liabilities:
|
$ in thousands
|
November 30,
|
|
|
Fiscal Year
|
2024
|
2023
|
|
2024
...............................................................................
|
$
|
$
|
|
2025
...............................................................................
|
|
|
|
2026
...............................................................................
|
|
|
|
2027
...............................................................................
|
|
|
|
2028
...............................................................................
|
|
|
|
2029
...............................................................................
|
|
|
|
2030 and thereafter
.....................................................
|
|
|
|
Total undiscounted cash flows
.................................
|
|
|
|
Less: Difference between undiscounted and
discounted cash flows
...........................................
|
(
|
(
|
|
Operating leases amount in our Consolidated
Statements of Financial Condition
......................
|
|
|
|
Finance leases amount in our Consolidated
Statements of Financial Condition
.......................
|
|
|
|
Total amount in our Consolidated Statements of
Financial Condition
.................................................
|
$
|
$
|
In addition to the table above, at
November 30, 2024
, we entered
into lease agreements that were signed but had not yet
commenced.
These operating leases will commence in
2025
with
lease terms of between
five
to
seven years
. Lease payments for
these lease agreements will be
$
1.5
million
for the period from
lease commencement to the end of the lease term.
|
95
|
Jefferies Financial Group Inc.
|
Notes to Consolidated Financial Statements
|
Year Ended November 30,
|
|||
|
$ in thousands
|
2024
|
2023
|
2022
|
|
Operating lease costs (1)
................
|
$
|
$
|
$
|
|
Variable lease costs (2)
...................
|
|
|
|
|
Less: Sublease income
....................
|
(
|
(
|
(
|
|
Total lease cost, net
........................
|
$
|
$
|
$
|
(1)
Includes short-term leases, which are not material.
(2)
Includes property taxes, insurance costs, common area maintenance, utilities,
and other costs that are not fixed. The amount also includes rent increases
resulting from inflation indices and periodic market rent reviews.
Consolidated Statements of Cash Flows supplemental
information:
|
Year Ended November 30,
|
|||
|
$ in thousands
|
2024
|
2023
|
2022
|
|
Cash outflows - lease liabilities
.....
|
$
|
$
|
$
|
|
Non-cash - ROU assets recorded
for new and modified leases
.........
|
|
|
|
|
November 30,
|
||
|
$ in thousands
|
2024
|
2023
|
|
Bank loans
.....................................................................
|
$
|
$
|
|
Total short-term borrowings (1)
...............................
|
$
|
$
|
(1)
Short-term borrowings, mature in one year or less and are recorded at cost,
which is a reasonable approximation of their fair values due to their liquid and
short-term nature.
At
November 30, 2024
and
2023
, the weighted average interest
rate on bank loans outstanding is
6.25
%
and
6.06
%
per annum,
respectively.
Our borrowings include credit facilities that contain certain
covenants that, among other things, require us to maintain a
specified level of tangible net worth, require a minimum
regulatory net capital requirement for our U.S. broker-dealer,
Jefferies LLC, and impose certain restrictions on the future
indebtedness of certain of our subsidiaries that are borrowers.
Interest is based on rates at spreads over the federal funds rate
or other adjusted rates, as defined in the various credit
agreements, or at a rate as agreed between the bank and us in
reference to the bank’s cost of funding. At
November 30, 2024
,
we were in compliance with all covenants under these credit
facilities.
|
November
2024
Form
10-K
|
96
|
Notes to Consolidated Financial Statements
|
November 30,
|
|||
|
$ in thousands
|
Maturity (Fiscal Years)
|
2024
|
2023
|
|
Parent Co. unsecured borrowings
|
|||
|
Fixed rate
|
2024
|
$
|
$
|
|
2025
|
|
|
|
|
2026
|
|
|
|
|
2027
|
|
|
|
|
2028
|
|
|
|
|
2029
|
|
|
|
|
2030 and Later
|
|
|
|
|
Variable rate
|
2025
|
|
|
|
2026
|
|
|
|
|
2027
|
|
|
|
|
2029
|
|
|
|
|
2030 and Later
|
|
|
|
|
Structured notes (1)
|
2024
|
|
|
|
2025
|
|
|
|
|
2026
|
|
|
|
|
2027
|
|
|
|
|
2028
|
|
|
|
|
2029
|
|
|
|
|
2030 and Later
|
|
|
|
|
Total Parent Co. unsecured borrowings (2)
..........................................................................................................................................
|
|
|
|
|
Subsidiaries secured borrowings
|
|||
|
Fixed rate
|
2024
|
|
|
|
2025
|
|
|
|
|
2026
|
|
|
|
|
2027
|
|
|
|
|
2028
|
|
|
|
|
2029
|
|
|
|
|
Variable rate
|
2024
|
|
|
|
2026
|
|
|
|
|
2027
|
|
|
|
|
Total Subsidiaries secured borrowings
.................................................................................................................................................
|
|
|
|
|
Subsidiaries unsecured borrowings
|
|||
|
Fixed rate
|
2029
|
|
|
|
2030 and Later
|
|
|
|
|
Variable rate
|
2026
|
|
|
|
Total Subsidiaries unsecured borrowings
.............................................................................................................................................
|
|
|
|
|
Total long-term debt (3)
..........................................................................................................................................................................
|
$
|
$
|
|
|
Fair value
....................................................................................................................................................................................................
|
$
|
$
|
|
|
Weighted-average interest rate (4)
.......................................................................................................................................................
|
|
|
|
|
Interest rate range (4)
..............................................................................................................................................................................
|
|
|
|
(1)
Structured notes have various interest rate payment terms and are accounted for at fair value, with changes in fair value resulting from non-credit components
recognized in Principal transactions revenues. The structured notes are classified as Level 2 or Level 3 in the fair value hierarchy. All of our long-term debt with exception
of certain of the structured notes would be classified as Level 2 in the fair value hierarchy.
(2)
Carrying values of certain unsecured borrowings, totaling
$
2.04
billion
and
$
1.99
billion
for
November 30, 2024
and
November 30, 2023
, respectively, include net losses
of
$
50.4
million
and net gains of
$
21.6
million
for the
year ended November 30, 2024
and
2023
, respectively, associated with interest rate swaps based on designation
as fair value hedges. Refer to
Note 7, Derivative Financial Instruments
for further information.
(3)
Carrying values include unamortized discounts and premiums, valuation adjustments and debt issuance costs. At
November 30, 2024
and
2023
our borrowings under
several credit facilities classified within Long-term debt amounted to
$
775.3
million
and
$
735.2
million
, respectively. Interest on these credit facilities is based on an
adjusted Secured Overnight Financing Rate (“SOFR”) plus a spread or other adjusted rates, as defined in the various credit agreements. Additionally, certain of our
borrowings are under agreements containing covenants that, among other things, require us to maintain specified levels of tangible net worth and liquidity amounts,
certain credit and rating levels and impose certain restrictions on future indebtedness of and require specified levels of regulated capital and cash reserves for certain of
our subsidiaries. At
November 30, 2024
, we were in compliance with all covenants under theses credit agreements.
|
97
|
Jefferies Financial Group Inc.
|
Notes to Consolidated Financial Statements
During the
year ended November 30, 2024
, long-term debt
increased
by
$
3.83
billion
to
$
13.53
billion
at
November 30, 2024
primarily
due to proceeds of
$
3.98
billion
from the issuances of
unsecured senior notes,
$
487.0
million
from net issuances of
structured notes,
$
254.8
million
from increased subsidiaries
borrowings, and valuation losses on structured notes of
$
175.7
million
. These increases were partially offset by a
$
350.0
million
paydown of a revolving credit fac
ility and
repayments of
$
720.5
million
on our unsecured senior notes.
At
November 30, 2024
and
November 30, 2023
,
we had
par value of
$
1.00
per share. At
November 30, 2024
and
2023
, we
had outstanding
205,504,272
common shares and
210,626,642
common shares outstanding, respectively.
The Board of Directors has authorized the repurchase of
common stock up to
$
250.0
million
under a share repurchase
program.
Treasury
stock repurchases during 2024 represent
repurchases of common stock for net-share withholding under
our equity compensation plan.
In
February 2023
, our mandatorily redeemable convertible
preferred shares were converted into
4,654,362
common shares.
Non-Voting Convertible Preferred Shares
On
April 27, 2023
, we established Series B Non-Voting
Convertible Preferred Shares with a par value of
$
1.00
per share
(“Series B Preferred Stock”) and designated
70,000
shares as
Series B Preferred Stock. The Series B Preferred Stock has a
liquidation preference of
$
17,500
per share and rank senior to our
voting common stock upon dissolution, liquidation or winding up
of Jefferies Financial Group Inc. Each share of Series B Preferred
Stock is automatically convertible into
500
shares of non-voting
common stock, subject to certain anti-dilution adjustments,
three
cash dividends and distributions alongside our voting common
stock on an as-converted basis.
Additionally, on
April 27, 2023
, we entered into an Exchange
Agreement with Sumitomo Mitsui Banking Corporation (“SMBC”),
which entitles SMBC to exchange shares of our voting common
stock for shares of the Series B Preferred Stock at a rate of
500
shares of voting common stock for one share of Series B
Preferred Stock. The Exchange Agreement is limited to
55,125
shares of Preferred Stock and SMBC will pay
$
1.50
per share of
voting common stock so exchanged. During the year ended
November 30, 2023
, SMBC exchanged
21.0
million
shares of
voting common stock for
42,000
shares of Series B Preferred
Stock and we received cash of
$
31.5
million
from SMBC in
connection with the exchange. As a result of the exchange, our
equity attributed to our voting common stock decreased by
$
21.0
million
, our equity attributed to the Series B Preferred Stock
increased by
$
42,000
and additional paid-in capital increased by
$
52.4
million
. On June 20, 2024, SMBC exchanged an additional
Series B Preferred Stock and we received
$
9.8
million
from SMBC
in connection with the exchange. Following this exchange, SMBC
increased its ownership to
11.8
%
of our common stock on an as-
converted basis and
10.9
%
on a fully-diluted, as-converted basis.
As a result, the CEO of Sumitomo Mitsui Financial Group, Inc.
was elected and now serves on our Board of Directors. On
September 19, 2024, SMBC purchased
9.2
million
shares of our
common stock. At
November 30, 2024
, SMBC owns
approximately
15.8
%
of our common stock on an as-converted
basis and
14.5
%
on a fully-diluted, as-converted basis. Refer to
Note 24, Related Party Transactions
for further information
regarding transactions with SMBC.
On
June 28, 2023
, shareholders approved an Amended and
Restated Certificate of Incorporation, which authorized the
issuance of non-voting common stock with a par value of
$
1.00
per share (the “Non-Voting Common Shares”). The Non-Voting
Common Shares are entitled to share equally, on a per share
basis, with the voting common stock, in dividends and
distributions. Upon the effectiveness of the Amended and
Restated Certificate of Incorporation on
June 30, 2023
, the
number of authorized shares of common stock remains at
common stock and
35,000,000
shares of Non-Voting Common
Shares.
Mandatorily Redeemable Convertible Preferred Shares
Our
$
125.0
million
of callable mandatorily redeemable
cumulative convertible preferred shares (“Preferred Shares”)
were converted during the first quarter of
2023
at a price of
$
1,000
per preferred share, plus accrued interest, into
4,654,362
common shares for
$
125.0
million
, or
$
26.82
per common share.
|
November
2024
Form
10-K
|
98
|
Notes to Consolidated Financial Statements
Basic and diluted earnings per common share amounts were calculated by dividing net earnings by the weighted-average number of
common shares outstanding.
The numerators and denominators used to calculate basic and diluted earnings per common share are as
follows:
|
Year Ended November 30,
|
|||
|
In thousands, except per share amounts
|
2024
|
2023
|
2022
|
|
Numerator for earnings per common share from continuing operations:
|
|||
|
Net earnings from continuing operations
................................................................................................................................
|
$
|
$
|
$
|
|
Less: Net losses attributable to noncontrolling interests
.....................................................................................................
|
(
|
(
|
(
|
|
Mandatorily redeemable convertible preferred share dividends
..........................................................................................
|
|
(
|
(
|
|
Allocation of earnings to participating securities (1)
.............................................................................................................
|
(
|
(
|
(
|
|
Net earnings from continuing operations attributable to common shareholders for basic earnings per share
........
|
$
|
$
|
$
|
|
Adjustment to allocation of earnings to participating securities related to diluted shares (1)
.......................................
|
|
|
|
|
Mandatorily redeemable convertible preferred share dividends
..........................................................................................
|
|
|
|
|
Net earnings from continuing operations attributable to common shareholders for diluted earnings per share
.....
|
$
|
$
|
$
|
|
Numerator for earnings per common share from discontinued operations:
|
|||
|
Net earnings from discontinued operations (including gain on disposal), net of taxes
...................................................
|
|
|
|
|
Less: Net losses attributable to noncontrolling interests
.....................................................................................................
|
(
|
|
|
|
Net earnings from discontinued operations attributable to common shareholders for basic and diluted earnings
per share
..................................................................................................................................................................................
|
$
|
$
|
$
|
|
Net earnings attributable to common shareholders for basic earnings per share
.........................................................
|
$
|
$
|
$
|
|
Net earnings attributable to common shareholders for diluted earnings per share
.......................................................
|
$
|
$
|
$
|
|
Denominator for earnings per common share:
|
|||
|
Weighted average common shares outstanding
....................................................................................................................
|
|
|
|
|
Weighted average shares of restricted stock outstanding with future service required
..................................................
|
(
|
(
|
(
|
|
Weighted average RSUs outstanding with no future service required
................................................................................
|
|
|
|
|
Weighted average basic common shares
...............................................................................................................................
|
|
|
|
|
Stock options and other share-based awards
.......................................................................................................................
|
|
|
|
|
Senior executive compensation plan RSU awards
.................................................................................................................
|
|
|
|
|
Preferred shares and mandatorily redeemable convertible preferred shares (2)
.............................................................
|
|
|
|
|
Weighted average diluted common shares (2)
......................................................................................................................
|
|
|
|
|
Earnings per common share:
|
|||
|
Basic from continuing operations
............................................................................................................................................
|
$
|
$
|
$
|
|
Basic from discontinued operations
........................................................................................................................................
|
|
|
|
|
Basic
.............................................................................................................................................................................................
|
$
|
$
|
$
|
|
Diluted from continuing operations
...........................................................................................................................................
|
$
|
$
|
$
|
|
Diluted from discontinued operations
......................................................................................................................................
|
|
|
|
|
Diluted
...........................................................................................................................................................................................
|
$
|
$
|
$
|
(1)
Represents dividends declared during the period on participating securities plus an allocation of undistributed earnings to participating securities.
Net losses are not allocated to participating securities. Participating securities represent certain preferred stock, restricted stock and RSUs for
which requisite service has not yet been rendered and amounted to weighted average shares of
24.1
million
,
8.9
million
and
1.0
million
for the years
ended
November 30, 2024
,
2023
and
2022
, respectively.
Dividends paid on participating securities were
$
32.0
million
,
$
2.1
million
and
$
1.1
million
during the years ended
November 30, 2024
,
2023
and
2022
, respectively. Undistributed earnings are allocated to
participating securities based
upon their right to share in earnings if all earnings for the period had been distributed.
(2)
The two-class method was more dilutive for each period presented.
(3)
Certain securities have been excluded as they would be antidilutive. However, these securities could potentially dilute earnings per share in the
future. Antidilutive shares at
November 30, 2024
and
2023
, were
13.2
%
and
9.5
%
, respectively, of the weighted average common shares
outstanding for the year ended
November 30, 2024
and
2023
, respectively.
|
99
|
Jefferies Financial Group Inc.
|
Notes to Consolidated Financial Statements
|
Year Ended November 30, 2024
|
|||
|
Declaration Date
|
Record Date
|
Payment Date
|
Per Common
Share Amount
|
|
January 8, 2024
|
February 16, 2024
|
February 27, 2024
|
$
|
|
March 27, 2024
|
May 20, 2024
|
May 30, 2024
|
$
|
|
June 26, 2024
|
August 19, 2024
|
August 30, 2024
|
$
|
|
September 25, 2024
|
November 18, 2024
|
November 27, 2024
|
$
|
|
Year Ended November 30, 2023
|
|||
|
Declaration Date
|
Record Date
|
Payment Date
|
Per Common
Share Amount
|
|
January 9, 2023
|
February 13, 2023
|
February 24, 2023
|
$
|
|
March 28, 2023
|
May 15, 2023
|
May 26, 2023
|
$
|
|
June 27, 2023
|
August 14, 2023
|
August 25, 2023
|
$
|
|
September 27, 2023
|
November 13, 2023
|
November 28, 2023
|
$
|
On
January 8, 2025
, the Board of Directors increased our
quarterly dividends from
$
0.35
to
$
0.40
per common share to be
paid on
February 27, 2025
to common shareholders of record at
February 14, 2025
.
We paid cash dividends on our Series B Preferred Stock of
$
31.9
million
and
$
12.6
million
for the year ended
November 30,
2024
and
2023
,
respectively. The payment of dividends is subject
to the discretion of our Board of Directors and depends upon
general business conditions and other factors that our Board of
Directors may deem to be relevant.
Activity in accumulated other comprehensive income (loss) is
reflected in the Consolidated Statements of Comprehensive
Income (Loss) and Consolidated Statements of Changes in
Equity but not in the Consolidated Statements of Earnings.
A
summary of accumulated other comprehensive income (loss),
net of taxes is as follows:
|
November 30,
|
|||
|
$ in thousands
|
2024
|
2023
|
2022
|
|
Net unrealized gains (losses) on
available-for-sale securities
...........
|
$
(
|
$
(
|
$
(
|
|
Net currency translation
adjustments and other
....................
|
(
|
(
|
(
|
|
Net unrealized losses related to
instrument-specific credit risk
......
|
(
|
(
|
(
|
|
Net minimum pension liability
.......
|
(
|
(
|
(
|
|
Total accumulated other
comprehensive loss, net of tax
.....
|
$
(
|
$
(
|
$
(
|
Amounts reclassified out of accumulated other comprehensive
income (loss) to net earnings:
|
Year Ended November 30,
|
|||
|
$ in thousands
|
2024
|
2023
|
2022
|
|
Net unrealized gains (losses) on
instrument-specific credit risk at
fair value (1)
.......................................
|
$
|
$
(
|
$
(
|
|
Foreign currency translation
adjustments (2)
.................................
|
|
|
|
|
Amortization of defined benefit
pension plan actuarial losses (3)
...
|
(
|
(
|
(
|
|
Total reclassifications for the
period, net of tax
..............................
|
$
|
$
|
$
(
|
(1)
The amounts include income tax benefit (expense) of
$(
1.7
) million
,
$
0.1
million
, and
$
0.0
million
during the years ended
November 30, 2024
,
2023
and
2022
, respectively, which were reclassified to Principal transactions revenues.
(2)
Relates to the acquisition and consolidation of OpNet in the fourth quarter of
2023. Refer to Note 4, Business Acquisitions and Note 5, Assets Held for Sale
for further information. The amount includes income tax benefit (expense) of
$(
5.4
) million
for the year ended November 30, 2023, which was reclassified to
Other income.
(3)
The amounts include income tax benefits of approximately
$
0.1
million
,
$
0.2
million
, and
$
0.8
million
during the years ended
November 30, 2024
,
2023
and
2022
, respectively, which were reclassified to Compensation and benefits
expenses. Refer to
Note 16, Benefit Plans
for further information.
|
Year Ended November 30,
|
|||
|
$ in thousands
|
2024
|
2023
|
2022
|
|
Current:
.............................................
|
|||
|
U.S. Federal
......................................
|
$
|
$
|
$
|
|
U.S. state and local
.........................
|
|
|
|
|
Foreign
..............................................
|
|
|
|
|
Total current
....................................
|
|
|
|
|
Deferred:
|
|||
|
U.S. Federal
......................................
|
(
|
|
(
|
|
U.S. state and local
.........................
|
(
|
|
(
|
|
Foreign
..............................................
|
|
(
|
|
|
Total deferred
..................................
|
(
|
|
(
|
|
Total income tax expense from
continuing operations
....................
|
$
|
$
|
$
|
operations before income tax expense
:
|
Year Ended November 30,
|
|||
|
$ in thousands
|
2024
|
2023
|
2022
|
|
U.S.
....................................................
|
$
|
$
|
$
|
|
Non-U.S. (1)
......................................
|
|
|
|
|
Earnings from continuing
operations before income tax
expense
............................................
|
$
|
$
|
$
|
(1)
For purposes of this table, non-U.S. income is defined as income generated
from operations
located outside the U.S.
|
November
2024
Form
10-K
|
100
|
Notes to Consolidated Financial Statements
applying the U.S. Federal statutory income tax rate of
21.0%
to
earnings from continuing operations before income taxes as a
result of the following:
|
Year Ended November 30,
|
||||||
|
2024
|
2023
|
2022
|
||||
|
$ in thousands
|
Amount
|
Percent
|
Amount
|
Percent
|
Amount
|
Percent
|
|
Computed
expected federal
income taxes
...........
|
$
|
|
$
|
|
$
|
|
|
Increase
(decrease) in
income taxes
resulting from:
|
||||||
|
State and local
income taxes, net
of Federal income
tax benefit
................
|
|
|
|
|
|
|
|
International
operations
(including foreign
rate differential)
......
|
|
|
|
|
|
|
|
Foreign tax credits,
net
.............................
|
(
|
(
|
(
|
(
|
(
|
(
|
|
Non-deductible
executive
compensation
..........
|
|
|
|
|
|
|
|
Employee share-
based awards
..........
|
(
|
(
|
(
|
(
|
(
|
(
|
|
Regulatory
Settlement
................
|
|
|
|
|
|
|
|
Change in
unrecognized tax
benefits related to
prior years
...............
|
(
|
(
|
(
|
(
|
(
|
(
|
|
Interest on
unrecognized tax
benefits
.....................
|
|
|
|
|
|
|
|
Other, net
..................
|
|
|
|
|
|
|
|
Total income tax
expense from
continuing
operations
................
|
$
|
|
$
|
|
$
|
|
|
Year Ended November 30,
|
|||
|
$ in thousands
|
2024
|
2023
|
2022
|
|
Balance at beginning of period
.............
|
$
|
$
|
$
|
|
Increases based on tax positions
related to the current period
..................
|
|
|
|
|
Increases based on tax positions
related to prior periods
...........................
|
|
|
|
|
Decreases based on tax positions
related to prior periods
...........................
|
(
|
(
|
(
|
|
Decreases related to settlements with
taxing authorities
....................................
|
|
(
|
|
|
Balance at end of period
........................
|
$
|
$
|
$
|
The total amount of unrecognized benefits that, if recognized,
would favorably affect the effective tax rate was
$
273.8
million
and
$
263.0
million
(net of Federal benefit) at
November 30, 2024
and
2023
, respectively.
We recognize interest accrued related to unrecognized tax
benefits and penalties, if any, as components of Income tax
expense. Net interest expense related to unrecognized tax
benefits was
$
34.6
million
,
$
25.5
million
and
$
18.6
million
for the
years ended
November 30,
2024
,
2023
and
2022
, respectively. At
November 30, 2024
,
2023
and
2022
, we had interest accrued of
approximately
$
176.6
million
,
$
142.1
million
and
$
116.5
million
,
respectively, included in Accrued expenses and other liabilities.
No
material penalties were accrued for the years ended
November 30, 2024
,
2023
and
2022
.
significant portions of the deferred tax assets and liabilities:
|
November 30,
|
||
|
$ in thousands
|
2024
|
2023
|
|
Deferred tax assets:
|
||
|
Net operating loss carryover
......................................
|
$
|
$
|
|
Compensation and benefits
.......................................
|
|
|
|
Accrued expenses and other
......................................
|
|
|
|
Operating lease liabilities
............................................
|
|
|
|
Long-term debt
.............................................................
|
|
|
|
Investments in associated companies
.....................
|
|
|
|
Sub-total
........................................................................
|
|
|
|
Valuation allowance
....................................................
|
(
|
(
|
|
Total deferred tax assets
...........................................
|
|
|
|
Deferred tax liabilities:
|
||
|
Operating lease right-of-use assets
..........................
|
|
|
|
Amortization of intangibles
........................................
|
|
|
|
Other
..............................................................................
|
|
|
|
Total deferred tax liabilities
.......................................
|
|
|
|
Net deferred tax asset, included in Other assets
...
|
$
|
$
|
The valuation allowance represents the portion of our deferred
tax assets for which it is more likely than not that the benefit of
such items will not be realized. We believe that the realization of
the net deferred tax asset of
$
497.6
million
at
November 30,
2024
is more likely than not based on expectations of future
taxable income in the jurisdictions in which we operate.
During the fourth quarter of 2023, we acquired Stratos and
OpNet. Refer to Note 4, Business Acquisitions for further
discussion. In relation to these acquisitions, we recognized
deferred tax assets in the aggregate of
$
222.8
million
primarily
related to net operating losses, offset by a valuation allowance of
$
222.3
million
.
We are currently under examination by a number of taxing
jurisdictions. Though we do not expect that resolution of these
examinations will have a material effect on our consolidated
financial position, they may have a material impact on our
consolidated results of operations for the period in which
resolution occurs. It is reasonably possible that, within the next
twelve months, statutes of limitation will expire which would have
the effect of reducing the balance of unrecognized tax benefits
by
$
29.8
million
.
tax jurisdictions in which we operate:
|
Jurisdiction
|
Tax Year
|
|
United States
...........................................................................................
|
2021
|
|
New York State
........................................................................................
|
2001
|
|
New York City
..........................................................................................
|
2006
|
|
United Kingdom
.......................................................................................
|
2022
|
|
Germany
...................................................................................................
|
2018
|
|
Hong Kong
...............................................................................................
|
2018
|
|
India
...........................................................................................................
|
2010
|
|
101
|
Jefferies Financial Group Inc.
|
Notes to Consolidated Financial Statements
Commitments
|
Expected Maturity Date (Fiscal Years)
|
||||||
|
$ in millions
|
2025
|
2026
|
2027
and
2028
|
2029
and
2030
|
2031
and
Later
|
Maximum
Payout
|
|
Equity commitments (1)
.....
|
$
|
$
|
$
|
$
|
$
|
$
|
|
Loan commitments (1)
.......
|
|
|
|
|
|
|
|
Loan purchase
commitments (2)
.................
|
|
|
|
|
|
|
|
Forward starting reverse
repos (3)
...............................
|
|
|
|
|
|
|
|
Forward starting repos (3)
.
|
|
|
|
|
|
|
|
Other unfunded
commitments (1)
.................
|
|
|
|
|
|
|
|
Total commitments
............
|
$
|
$
|
$
|
$
|
$
|
$
|
(1)
Equity, loan and other unfunded commitments are presented by contractual
maturity date. The amounts, however, are available on demand
.
(2)
Loan purchase commitments consist of unfunded commitments to acquire
secondary market loans. For the population of loans to be acquired under the
loan purchase commitments, at
November 30, 2024
, Jefferies had also
entered into back-to-back committed sale contracts aggregating to
$
3.51
billion
.
(3)
At
November 30, 2024
,
$
3.66
billion
forward starting securities purchased
under agreements to resell and
$
2.04
billion
of the forward starting securities
sold under agreements to repurchase settled within
three
business days.
Equity Commitments.
Includes commitments to invest in our joint
venture, Jefferies Finance, asset management funds and in
Jefferies Capital Partners, LLC, a manager of private equity funds,
which consists of a team led by our President and a director. At
November 30, 2024
, our outstanding commitments relating to
Jefferies Capital Partners, LLC and its private equity funds were
$
9.8
million
.
Additionally, at
November 30, 2024
, we had other outstanding
equity commitments to invest up to
$
250.7
million
with strategic
affiliates and
$
43.0
million
to various other investments.
Loan Commitments.
From time to time, we make commitments
to extend credit to clients and to strategic affiliates. These
commitments and any related drawdowns of these facilities
typically have fixed maturity dates and are contingent on certain
representations, warranties and contractual conditions applicable
to the borrower. At
November 30, 2024
, we had outstanding loan
commitments of
$
88.4
million
to clients and
$
9.6
million
to
strategic affiliates.
Loan commitments outstanding at
November 30, 2024
also
include our portion of the outstanding secured revolving credit
facility provided to Jefferies Finance, to support loan
underwritings by Jefferies Finance.
Underwriting Commitments.
In connection with investment
banking activities, we may from time to time provide underwriting
commitments to our clients in connection with capital raising
transactions.
Forward Starting Reverse Repos and Repos.
We enter into
commitments to take possession of securities with agreements
to resell on a forward starting basis and to sell securities with
agreements to repurchase on a forward starting basis that are
primarily secured by U.S. government and agency securities.
Other Unfunded Commitments.
Other unfunded commitments
include obligations in the form of revolving notes, warehouse
financings and debt securities to provide financing to asset-
backed and CLO vehicles. Upon advancing funds, drawn amounts
are collateralized by the assets of an entity. Other unfunded
commitments also include written put options to certain
bondholders of an equity method investee.
Guarantees
Derivative Contracts.
As a dealer, we make markets and trade in a
variety of derivative instruments. Certain derivative contracts that
we have entered into meet the accounting definition of a
guarantee under U.S. GAAP, including credit default swaps,
written foreign currency options and written equity put options.
On certain of these contracts, such as written interest rate caps
and foreign currency options, the maximum payout cannot be
quantified since the increase in interest or foreign exchange rates
are not contractually limited by the terms of the contract. As
such, we have disclosed notional values as a measure of our
maximum potential payout under these contracts.
meeting the definition of a guarantee under U.S. GAAP at
November 30, 2024
:
|
Expected Maturity Date (Fiscal Years)
|
||||
|
$ in millions
|
2025
|
2026
|
2027 and
2028
|
Notional/
Maximum
Payout
|
|
Guarantee Type:
|
||||
|
Derivative contracts—non-credit related
....
|
$
|
$
|
$
|
$
|
|
Total derivative contracts
............................
|
$
|
$
|
$
|
$
|
The derivative contracts deemed to meet the definition of a
guarantee under U.S. GAAP are before consideration of hedging
transactions and only reflect a partial or “one-sided” component
of any risk exposure. Written equity options and written credit
default swaps are often executed in a strategy that is in tandem
with long cash instruments (
e.g.
, equity and debt securities). We
substantially mitigate our exposure to market risk on these
contracts through hedges, such as other derivative contracts
and/or cash instruments, and we manage the risk associated
with these contracts in the context of our overall risk
management framework. We believe notional amounts overstate
our expected payout and that fair value of these contracts is a
more relevant measure of our obligations. At
November 30, 2024
,
the fair value of derivative contracts meeting the definition of a
guarantee is approximately
$
324.6
million
.
HomeFed.
For real estate development projects, we are generally
required to obtain infrastructure improvement bonds at the
beginning of construction work and warranty bonds upon
completion of such improvements. These bonds are issued by
surety companies to guarantee a municipality satisfactory
completion of a project. As the planned area is developed and the
municipality accepts the improvements, the bonds are released.
At
November 30, 2024
, the aggregate amount of infrastructure
improvement bonds outstanding was
$
46.9
million
.
Standby Letters of Credit.
At
November 30, 2024
, we provided
guarantees to certain counterparties in the form of standby
letters of credit in the amount of
$
301.2
million
, with a weighted
average maturity of less than
one year
. Standby letters of credit
commit us to make payment to the beneficiary if the guaranteed
party fails to fulfill its obligation under a contractual arrangement
with that beneficiary. Since commitments associated with these
collateral instruments may expire unused, the amount shown
does not necessarily reflect the actual future cash funding
requirement.
|
November
2024
Form
10-K
|
102
|
Notes to Consolidated Financial Statements
Other Guarantees.
We are members of various exchanges and
clearing houses. In the normal course of business, we provide
guarantees to securities clearing houses and exchanges. These
guarantees generally are required under the standard
membership agreements, such that members are required to
guarantee the performance of other members. Additionally, if a
member becomes unable to satisfy its obligations to the clearing
house, other members would be required to meet these
shortfalls. To mitigate these performance risks, the exchanges
and clearing houses often require members to post collateral.
Our obligations under such guarantees could exceed the
collateral amounts posted. Our maximum potential liability under
these arrangements cannot be quantified; however, the potential
for us to be required to make payments under such guarantees is
deemed remote. Accordingly, no liability has been recognized for
these arrangements. Additionally, we provide certain
indemnifications in connection with third-party clearing and
execution arrangements whereby a third-party may clear and
settle transactions on behalf of our clients. These
indemnifications generally have standard contractual terms and
are entered into in the ordinary course of business. Our
obligations in respect of such transactions are secured by the
assets in our client’s account, as well as any proceeds received
from the transactions cleared and settled on behalf of our client.
However, we believe that it is unlikely we would have to make any
material payments under these arrangements and no material
liabilities related to these indemnifications have been recognized.
Net Capital
Jefferies LLC is a broker-dealer registered with the SEC and a
member firm of the Financial Industry Regulatory Authority
(“FINRA”) and is subject to the SEC Uniform Net Capital Rule
(“Rule 15c3-1”), which requires the maintenance of minimum net
capital, and has elected to calculate minimum capital
requirements using the alternative method permitted by Rule
15c3-1 in calculating net capital. Jefferies LLC, as a dually-
registered U.S. broker-dealer and futures commission merchant
(“FCM”), is also subject to Regulation 1.17 of the Commodity
Futures Trading Commission (“CFTC”) under the Commodity
Exchange Act (“CEA”), which sets forth minimum financial
requirements. The minimum net capital requirement in
determining excess net capital for a dually registered U.S. broker-
dealer and FCM is equal to the greater of the requirement under
SEA Rule 15c3-1 or CFTC Regulation 1.17. Accordingly, FINRA is
the designated examining authority for Jefferies LLC and the
National Futures Association (“NFA”) is the designated self-
regulatory organization (“DSRO”) for Jefferies LLC as an FCM.
Jefferies Financial Services, Inc. (“JFSI”) is registered with the
SEC as a Security-Based Swap Dealer (“SBS Dealer”) and an OTC
Derivatives Dealer (“OTCDD”) subject to the SEC’s SBS dealer
regulatory rules and the SEC’s net capital requirements pursuant
to Rule 18a-1. JFSI is also registered as a swap dealer with the
CFTC and is subject to the CFTC’s regulatory capital
requirements pursuant to the minimum financial requirements for
swap dealers under CFTC Regulation 23.101. Additionally, as a
registered member firm, JFSI is subject to the net capital
requirements of the NFA. Accordingly, the SEC is the designated
examining authority for JFSI in its capacity as an SBS Dealer and
OTCDD, while the NFA is the DSRO for JFSI, as a CFTC registered
swap dealer.
Certain non-U.S. subsidiaries are subject to capital adequacy
requirements as prescribed by the regulatory authorities in their
respective jurisdictions. This includes Jefferies International
Limited which is subject to the regulatory supervision and
requirements of the Financial Conduct Authority (“FCA”) in the
U.K. Jefferies International Limited’s’ own funds requirement
represents the highest of the permanent minimum capital
requirement, fixed overheads requirement and k-factor
requirements set out in the Investment Firms Prudential Regime
(“IFPR”) under the FCA’s MIFIDPRU sourcebook.
At
November 30, 2024
, Jefferies LLC’s and JFSI’s net capital and
excess net capital were as follows (in thousands):
|
$ in thousands
|
Net
Capital
|
Excess Net
Capital
|
|
Jefferies LLC
.................................................................
|
$
|
$
|
|
JFSI - SEC
......................................................................
|
|
|
|
JFSI - CFTC
...................................................................
|
|
|
In addition, the equivalent capital requirement for Jefferies
International Limited, on a consolidated basis, is a total capital of
$
1,781.0
million
and an excess capital of
$
1,054.0
million
at
November 30, 2024
.
At
November 30, 2024
, Jefferies LLC, JFSI and JIL are in
compliance with their applicable requirements.
The regulatory capital requirements referred to above may
restrict our ability to withdraw capital from our regulated
subsidiaries.
At
November 30, 2024
and
2023
,
$
4.96
billion
and
$
4.67
billion
,
respectively, of net assets of our consolidated subsidiaries are
restricted as to the payment of cash dividends, or the ability to
make loans or advances to the parent company. At
November 30,
2024
and
2023
,
$
4.54
billion
and
$
4.43
billion
, respectively, of
these assets are restricted as they reflect regulatory capital
requirements or require regulatory approval prior to the payment
of cash dividends and advances to the parent company.
Customer Protection and Segregation Requirement
As a registered broker dealer that clears and carries customer
accounts, Jefferies LLC is subject to the customer protection
provisions under SEC Rule 15c3-3 and is required to compute a
reserve formula requirement for customer accounts and deposit
cash or qualified securities into a special reserve bank account
for the exclusive benefit of customers. At
November 30, 2024
,
Jefferies LLC had
$
142.6
million
in cash and qualified U.S.
Government securities on deposit in special reserve bank
accounts for the exclusive benefit of customers.
As a registered broker dealer that clears and carries proprietary
accounts of brokers or dealers (commonly referred to as “PAB”),
Jefferies LLC is also required to compute a reserve requirement
for PABs pursuant to SEC Rule 15c3-3. At
November 30, 2024
,
Jefferies LLC had
$
581.9
million
in cash and qualified U.S.
Government securities in special reserve bank accounts for the
exclusive benefit of PABs.
The qualified securities meeting the 15c3-3 customer and PAB
requirements are included in Cash and securities segregated and
Securities purchased under agreements to resell in our
Consolidated Statements of Financial Condition.
|
103
|
Jefferies Financial Group Inc.
|
Notes to Consolidated Financial Statements
We operate in
two
reportable business segments: (1) Investment
Banking and Capital Markets and (2) Asset Management. The
Investment Banking and Capital Markets reportable business
segment includes our securities, commodities, futures and
foreign exchange capital markets activities and investment
banking business, which is composed of financial advisory and
underwriting activities. The Investment Banking and Capital
Markets reportable business segment provides the sales,
trading, origination and advisory effort for various fixed income,
equity and advisory products and services. The Asset
Management reportable business segment provides investment
management services to investors in the U.S. and overseas and
invests capital in hedge funds, separately managed accounts
and third-party asset managers.
Our reportable business segment information is prepared using
the following methodologies:
•
Net revenues and non-interest expenses directly associated
with each reportable business segment are included in
determining earnings (losses) from continuing operations
before income taxes.
•
Net revenues and non-interest expenses not directly
associated with specific reportable business segments are
allocated based on the most relevant measures applicable,
including each reportable business segment’s net revenues,
headcount and other factors.
•
Reportable business segment assets include an allocation of
indirect corporate assets that have been fully allocated to our
reportable business segments, generally based on each
reportable business segment’s capital utilization.
Net revenues presented for our Investment Banking and Capital
Markets reportable segment include allocations of interest
income and interest expense as we assess the profitability of
these businesses inclusive of the net interest revenue or
expense associated with the respective activities, including the
net interest cost of allocated long-term debt, which is a function
of the mix of each business's associated assets and liabilities
and the related funding costs.
During 2023, we refined our
allocated net interest methodology to better reflect net interest
expense across our business units based on use of capital.
Historical periods have been recast to conform with the revised
methodology.
Our net revenues, non-interest expenses and earnings (losses)
from continuing operations before income taxes by reportable
business segment:
|
Year Ended November 30,
|
|||
|
$ in millions
|
2024
|
2023
|
2022
|
|
Investment Banking and Capital Markets:
|
|||
|
Net revenues
..................................................
|
$
|
$
|
$
|
|
Non-interest expenses
..................................
|
|
|
|
|
Earnings from continuing operations
before income taxes
.....................................
|
|
|
|
|
Asset Management:
|
|||
|
Net revenues
..................................................
|
|
|
|
|
Non-interest expenses
..................................
|
|
|
|
|
Earnings (loss) from continuing
operations before income taxes
.................
|
(
|
(
|
|
|
Total of Reportable Business Segments:
|
|||
|
Net revenues
..................................................
|
|
|
|
|
Non-interest expenses
..................................
|
|
|
|
|
Earnings from continuing operations
before income taxes
.....................................
|
|
|
|
|
Reconciliation to consolidated amounts:
|
|||
|
Net revenues
..................................................
|
|
|
(
|
|
Non-interest expenses
..................................
|
|
|
|
|
Earnings (losses) before income taxes (1)
|
|
|
(
|
|
Total:
|
|||
|
Net revenues
..................................................
|
|
|
|
|
Non-interest expenses
..................................
|
|
|
|
|
Earnings from continuing operations
before income taxes
.....................................
|
$
|
$
|
$
|
(1)
Management does not consider certain foreign currency transaction gains or
losses, debt valuation adjustments on derivative contracts, gains and losses
on investments held in deferred compensation or certain other immaterial
corporate income and expense items in assessing the financial performance
of operating businesses. Collectively, these items are included in the
reconciliation of reportable business segment amounts to consolidated
amounts.
Total assets by reportable segment:
|
November 30,
|
||
|
$ in millions
|
2024
|
2023
|
|
Investment Banking and Capital Markets
.................
|
$
|
$
|
|
Asset Management
......................................................
|
|
|
|
Total assets
..................................................................
|
$
|
$
|
Net Revenues by Geographic Region
Net revenues for the Investment Banking and Capital Markets
reportable business segment are recorded in the geographic
region in which the position was risk-managed or, in the case of
investment banking, in which the senior coverage banker is
located. For the Asset Management reportable business
segment, net revenues are allocated according to the location of
the investment advisor or the location of the invested capital.
|
Year Ended November 30,
|
|||
|
$ in millions
|
2024
|
2023
|
2022
|
|
Americas (1)
.....................................
|
$
|
$
|
$
|
|
Europe and the Middle East (2)
.....
|
|
|
|
|
Asia-Pacific
......................................
|
|
|
|
|
Net revenues
....................................
|
$
|
$
|
$
|
(1)
Primarily relates to U.S. results.
(2)
Primarily relates to U.K. results.
|
November
2024
Form
10-K
|
104
|
Notes to Consolidated Financial Statements
Officers, Directors and Employees
The following sets forth information regarding related party
transactions with our officers, directors and employees:
•
At
November 30, 2024
and
2023
, we had
$
29.4
million
and
$
31.8
million
, respectively, of loans, net of allowance,
outstanding to certain of our officers and employees (none of
whom are executive officers or directors) that are included in
Other assets.
•
Receivables from and payables to customers include balances
arising from officers’, directors’ and employees’ individual
security transactions. These transactions are subject to the
same regulations as all customer transactions and are
provided on substantially the same terms.
•
One of our directors has investments in hedge funds managed
by us of approximately
$
5.0
million
and
$
3.0
million
at
November 30, 2024
and
2023
, respectively.
Vitesse Energy
On
January 13, 2023
, our consolidated subsidiary, Vitesse Energy,
issued shares measured at a total consideration of
$
30.6
million
in exchange for acquiring all of the outstanding capital interests
of Vitesse Oil, which was controlled by JCP Fund V. We provided
investment banking services to Vitesse Energy and recognized
revenue of
$
3.0
million
for the year ended November 30, 2023,
included within Investment banking revenues. Refer to
Note 1,
Organization and Basis of Presentation
for additional details
related to the Vitesse Energy distribution.
SMBC
We have a strategic alliance with Sumitomo Mitsui Financial
Group, Inc., Sumitomo Mitsui Banking Corporation (“SMBC”) and
SMBC Nikko Securities Inc. (together referred to as “SMBC
Group”) to collaborate on corporate and investment banking
business opportunities as well as equity sales, trading and
research.
in our Consolidated Statements of Financial Condition and
Consolidated Statements of Earnings. In addition, the synergies
and value creation resulting from our strategic alliance with
SMBC generate additive benefits for us, which are not necessarily
reflected by the activity presented in the following tables.
|
$ in thousands
|
November 30, 2024
|
|
Assets
|
|
|
Cash and cash equivalents
.......................................................
|
$
|
|
Financial instruments owned, at fair value
.............................
|
|
|
Securities borrowed
...................................................................
|
|
|
Securities purchased under agreements to resell
.................
|
|
|
Receivables:
|
|
|
Brokers, dealers and clearing organizations
.......................
|
|
|
Fees, interest and other
..........................................................
|
|
|
Other assets
................................................................................
|
|
|
Total assets
.................................................................................
|
$
|
|
Liabilities
|
|
|
Financial instruments sold, not yet purchased, at fair value
|
$
|
|
Securities loaned
|
|
|
Securities sold under agreements to repurchase
..................
|
|
|
Payables:
|
|
|
Brokers, dealers and clearing organizations
......................
|
|
|
Accrued expenses and other liabilities
....................................
|
|
|
Long-term debt (1)
......................................................................
|
|
|
Total liabilities
............................................................................
|
$
|
(1)
We have an undrawn revolving credit facility of
$
350.0
million
. Interest on this
credit facility is based on an adjusted SOFR plus a spread.
|
$ in thousands
|
Year Ended
November 30, 2024 (1)
|
|
Revenues
|
|
|
Investment banking
................................................................
|
$
|
|
Principal transactions (2)
......................................................
|
(
|
|
Commissions and other fees
................................................
|
|
|
Interest
.....................................................................................
|
|
|
Total revenues
........................................................................
|
|
|
Interest expense
......................................................................
|
|
|
Net revenues
...........................................................................
|
$
|
|
Non-interest expenses
|
|
|
Business development
...........................................................
|
$
|
|
Total non-interest expenses
................................................
|
$
|
(1)
Amounts reflect activity beginning from the date SMBC became a related
party on
August 12, 2024
.
(2)
Primarily represents net gains (losses) on interest rate derivatives executed
with SMBC.
Other Related Party Transactions
We have other related party transactions with equity method
investees. Refer to
Note 11, Investments
for further information.
|
105
|
Jefferies Financial Group Inc.
|
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Our Management, under the direction of our Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness of
our disclosure controls and procedures as of
November 30, 2024
.
Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and
procedures as of
November 30, 2024
are functioning effectively
to provide reasonable assurance that the information required to
be disclosed by us in reports filed under the Securities Exchange
Act of 1934 is (i) recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms and
(ii) accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding disclosure. A
controls system cannot provide absolute assurance that the
objectives of the controls system are met, and no evaluation of
controls can provide absolute assurance that all control issues
and instances of fraud, if any, within a company have been
detected.
Internal Control over Financial Reporting
Management’s annual report on internal control over financial
reporting is contained in Part II, Item 8 of this Form 10-K.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting
occurred during the quarter ended
November 30, 2024
that has
materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
Item 9B. Other Information
Rule 10b5-1 Trading Plans
During the quarter ended
November 30, 2024
,
no
directors or
executive officers entered into, modified or terminated, contracts,
instructions or written plans for the sale or purchase of the
Company’s securities that were intended to satisfy the
affirmative defense conditions of Rule 10b5-1.
Item 9C. Disclosure Regarding Foreign Jurisdictions that
Prevent Inspections
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate
Governance
Omitted pursuant to General Instruction I(2)(c) to Form 10-K.
Information with respect to this item will be contained in the
Proxy Statement for the
2025
Annual Meeting of Shareholders,
which is incorporated herein by reference.
We have a Code of Business Practice, which is applicable to all
directors, officers and employees, and is available on our
website. We intend to post amendments to or waivers from our
Code of Business Practice on our website as required by
applicable law.
Item 11. Executive Compensation
Omitted pursuant to General Instruction I(2)(c) to Form 10-K.
Information with respect to this item will be contained in the
Proxy Statement for the
2025
Annual Meeting of Shareholders,
which is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
Omitted pursuant to General Instruction I(2)(c) to Form 10-K.
Information with respect to this item will be contained in the
Proxy Statement for the
2025
Annual Meeting of Shareholders,
which is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and
Director Independence
Omitted pursuant to General Instruction I(2)(c) to Form 10-K.
Information with respect to this item will be contained in the
Proxy Statement for the
2025
Annual Meeting of Shareholders,
which is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
Information with respect to aggregate fees billed to us by our
principal accountant, Deloitte & Touche LLP (PCAOB ID No.
34
)
will be contained in the Proxy Statement for the
2025
Annual
Meeting of Shareholders, which is incorporated herein by
reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)1.
Financial Statements
The financial statements required to be filed hereunder are listed
on page S-1.
(a)2.
Financial Statement Schedules
The financial statement schedules required to be filed hereunder
are listed on page S-1.
(a)3.
Exhibits
|
November
2024
Form
10-K
|
106
|
|
Exhibit
No.
|
Description
|
|
3.1
|
|
|
3.2
|
|
|
4.1
|
|
|
4.2
|
|
|
4.3
|
|
|
4.4
|
|
|
4.5
|
|
|
4.6
|
|
|
4.7
|
|
|
4.8
|
|
|
4.9
|
|
|
4.10
|
Other instruments defining the rights of holders of long-term debt securities of
the Registrant and its subsidiaries are omitted pursuant to Item 601(b)(4)(iii)
of Regulation S-K. Registrant hereby agrees to furnish copies of these
instruments to the Commission upon request.
|
|
10.1
|
|
|
10.2
|
|
|
10.3
|
|
|
10.4
|
|
|
10.5
|
|
|
10.6
|
|
|
10.7
|
|
Exhibit
No.
|
Description
|
|
10.8
|
|
|
10.9
|
|
|
10.10
|
|
|
10.11
|
|
|
10.12
|
|
|
10.13
|
|
|
10.14
|
|
|
19
|
|
|
21
|
|
|
23.1
|
|
|
31.1
|
|
|
31.2
|
|
|
32.1
|
|
|
32.2
|
|
|
97.1
|
|
|
101
|
Interactive Data Files pursuant to Rule 405 of Regulation S-T, formatted in
Inline Extensible Business Reporting Language (iXBRL).
|
|
104
|
Cover page interactive data file pursuant to Rule 406 of Regulation S-T,
formatted in iXBRL (included in exhibit 101)
|
+
Management/Employment Contract or Compensatory Plan or Arrangement.
*
Incorporated by reference.
**
Furnished herewith pursuant to item 601(b) (32) of Regulation S-K.
Item 16. Form 10-K Summary
None.
|
107
|
Jefferies Financial Group Inc.
|
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
|
Jefferies Financial Group Inc.
|
|
/s/ MATT LARSON
|
|
Matt Larson
|
|
Executive Vice President and Chief Financial Officer
|
Dated:
January 28, 2025
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities indicated, on the date set forth below.
|
Name
|
Title
|
Date
|
||||
|
/s/
|
JOSEPH S. STEINBERG
|
Chairman of the Board of Directors
|
January 28, 2025
|
|||
|
Joseph S. Steinberg
|
||||||
|
/s/
|
RICHARD B. HANDLER
|
Chief Executive Officer and Director
(Principal Executive Officer)
|
January 28, 2025
|
|||
|
Richard B. Handler
|
||||||
|
/s/
|
MATT LARSON
|
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
|
January 28, 2025
|
|||
|
Matt Larson
|
||||||
|
/s/
|
BRIAN P. FRIEDMAN
|
President and Director
|
January 28, 2025
|
|||
|
Brian P. Friedman
|
||||||
|
/s/
|
MARK L. CAGNO
|
Vice President and Controller
(Principal Accounting Officer)
|
January 28, 2025
|
|||
|
Mark L. Cagno
|
||||||
|
/s/
|
LINDA L. ADAMANY
|
Director
|
January 28, 2025
|
|||
|
Linda L. Adamany
|
||||||
|
/s/
|
ROBERT D. BEYER
|
Director
|
January 28, 2025
|
|||
|
Robert D. Beyer
|
||||||
|
/s/
|
MATRICE ELLIS KIRK
|
Director
|
January 28, 2025
|
|||
|
Matrice Ellis Kirk
|
||||||
|
November 2024 Form 10-K
|
108
|
|
/s/
|
MARYANNE GILMARTIN
|
Director
|
January 28, 2025
|
|||
|
MaryAnne Gilmartin
|
||||||
|
/s/
|
THOMAS W. JONES
|
Director
|
January 28, 2025
|
|||
|
Thomas W. Jones
|
||||||
|
/s/
|
JACOB M. KATZ
|
Director
|
January 28, 2025
|
|||
|
Jacob M. Katz
|
||||||
|
/s/
|
TORU NAKASHIMA
|
Director
|
January 28, 2025
|
|||
|
Toru Nakashima
|
||||||
|
/s/
|
MICHAEL T. O’KANE
|
Director
|
January 28, 2025
|
|||
|
Michael T. O’Kane
|
||||||
|
/s/
|
MELISSA V. WEILER
|
Director
|
January 28, 2025
|
|||
|
Melissa V. Weiler
|
||||||
|
S-1
|
Jefferies Financial Group Inc.
|
Jefferies Financial Group Inc.
Index to Financial Statements and Financial Statement
Schedules Items (15)(a)(1) and (15)(a)(2)
|
Page
|
|
|
Financial Statements
|
|
|
Management’s Report on Internal Control over Financial Reporting
....................................................................................................
|
|
|
Reports of Independent Registered Public Accounting Firms
...............................................................................................................
|
|
|
Consolidated Statements of Financial Condition
.....................................................................................................................................
|
|
|
Consolidated Statements of Earnings
.......................................................................................................................................................
|
|
|
Consolidated Statements of Comprehensive Income
.............................................................................................................................
|
|
|
Consolidated Statements of Changes in Equity
.......................................................................................................................................
|
|
|
Consolidated Statements of Cash Flows
..................................................................................................................................................
|
|
|
Notes to Consolidated Financial Statements
...........................................................................................................................................
|
|
|
Financial Statement Schedules
|
|
|
Schedule I - Condensed Financial Information of Jefferies Financial Group Inc. (Parent Company Only) at
November 30,
2024
and
2023
and for each of the three fiscal years ended
November 30, 2024
,
2023
and
2022
.............................................
|
|
November 2024 Form 10-K
|
S-2
|
Parent Company Only
Condensed Statements of Financial Condition
|
November 30,
|
||
|
$ in thousands, except per share amounts
|
2024
|
2023
|
|
Assets
|
||
|
Cash and cash equivalents
..............................................................................................................................................
|
$
|
$
|
|
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and
depository organizations
.............................................................................................................................................
|
|
|
|
Financial instruments owned, at fair value
....................................................................................................................
|
|
|
|
Investments in and loans to related parties
..................................................................................................................
|
|
|
|
Investment in subsidiaries
...............................................................................................................................................
|
|
|
|
Advances to subsidiaries
.................................................................................................................................................
|
|
|
|
Subordinated notes receivable
........................................................................................................................................
|
|
|
|
Other assets
.......................................................................................................................................................................
|
|
|
|
Total assets
........................................................................................................................................................................
|
$
|
$
|
|
Liabilities and Equity
|
||
|
Financial instruments sold, not yet purchased, at fair value
.......................................................................................
|
$
|
$
|
|
Advances from subsidiaries
............................................................................................................................................
|
|
|
|
Accrued expenses and other liabilities
..........................................................................................................................
|
|
|
|
Long-term debt
..................................................................................................................................................................
|
|
|
|
Total liabilities
...................................................................................................................................................................
|
|
|
|
Equity
|
||
|
Preferred shares, par value of
$
outstanding; liquidation preference $
|
|
|
|
Common shares, par value
$
shares issued and outstanding, after deducting
|
|
|
|
Non-voting common shares, par value
$
outstanding
....................................................................................................................................................................
|
|
|
|
Additional paid-in capital
..................................................................................................................................................
|
|
|
|
Accumulated other comprehensive loss
.......................................................................................................................
|
(
|
(
|
|
Retained earnings
..............................................................................................................................................................
|
|
|
|
Total Jefferies Financial Group Inc. shareholders’ equity
.........................................................................................
|
|
|
|
Total liabilities and equity
...............................................................................................................................................
|
$
|
$
|
See accompanying notes to condensed financial statements.
|
S-3
|
Jefferies Financial Group Inc.
|
Parent Company Only
Condensed Statements of Earnings and Comprehensive Income
|
Year Ended November 30,
|
|||
|
$ in thousands
|
2024
|
2023
|
2022
|
|
Revenues:
|
|||
|
Principal transactions
..........................................................................................................................................
|
$
(
|
$
(
|
$
(
|
|
Interest
...................................................................................................................................................................
|
|
|
|
|
Other
.......................................................................................................................................................................
|
|
(
|
(
|
|
Total revenues
......................................................................................................................................................
|
|
|
|
|
Interest expense
....................................................................................................................................................
|
|
|
|
|
Net revenues
.........................................................................................................................................................
|
|
|
(
|
|
Non-interest expenses:
|
|||
|
Total non-interest expenses
..............................................................................................................................
|
|
|
|
|
Earnings (losses) before income taxes
.............................................................................................................
|
|
(
|
(
|
|
Income tax expense (benefit)
.............................................................................................................................
|
|
(
|
(
|
|
Net earnings (losses) before undistributed earnings of subsidiaries
...........................................................
|
|
|
(
|
|
Undistributed earnings of subsidiaries from continuing operations
.............................................................
|
|
|
|
|
Undistributed earnings of subsidiaries from discontinued operations (including gain on disposal of
$
|
|
|
|
|
Net earnings
.........................................................................................................................................................
|
|
|
|
|
Preferred stock dividends
....................................................................................................................................
|
|
|
|
|
Net earnings attributable to Jefferies Financial Group Inc. common shareholders
................................
|
|
|
|
|
Other comprehensive income (loss), net of tax:
|
|||
|
Currency translation adjustments and other
...................................................................................................
|
(
|
|
(
|
|
Change in fair value related to instrument-specific credit risk
......................................................................
|
(
|
(
|
|
|
Minimum pension liability adjustments
............................................................................................................
|
|
|
|
|
Unrealized gain (losses) on available-for-sale securities
...............................................................................
|
|
|
(
|
|
Total other comprehensive loss, net of tax
.....................................................................................................
|
(
|
(
|
(
|
|
Comprehensive income attributable to Jefferies Financial Group Inc. common shareholders
.............
|
$
|
$
|
$
|
See accompanying notes to condensed financial statements.
|
November 2024 Form 10-K
|
S-4
|
Parent Company Only
|
Year Ended November 30,
|
|||
|
$ in thousands
|
2024
|
2023
|
2022
|
|
Cash flows from operating activities:
|
|||
|
Net earnings
..........................................................................................................................................................
|
$
|
$
|
$
|
|
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
|
|||
|
Deferred income taxes
.........................................................................................................................................
|
|
|
(
|
|
Share-based compensation
................................................................................................................................
|
|
|
|
|
Amortization
..........................................................................................................................................................
|
|
|
|
|
Undistributed earnings of subsidiaries
..............................................................................................................
|
(
|
(
|
(
|
|
(Income) loss on investments in and loans to related parties
.......................................................................
|
(
|
|
|
|
Other adjustments
................................................................................................................................................
|
|
(
|
(
|
|
Net change in assets and liabilities:
|
|||
|
Financial instruments owned
..............................................................................................................................
|
(
|
|
|
|
Other assets
..........................................................................................................................................................
|
|
(
|
|
|
Financial instruments sold, not yet purchased
.................................................................................................
|
|
(
|
|
|
Income taxes receivable/payable, net
...............................................................................................................
|
(
|
(
|
(
|
|
Accrued expenses and other liabilities
..............................................................................................................
|
|
|
|
|
Net cash provided by (used in) operating activities from continuing operations
......................................
|
|
(
|
(
|
|
Cash flows from investing activities:
|
|||
|
Contributions to investments in and loans to related parties
........................................................................
|
(
|
(
|
(
|
|
Capital distributions from investments and repayments of loans from related parties
............................
|
|
|
|
|
Distribution (to) from subsidiaries, net
..............................................................................................................
|
|
|
|
|
Net cash provided by investing activities from continuing operations
.......................................................
|
|
|
|
|
Net cash provided by investing activities from discontinued operations
...................................................
|
|
|
|
|
Cash flows from financing activities:
|
|||
|
Proceeds from short-term borrowings
..............................................................................................................
|
|
|
|
|
Payments on short-term borrowings
.................................................................................................................
|
|
(
|
|
|
Proceeds from issuance of long-term debt, net of issuance costs
..............................................................
|
|
|
|
|
Repayments of long-term debt
...........................................................................................................................
|
(
|
(
|
(
|
|
Advances (to) from subsidiaries, net
.................................................................................................................
|
(
|
(
|
|
|
Issuances of common shares
............................................................................................................................
|
|
|
|
|
Purchase of common shares for treasury
........................................................................................................
|
(
|
(
|
(
|
|
Proceeds from conversion of common to preferred shares
..........................................................................
|
|
|
|
|
Dividends paid
.......................................................................................................................................................
|
(
|
(
|
(
|
|
Net cash used in financing activities from continuing operations
...............................................................
|
(
|
(
|
(
|
|
Net increase (decrease) in cash and cash equivalents and restricted cash
...............................................
|
(
|
|
|
|
Cash, cash equivalents and restricted cash at beginning of period
.............................................................
|
|
|
|
|
Cash, cash equivalents and restricted cash at end of period
.......................................................................
|
$
|
$
|
$
|
|
Supplemental disclosures of cash flow information:
|
|||
|
Cash paid (received) during the period for
|
|||
|
Interest
...................................................................................................................................................................
|
$
|
$
|
$
|
|
Income taxes, net
..................................................................................................................................................
|
|
|
|
Parent Company’s cash, cash equivalents and restricted cash by category within the Condensed Statements of Financial Condition:
|
November 30,
|
||
|
$ in thousands
|
2024
|
2023
|
|
Cash and cash equivalents
...............................................................................................................................................................
|
$
|
$
|
|
Cash and securities segregated and on deposit for regulatory purposes with clearing and depository organizations
.....
|
|
|
|
Total cash, cash equivalents and restricted cash
........................................................................................................................
|
$
|
$
|
See accompanying notes to condensed financial statements.
|
S-5
|
Jefferies Financial Group Inc.
|
Parent Company Only
Notes to Condensed Financial Statements
Note 1.
Introduction and Basis of Presentation
The accompanying condensed financial statements (the “Parent
Company Financial Statements”), including the notes thereto,
should be read in conjunction with the consolidated financial
statements of Jefferies Financial Group Inc. (the “Company”) and
the notes thereto found in the Company’s Annual Report on Form
10-K for the year ended
November 30, 2024
. For purposes of
these condensed financial statements, the Company’s wholly-
owned and majority owned subsidiaries are accounted for using
the equity method of accounting (“equity method subsidiaries”).
The Parent Company Financial Statements have been prepared in
accordance with U.S. generally accepted accounting principles
(“U.S. GAAP”) for financial information. The significant
accounting policies of the Parent Company Financial Statements
are those used by the Company on a consolidated basis, to the
extent applicable. For further information regarding the
significant accounting policies refer to
Note 2, Summary of
Significant Accounting Policies
in the Company’s consolidated
financial statements included in the Annual Report on Form 10-K
for the year ended
November 30, 2024
.
The Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with U.S. GAAP. The most
important of these estimates and assumptions relate to fair value
measurements, compensation and benefits, goodwill and
intangible assets, the ability to realize deferred tax assets and the
recognition and measurement of uncertain tax positions.
Although these and other estimates and assumptions are based
on the best available information, actual results could be
materially different from these estimates.
Note 2.
Transactions with Subsidiaries
The Parent Company has transactions with its consolidated
subsidiaries and certain other affiliated entities determined on an
agreed upon basis and has guaranteed certain unsecured lines of
credit and contractual obligations of certain equity method
subsidiaries.
Note 3.
Guarantees
In the normal course of its business, the Parent Company issues
guarantees in respect of obligations of certain of its wholly-
owned subsidiaries under trading and other financial
arrangements, including guarantees to various trading
counterparties and banks. The Parent Company records all
derivative contracts and Financial instruments owned and
Financial instruments sold, not yet purchased at fair value in its
Consolidated Statements of Financial Condition.
Certain of the Parent Company’s equity method subsidiaries are
members of various exchanges and clearing houses. In the
normal course of business, the Parent Company provides
guarantees to securities clearinghouses and exchanges. These
guarantees generally are required under the standard
membership agreements, such that members are required to
guarantee the performance of other members. Additionally, if a
member becomes unable to satisfy its obligations to the
clearinghouse, other members would be required to meet these
shortfalls. To mitigate these performance risks, the exchanges
and clearinghouses often require members to post collateral. The
Parent Company’s obligations under such guarantees could
exceed the collateral amounts posted. The maximum potential
liability under these arrangements cannot be quantified; however,
the potential for the Parent Company to be required to make
payments under such guarantees is deemed remote. Accordingly,
no liability has been recognized for these arrangements.
The Parent Company guarantees certain financing arrangements
of subsidiaries. The maximum amount payable under these
guarantees is
$
1.10
billion
at
November 30, 2024
. For further
information, refer to
Note 18, Borrowings
in the Company’s
consolidated financial statements included in the Annual Report
on Form 10-K for the year ended
November 30, 2024
.
TABLE OF CONTENTS
Part IItem 1. BusinessNote 22, Regulatory RequirementsItem 1A. Risk FactorsPart Ii, Item 7. Of This Annual Report on Form 10-k For AdditionalItem 1B. Unresolved Staff CommentsItem 1C. CybersecurityItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Mine Safety DisclosuresPart IIItem 5. Market For Registrant S Common Equity, RelatedItem 6. [reserved]Item 7. Management S Discussion and Analysis Of FinancialNote 15, Compensation PlansNote 20, Income TaxesNote 3, Accounting Developments in Our Consolidated FinancialNote 3, Accounting DevelopmentsNote 6, Fair Value DisclosuresNote 2, Summary Of Significant Accounting Policies and Note 6,Note 2, Summary Of Significant Accounting PoliciesNote 6, Fair ValueNote 4, Business AcquisitionsNote 2, Summary Of Significant Accounting Policies, and Note 13,Note 13, Goodwill andNote 10, Variable Interest EntitiesNote 18, BorrowingsNote 24, Related Party Transactions For Further InformationNote 24, Related Party TransactionsNote 7, DerivativeNote 7, Derivative Financial InstrumentsItem 7A. Quantitative and Qualitative Disclosures About MarketPart Ii, Item 7 Of This Form 10-kItem 8. Financial Statements and Supplementary DataNote 5, Assets Held For Sale and Discontinued OperationsNote 1. Organization and Basis Of PresentationNote 4, Business Acquisitions and Note 5, Assets Held For SaleNote 5, Assets Held For SaleNote 2. Summary Of Significant Accounting PoliciesNote 11, Investments, and Note 24, Related Party TransactionsNote 11, InvestmentsNote 13, Goodwill and Intangible AssetsNote 5, Assets Held For Sale andNote 19, Total EquityNote 3. Accounting DevelopmentsNote 4. Business AcquisitionsNote 5. Assets Held For Sale and Discontinued OperationsNote 6. Fair Value DisclosuresNote 7. Derivative Financial InstrumentsNote 8. Collateralized TransactionsNote 9. Securitization ActivitiesNote 10, Variable InterestNote 10, VariableNote 10. Variable Interest EntitiesNote 5, Assets HeldNote 11. InvestmentsNote 2, Summary Of Significant AccountingNote 4, BusinessNote 12. Credit Losses on Financial Assets Measured AtNote 13. Goodwill and Intangible AssetsNote 14. Revenues From Contracts with CustomersNote 23, Segment ReportingNote 15. Compensation PlansNote 16. Benefit PlansNote 17. LeasesNote 18. BorrowingsNote 19. Total EquityNote 16, Benefit PlansNote 20. Income TaxesNote 21. Commitments, Contingencies and GuaranteesNote 22. Regulatory RequirementsNote 23. Segment ReportingNote 24. Related Party TransactionsItem 9. Changes in and Disagreements with Accountants onItem 9A. Controls and ProceduresItem 9B. Other InformationItem 9C. Disclosure Regarding Foreign Jurisdictions ThatPart IIIItem 10. Directors, Executive Officers and CorporateItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners andItem 13. Certain Relationships and Related Transactions, andItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits and Financial Statement SchedulesItem 16. Form 10-k SummaryNote 1. Introduction and Basis Of PresentationNote 2, Summary OfNote 2. Transactions with SubsidiariesNote 3. Guarantees