Jefferies says people are bursting to work there, but can it pay them?

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The good news is that Jefferies has continued hiring this year. Its newsroom shows a cascade of hiring announcements and it added 620 people in the third quarter (although around 420 of these came with the Prudential Bache acquisition).

The bad news is that Jefferies had a bad Q3. Fixed income sales and trading revenues collapsed 79% year-on-year and 85% quarter-on-quarter. Investment banking revenues held up better, but didn't compensate.

Unsurprisingly, hiring at Jefferies has now slowed.

"When we do see a situation where there's the right person, we will continue to add," said CEO Richard Handler in Jefferies' results call yesterday. "But we're going to make sure we do it in the mindset of having a relatively tough operating environment out there so that we'll be very prudent.

"The good news is a lot of people want to come work here - more so than ever. They want to come on reasonable terms more so than ever, and we can be more selective," Handler added.

Indications of over-payment

People wanting to join Jefferies on reasonable terms is good, because in the light of last quarter's revenue collapse it's starting to look like Jefferies might have got a little over-enthusiastic about hiring. The compensation ratio is stuck around 60%, compared to 35% for JPMorgan's investment bank. Only UBS comes close, with a compensation ratio of 59% in the second quarter.

Moreover, Jefferies seems to have stretched itself to buyout all its new hires.

Yesterday, Jefferies faced some tough questioning from K.C. Ambrecht, an analyst at investment management firm Millennium Partners about the $416m of deferred compensation on its books, of which $181m is restricted stock units and $235m is deferred cash. "This went from zero to $415m," Ambrecht pointed out. "This is over 2 years worth of net income depending on the periods you look at."

Peregrine Broadbent, Jefferies CFO, later admitted that almost all that $416m went to buying out the new hires Jefferies has made since 2009.

Rumours of apprehension

Are people really still bursting to work at Jefferies? Headhunters say the bank has a reputation for paying generously, but there are concerns about the sustainability of this. The bank is alleged to have increased its salaries in line with larger competitors and to pay bonuses on a commission-like structure whereby individuals receive around 20% of the net income they generate.

"There's concern that they won't be able to find revenues in this market and a view that they've over-hired in Europe and that it will damage their commission structure," says one fixed income headhunter.

Jefferies did not return a request for comment.

One senior Jefferies banker in London told us he's not receiving lots of CVs from people who want to work there for less money than previously. "But we're not desperately hiring either," he added.

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