Jefferies Financial Group Inc. (JEF) Earnings Call Transcript

I'm Rich Handler. Welcome to Jefferies 2022 Investor Day. I'm looking forward to having my partners explain what we've got going on here at this company. It's pretty exciting from my perspective. The world is a little upside down right now, whether it's inflation, higher interest rates, geopolitical, U.S. elections, COVID is not gone. I mean there are so many crosscurrents and the volatility is extreme. And well, plenty of time at the end for Q&A and just the environment. But I think I really want to explain to everyone from my short portion before everyone gets started with the slides, why I'm so excited about our company and why I'm so happy to be an investor in Jefferies. And it really comes down to 3 things. The first is we are truly an owner-operated company. We think like owners. We're consistent as owners. We're consistent as the management team. As an owner since 2017, literally 5 years ago, we've returned $5 billion to our shareholders in one way or another. It's pretty remarkable, and we'll go through the details on that. It is basically $3.6 billion share repurchases, $1 billion in cash dividends, $0.5 billion in-kind dividends and potentially another $0.5 billion when Vitesse happens. So that's literally 70%, including Vitesse of our tangible book value in 5 years has been returned to shareholders. That's a management team who acts in things like owners. Speaking selfishly, the way I look at it, I know the way my partner, Brian, looks at it, since we are not -- since we are large shareholders, this is a way of us to increase our ownership in the company and something we're very enthusiastic about. It's important to say -- to note that during this period of time in the last 5 years, our tangible book value has increased by -- from $7.6 billion to $8.4 billion after returning $5 billion worth of value to our shareholders. And I think that's a very big accomplishment that we're proud of. I'd also add, given the volatility in the world, as owners, we are accountable for our balance sheet to be transparent, to watch our risk, and to basically be stewards of the capital for all constituencies. So as we're returning capital to our shareholders, we are paying attention to our bondholders. We're making sure we have enough capital for our clients to facilitate their business and we're trying to balance all that in a very methodical long-term way. The second reason why I'm excited about being a shareholder of our company, we -- I don't think people really understood it at first, but now it's been 10 years since the merger. But we are committed to create long-term value by simplifying our company. It was 10 years ago when the merger started. We -- at the time, the world was also pretty crazy, and we wanted to figure out a way to create a moat around our financial services company without becoming a bank holding company, without getting bailed out by the government, without taxpayer funds. We wanted to do something smart that allowed us to protect our company and continue to build it. And that was the birth of the Leucadia-Jefferies merger. Since that time, we have very -- we spent the first 5 years making sure we understood all the assets, getting some of the assets in the right spot. But in the last 5 years, we've been monetizing very, very aggressively, basically, 10 noncore assets were disposed off, $4.25 billion worth of proceeds, booking $2 billion worth of gains. And we're not 100% done yet with our simplification, but we're -- we're getting pretty darn close. And it's pretty clear that Jefferies is the dog and the merchant bank is a tail at this point in time. And we still see value in our remaining portfolio companies but you can really see Jefferies emerging very clearly as the successor of this company. Our goal is to make this a very straightforward, very understandable pure-play investment banking, growing asset management company on a global basis. That is what we want to be, that's where we are today, and there's a lot of room for growth and improvement. So the third reason why I'm so excited is the progress that we've made, and you'll hear a lot about that today in our core business at Jefferies. What makes our business so unique today? First and foremost, we have a real culture. And I think you're seeing some of our competitors and you see fits and starts that happen in our industry, we are consistent. We are honest, we're transparent. We're consistent with our clients, with our people, with all of our stakeholders. We prioritize our people, we work on training our people. We work on making sure that they have long careers. We have very enviable turnover as an organization. And we're also very good at bringing people in from the outside and doing it the right way and doing it on terms that make them partners. We have a culture that allows them to be accepted and excel. We've done a really good job in my opinion of bringing in superstars from around the street and integrating them really well with the partners that we have at Jefferies. I think part of the reason of that is we have a very consistent leadership team. We have a very consistent strategy. We're not constantly trying to pivot. We're not going through every year trying to figure out what our new plan is going to be. We know what we want to be. I said it before but I want to remind everybody again, we prioritize having a simple balance sheet. You can go through our balance sheet, you could understand what our tangible book value really is. You could understand what our liabilities truly are. You could see how we finance ourselves. You could see the securities and the businesses that we're in, and you can see the ones that we've avoided. Our geographic footprint has been growing incredibly well. The Jefferies story is going through Europe, through Asia, Middle East, potentially down South America one day in a much more meaningful manner. We have a footprint and a plan and a strategy that's integrated, is cohesive. It leverages off of our core competencies, but it brings local expertise and relationships around the globe. I'd say our brand and our stature and our competitive position and our market share gains, they all speak for themselves. I think that goes back to our culture and our consistent strategy. And quite frankly, during good times and bad, and I think this is really important, we've positioned the company to have a very, very reasonable, attractive ROE in good times. But I think more importantly, in times like today when the world has closed some of our biggest businesses like leveraged finance or equity transactions, we're basically providing a very fair, very reasonable ROE at the bottom -- what we hope will be a bottom of the cycle. And that's a big change for us as an organization that took a lot of time and effort, rightsizing our capital, rightsizing our businesses, prioritizing the right businesses, creating the right cost structure, getting the right scale. And so from our perspective, the plan going forward is just to build upon the platform that we've spent -- me 3 decades, Brian 2, the rest of our team 1 plus. We've been doing this a long time. And it's finally at the point where we know it's getting easier as opposed to harder, not that the world is so easy, but it's getting easier for us. I would just close in saying we're always going to be mindful of risk. We're always going to be humble in our organization. We're always going to prioritize our clients, and the most interesting thing to me, we don't go out, we're not out promoting our stock. We're not out there on TV saying how great our earnings are, or things like that. We tend to just let the results speak for themselves. But the fact of the matter, we have this amazing company that's emerged from our Hold Co. We have a great competitive position. We're one of the most important investment banks on the planet right now. And with all that, our stock still trades below tangible book value, and that gives us a good opportunity to continue to buy in our shares, appropriately balance with risk, and do it in a manner that's highly accretive for all of us. All those 3 reasons are why I'm excited about being here today. So thank you for listening. I'll hand over to my partner, Brian.

Thanks, Rich. I think I was supposed to push a button. It's worth spending a minute understanding what we are. When you look at Jefferies, one of our great advantages competitively is that not only that we know what we want to do, but we actually get to do it. So what's differentiated us, I believe, with our clients is that our focus is 100% to them, and we understand who our client base is. It's the most significant and smartest investors in the world, and it's the meaningful growing and changing investors, owners and managers of businesses and, to some degree, governments around the world. We're not consumer-focused. We're institutionally focused, we're corporately focused, and we've structured our business so that as close to 100% of the energy and capability of Jefferies goes to the clients. The second aspect of that is that we wake up in the morning knowing that our distinction is in our intellectual capital. We don't lead with our financial capital. We lead with our ideas, we lead with our insights. And in every encounter that we have with our clients, I believe, I hope, we hope, we believe that our goal is to differentiate ourselves, I call it the lightbulb moment -- that a client should have a lightbulb moment when they're with Jefferies, that we have information from the marketplace about what's trading, we have information in sectors as to what's happening, we have information from our geographic reach around the world that enlightens them, a light bulb goes on, and it leads to a relationship and it leads to activity that drives our results. And the third part of our culture is that we are relatively flat. I sometimes say to people that the challenge of this is how many promotions you can get because we don't have 9 layers to get through. But the positive side is that when a decision is needed, it gets made and whoever -- you're going to see the leaders of the firm today in presenting on each of the respective businesses, these are the people that are involved in a lot of decisions. And it's not unusual for -- of the 6, 7, 8 people you're going to see today -- it's not unusual for 2 or 3 of us to be on a phone call at 9:00 a.m. on a Saturday morning, deciding whether we will or we won't make a commitment to a client and clients appreciate that because they're talking to real people, they get a real answer and we move on together. So putting all of these capabilities together, it wraps up into our culture, and it wraps up into the client experience. Rich covered most of this, which is what are we trying to do? And I'm going to flip a slide that kind of gives you tangible evidence of each of these. But we are clearly driving ROTE as the ultimate scorecard. We are clearly growing our business with Investment Banking being our largest opportunity. It has been for the last many years, and it will be, I believe, for many years to come. We're investing in ourselves. We have strategic partnerships we're going to talk about that are very meaningful for us, and we're doing this while being incredibly careful on a risk level, capital level, balance sheet level. The proof is in the pudding. If you take the increase in tangible book value and the dividends and distributions that we deliver to shareholders over these last 5 plus years, we compounded at 14%. Given the world, given the environment, that's pretty good. Rich really covered this, but it's worth just pausing for 1 minute to see the rate at which we've been able to drive our dividend, which obviously drives off our earnings growth and our free cash flow. And One of the big obvious points is that virtually all of our net income is free cash flow. We don't have machines. We don't have a whole lot of leasehold or buildings. So virtually everything we generate is capital -- free capital that either gets applied to the business to drive growth or is available to be returned to shareholders and you see this graphical and it's obviously something we committed to a while ago, and we've delivered on and we're not done. Speaking of not being done, we most recently sold Idaho Timber and that was recorded in the third quarter for a meaningful gain. We've announced the spin-off of the test, which we hope to complete before year-end, and that's about $500 million of book value. We're obviously going to be merging the holding company and the operating holding company. The result of that will be some operating savings as well as just a simplification of structure. We're not done. As I think everyone knows, we still have well over $1 billion of Merchant Banking denominated assets. We believe, consistent with the path that we have gains inherent in them in excess of our cost or value in excess of our costs, which will lead to further gains and we're focused on realizing that. I think each time we stand up here each year, we try to use words that connote that the end is nearer. I will simply say the end is yet nearer. We've never tried to put a time line. We don't want to be a forced seller. We don't want to disappoint, but we're clearly in the very late part of the ball game. This is just something that basically says what we're doing is working, okay? You're still going to ride the cycle of activity in the world. We can't overcome that. What we can do is grow market share through it. So even as markets get a little tighter, we can get a better result than the average. This shows you us against a number of our major competitors and somewhere in the back there's a list of those names. It would be the 9 or 10 large competitors that we've had over the years, we've meaningfully outperformed in our growth. Probably what's most significant here, and it's something I think we've been a little more transparent about is the rate of growth in our Investment Banking MD count. The fact that these last couple of years have yielded this kind of growth is really the product of 2 ideas. One of them is that about 5, 6 years ago, we decided that in order to long-term sustain both our growth and frankly, the health of our firm, we needed to double or triple down on internal development of our team. And we've built a meaningful training program around it. We started at the level below Managing Director, then we moved all the way back down, and then we were done, we came back to the Managing Directors because what was key to us is that in time, we believe that the competitor set would narrow. And therefore, the lateral opportunity would narrow. Now with hindsight, what we didn't know is that a couple of our larger competitors would do things to enhance our lateral opportunity. So hence, these numbers are different. If you had asked me 5 years ago, I would have said, "Boy, it would be terrific if we could promote 50 MDs, and if we're fortunate to find 20 laterally, that would be outstanding." As it turned out, we found 70 laterally and we promoted 51. So check on our decision to drive internal development and growth and grow our own, which is something that we're now doing at an industrial level and can continue to do, hopefully forever. But these last couple of years, and everyone, I think, knows what I'm referring to. What I'm referring to, there was more dislocation than we might have expected and we were the beneficiary of that with the lateral opportunity. So that's an important element because there is a level of productivity that we've achieved in our investment bank. We can definitely keep driving it a bit, but we also have a meaningful amount of white space opportunity. Chris will go into this when he talks about Investment Banking in more detail and whether it is inside of sectors, subsectors that we don't yet penetrate sufficiently or don't even have the capability to penetrate yet or regions of the world where we are still meaningfully young in our gestation. We have a lot of upside in our Investment Bank. It will be driven by continued growth in our MD count. There's also a fair amount of realization to the extent that there's 120 people that are new in the last less than 3 years. That's still a fair number of people that are yet to mature on our platform, and we think that benefit will come through next year and the year after. We talk a lot about investment banking. You can see the growth there, but at the same time, our Equities business particularly has grown, our corporate credit business has developed incredibly well. You'll hear more about that from Pete and Fred. And you will also hear from Sol and Nick about what we're accomplishing in what is still a very young alternative asset management business. All I really, really want to talk about is what's in that top box on the left side of the slide. For the first time, and unfortunately it may not be permanent, but we'll get there and make it permanent. For the quarter ended August 31, so our third quarter using Dealogic, which is the -- we think, the best database for measuring activity, we were the #5 firm in the world in M&A, ECM and leveraged finance, which is our addressable market. So if anyone wants to wonder what are we leaving out, other people might add into that the investment-grade bond business. We're not in the investment-grade bond business on an origination basis in any meaningful way. We are not a revolver providing firm, which is where most of that business ties to. So when you look at our addressable market, and again, Chris will get into much more detail by sub business and where we've come from over time. Again, that #5 position, it's #6, if you measure it for the first 9 months. I would argue that's a trend. In other words, that tells you that we're probably passing somebody. Having said that, kind of like on the highway, sometimes you're ahead, sometimes they're ahead. So in the next quarter or two, we could be 6 or 7 for an hour. That doesn't, to me, mean anything. What matters is the direction of travel. We believe that we have a real shot to be one of the 5 most significant firms in the world. And what we do, as we'll get into some of the detail in a lot of the businesses we're in and for most of our clients, we are well inside that number. That is a big deal. Apropos Rich's discussion about why should someone own a Jefferies' share and what special and what have we changed over these last 10 and 20 years, this firm is substantially fee driven, whether it be Investment Banking fees, whether it be commissions for relatively riskless or totally riskless trades. The bulk of what we generate is generated without putting our capital at risk. You wouldn't necessarily be able to achieve it without capital, but the return on risk, we think at Jefferies is exceptional. There's a history where the world has clearly paid a premium for less risky revenue and more certain cash flow. We think we're driving Jefferies in that direction, and we like to believe that the world will recognize it. I talked before about talent development. Talent development is a massive priority for us and something we will continue to enhance. At the same time -- and we've talked about this for the last number of years, we have invested meaningfully for the last 5-plus years in a firm-wide digitalization project that goes all the way to the mobility and to the desktops of every one of our employees. We've been recognized for exceptional performance through the pandemic period, and that's because we prepared our technology for remote on a schedule that probably was ahead of most, but technology is integrated into our business in a meaningfully greater way than ever. You'll hear particularly from equities and fixed income of where that fits. And finally, every aspect of ESG from leading with thoughts and insight for our clients to our own participation, we published our ESG report about 2, 3 months ago. It's lengthy because there's a lot that we've been doing, we think, worthy of everyone's consideration. Our partnerships are meaningful and fundamental. The newest of them is with SMBC and SMBC Nikko, and it's very early days that this was born in the midst of COVID. So we actually, I think, this week, have a couple of our people who are in Tokyo for the first time. I personally was able to return to Tokyo for the first time in 3 years in May. So our ability to actually execute this a combination of COVID just limiting our ability to be in rooms together and to be able to start to be with clients together. That is all just revving up this year. Similarly, we've had the benefit early on last year into early this year of the partnership in leveraged finance in a more tepid leverage finance environment. That's obviously quieter. But this partnership is growing. We're working on additional avenues for collaboration and mutual benefit, and this will be something that over the next several years, I think you'll see a lot of progress. Our Jefferies Finance JV, as Rich mentioned, this is very important to us. Leveraged finance has obviously been quiet over the last year. We took a little bit of markdown in the business. We absorbed it well within our earnings capability. But this is a very important partnership. And Chris will tell you a little bit about some of the strategies we have to expand the business into direct lending and fixed income asset management. At the same time, our Berkshire Hathaway partnership, Berkadia continues to be a leader in multifamily real estate finance as well as sale and purchase of multifamily properties. The business is performing at an exceptional level, and it's the asset class within real estate that probably has the best prospects to ride through the coming cycle. To summarize, and Rich said this very well, which is we've been delivering despite 2 meaningful businesses being all but shut down for the last 6 to 12 months, which is our leveraged finance and ECM businesses that are fundamental to us, yet we're delivering reasonable results. There's no doubt that we're growing our market position and our presence in the market, while at the same time, we are, we think, hurdling toward either this year or next year being the last time that we talk about anything other than the core business. And as Rich said, and I'll end where he began, we believe we are very much not just a focused firm, but a firm that is focused on delivering for our shareholders, and hopefully, you'll agree with us. Before I turn it over to Matt Larson, I want to single out and we did this, I don't know, I guess, about 3, 4 months ago in a press release, but we've been unusually blessed for this last almost 10 years -- as a public company, you hope to have one great CFO. We've actually had the benefit of having two. And we actually had enough for two to do as we have the complexity of two public companies and two filings -- I should say two SEC filing companies, two sets of reports and everything else. Teri Gendron has been the CFO of Jefferies Financial Group, has done a beyond exemplary job, brings amazing talent. Right now, I'm doing an advertisement to help her find what she wants to do next. But after a lot of discussion, Teri made a decision and we very much wanted her to stay with us that she wanted to yet again be the CFO of a public company and we now look forward with her to her next move. Matt is broadening his remit, and we'll take on the entire operation. And so we've asked Matt to give you the update on the finance balance sheet and capital side. Matt Larson?

Great. Thank you, and thank you, Teri, as well. So most of you will have seen our Q3 financial results recently. So I don't spend really any time talking about that. Really just going to highlight a few financial metrics that sort of demonstrate the financial strengths. Anyway, I just want to highlight some financial metrics that kind of highlight the strength of the overall firm where we are and our ability to execute against the strategy and growth potential that Rich and Brian just talked about. I'll be fairly brief because the reality is the strategy has been so consistent. The business has been so consistent that most of where we are today is fairly consistent with what we've talked about in the past. In short, we have a very simple-to-understand balance sheet. We're very well capitalized with near record levels of durable, stable liquidity to support Jefferies' growth and evolution. Page 19 here show some of the key metrics that highlight our reality. We maintain a balance sheet that's aligned with the business objectives, our earnings and our capital base and it's positioned to be very flexible to allow us to pursue opportunities when they arise. We maintain low levels of Level 3 assets as a percentage of our inventory and we ensure our liquidity position is strong to navigate any market environments that we encounter. We've talked about taking our business to a higher level of base performance. We discussed last year at our Investor Day how important durability of market position and revenues was, and it was an important objective for us, and this year, while challenging, has demonstrated that. You see our strategy playing out in all relevant metrics with net revenues, particularly Investment Banking, showing significant sustained growth. Our capital markets revenues have been resilient against a very challenging market backdrop in the current year, and we're still achieving meaningfully higher levels of operating performance than just a few years ago. All of that culminates in strong profitability and earnings and operating margin. You can see here that our tangible equity base has increased by approximately 10% since 2019 yet our ROTE has more than doubled in that time. 2021 has obviously been a -- was obviously a standout year, and we're progressively working toward our capital of delivering a consistent double-digit ROTE over time. In terms of tangible equity, and Rich and Brian both highlighted this, we manage across a variety of factors and constraints, make decisions about our capital policy accordingly. We consider regulatory requirements, rating agency perspectives and also our own assessment of capital adequacy a multitude of stress scenarios. The mix of those elements evolve over time due to a variety of business and other factors. Given the significant earnings that we had in 2021, we had significant excess liquidity coming into the current year. And you can see how some of that's been returned to shareholders and led to a slight reduction in our equity base from year-end last year to the end of our third quarter, and you see that slight drop in our tangible equity. You can see here some of the spot metrics I highlighted a few minutes ago and how they've looked -- I'm sorry, you can also see how some of the spot metrics have evolved over time since 2020 -- since 2019, demonstrating our consistency of management and strategy. Maintaining a stable and diversified funding profile is critically important in this kind of business. Page 23 here, it shows some of the important metrics that are worth highlighting. Our average maturity of unsecured long-term debt is approximately 10 years, our global liquidity pool is over 20% of our tangible assets, and we continue to maintain a strong funding tenor with over 240 days of average tenor on our non-CCP eligible assets. And finally, we have a larger, broader base of funding counterparties than we've ever had. From a cost standpoint, we've always maintained a very cost-aware culture to maintain -- ensure that our expense base is aligned with our business objectives. For the past few years, we've been growing in all of our businesses, really, and it's come to the need to invest much of that in technology and data to ensure that the products and services we deliver to our employees and our clients is current and resilient. We've updated our infrastructure to best protect against cyber security risks to ensure effective capabilities for a larger and more mobile employee base, to comply with the latest regulatory expectations in the jurisdictions in which we operate and to streamline front office systems so we can effectively and efficiently provide our clients with the products and services that they need. You can also see in the chart that approximately 42% of our non-comp related costs on a year-to-date basis are in this area. Our transaction and client-related costs are largely made up of brokerage and clearing related costs, deal-related fees for our banking business and business development costs such as travel, entertainment, those sorts of things, hosted conferences. And as you would expect, those costs, we expect would increase over time as we continue to grow our businesses and as we return to sort of pre-COVID levels of hosted travel -- or hosted conferences and travel. And with that, I'll turn it over to Chris.

Thank you, Matt, and good morning. Over the next few minutes, I'll take you through a relatively brief overview of Investment Banking to give you an idea of where we're at today, which is really a great place. In spite of pretty difficult markets, as both Rich and Brian alluded to, we're -- we feel really good about where we are, and we're really looking forward to the future. We're going to start with -- we'll start with the map. So we're global. And you're going to hear that over and over again. It's very important to our strategy, and we see great opportunity to expand the business through expanding -- further expanding ourselves globally and in the U.S. This is a picture of our global Investment Banking footprint. Today, we're one of the top full-service investment banking firms in the world with a strong market position and broad opportunity for further meaningful growth. We operate globally with 1,400 investment bankers, and we're in 3 regions: The U.S., EMEA and Asia Pacific is how we think about it, with 2/3 of our bankers being in the U.S. and 1/3 located in Europe and in Asia. Each of these regions, they have unique opportunities for growth and unique strategies, and I'll explain more about those as we go into the presentation. In 2023, we already have on the books of planned expansion into Dubai, Melbourne and Tel Aviv. This slide shows our revenue over the past 5 years. It's broken down by each of our major products. You can see that we've experienced significant growth since -- really since 2019. This has been led primarily by our M&A and ECM practices. In 2022, our business overall, we've been happy with our performance. I think we've really done exceedingly well. This will be -- it should be our second best year ever. And for years now, as Brian mentioned, we have been investing relentlessly in our people. It is a key element of our growth strategy. If you think about it, it takes 10 to 12 years to develop a person. Our business is an apprentice business. And it is -- if we can't develop our people, then shame on us. I think we've done a really good job of that, and that is starting to show up in the numbers, which you saw on the previous slide with Brian. We had 51 internal promotions last year -- or the last -- since 2019 to Managing Director and 70 new hires. And that's resulted in a 40% increase in our MD headcount. As Brian mentioned, it takes time. We actually track it for people to kind of come online, but they tend to ramp up over a 12- to 24-month period. And so with these -- this 40% increase in our MDs over the last 3 years, we see -- we will see the benefits of a ramp, both next year and beyond. Starting to get into some stuff that we're pretty excited about, which is our market share, which is basically increased every year since we've been here, depending on when you got here. It basically increases every year. It's almost tripled since 2010, both our revenue and our market share. This has largely occurred as we've deepened our sector and geographic coverages and we've expanded our products. Today, we serve clients in every region of the world and offer them a complete set of investment banking services. And we think we're unique and the way we're organized, as Brian mentioned about meeting on Saturday mornings that could be a meeting with me, that could be a meeting with Rich, that could be with Brian, and maybe it's not Saturday morning, it might be 11:00 on Friday night, but it enables us to deliver the entire firm literally to every transaction, no matter the size or the geography. This slide shows our competitive ranking. We are extremely proud of where we've gotten our business. And you can see on this slide, it says where we were, it shows off to the right. In 2017, we were ranked 10th. Being in the top 10 is a big deal. When you look above the competition above us, you look at below us, I mean there's really just nobody really standing in our way and we're truly are unique today. So we ranked globally 6 for the first 9 months of 2022. And as Brian mentioned, it was the third quarter we went up, we ranked fifth in the third quarter. The strength of our firm, it's further evidenced by the strength of each of our products. So we're not any one thing in particular. It's a composite of multiple things. Probably our strongest product, M&A, we ranked sixth. We're going to have our second best year in M&A. Our revenue will exceed $1 billion, extremely proud of that in this market, particularly. We are an absolute force in advising companies in the sale of their businesses. Larger deals every year, our deal -- our average deal size gets larger. Larger deals represent the majority of our business today. Sell-side business represents the majority of our business, it's 70% to 80%. 75% of our transactions exceed $500 million and 30% of our transactions are international, global. So we believe we're well positioned in the M&A market to continue to take share. Our ECM business over the last few years has just been a rocket ship. I mean we've gone from what was a small business to a large business and a business that is really meaningful and has a great opportunity to raise capital for businesses. Today, we rank sixth. Going back to 2017, you can see we rank 13th. When you're 13th in the equity business, it's a pretty tough slog, honestly. When you're in the top 10, you're in the game. You get invited to a lot of pitches. You win more pitches, you get better splits in those pitches. You have an opportunity to really be meaningful with this product. So our market position in this product has strengthened and it's continuing to strengthen. And we're really seeing it -- we're actually seeing it this year and which is just a brutal market, as most of you know. We've been active book runner in 90% of our deals. Year-to-date, we ranked #1 in U.S. book-run follow-on offerings with 44 transactions. And we're also #1 in Europe as a global coordinator. Away from kind of the public markets, we have successful strategies in equity with private placements, with ATMs, with derivatives, and this allows us to continue to serve clients in the most difficult market conditions. I'm going to talk about our financial sponsor franchise. This is a -- it's a unique business opportunity for us and we're in a unique position. We're one of the few firms that has everything that a sponsor needs. We can sell a business, we can help them buy a business, we can finance the business. We can do staples for the business. We can advise them on continuation funds. We can do everything, and we can help them in restructuring. We're one of the few firms that has all these products. We have a top 5 overall financial sponsor franchise, as you can see on this slide. And in the U.S., in U.S. M&A, we're #3. We sell more businesses for private equity firms in the U.S. than other firms -- any other firm. And this is actually -- being meaningful in the sponsored area is important because the sponsor fee business is growing much more rapidly than other -- than the rest of the people in the market. Globally, we cover over 650 private equity firms as well as 100 private investors, family offices, sovereign wealth funds and alternative investors -- we're trying to be everywhere. We believe our coverage is the most extensive in the world. I'll talk a little bit about Jefferies Finance. It was 17 years ago, we started this business. It's been highly successful. It's a leveraged lending business as most of you know. It's demonstrated growth and resilience across multiple business cycles. And the success is now being leveraged into a direct lending business, which has significant momentum and evidence of that is we recently raised $2.5 billion of third-party capital against a sizable backlog of opportunities. Year-to-date activity with the direct lending business is that we've done 75 transactions with nearly 50 distinct private equity firms. The fair is fair, we'll show you the results. As you can see here, the headwinds has negatively impacted Jefferies Finance's financial performance in this year. Despite these challenges, our balance sheet and capital base remains strong. Historically, the business has shown great resilience and performance immediately recovering from economic disruptions, and we expect that to be the case when things calm down. And then finally, I'm going to take you through kind of what our strategy is in investment bank, which is pretty simple and straightforward. It's a strategy we've been executing for last number of years, probably 10 globally. We're going to continue to expand our reach, continue to build and monetize our brand. In the Americas, we will continue to do targeted hiring and we're going to work to develop our next generation of managing directors and leaders. In Europe, we'll get deeper in each of the countries that we currently operate and monetize our existing footprint. And in Asia Pacific, we're going to kind of continue to grow incrementally and further develop our global banking platform. In conclusion, our position has never been better. Our brand has never been stronger. And the breadth of our business has never been wider. We feel extremely well positioned to grow the business and continue to increase our market share. With that, I'll turn it over to Pete, Global Head of Equities.

Thanks, Chris. Good morning, everyone, and thank you for coming. I'm Pete Forlenza, and I run the equity franchise here at Jefferies. What I'd like to do this morning is take you through what is truly a global equity business in the industry. But the global equity franchise at Jefferies is built on 3 pillars that align to our overall investment banking and capital market strategy. Pillar #1 is value-add and insight analysis that's driven by our equity -- global equity research team, our macro strategists, which are quite insightful in this market as well as an ESG team that we're very proud of. So it's insight and analysis research, pillar #1. Pillar #2, we have differentiated distribution that supports both our investor and issuer clients. And if you go and look back to the slide that Chris showed with the gains in our equity capital markets business, part of that is we candidly touch more investors. We believe that we have the most senior and largest equity sales force in the industry. We bring research to the investor clients, and we're connecting our investor clients with our issuer clients. We believe we're doing it consistently very well. That's pillar #2. Pillar #3, we have a client-focused global trading platform. The backbone of which is the convergence of both our high-touch trading and sourcing of liquidity in the traditional means, phones and Bloombergs combined with, we believe, a market-leading algorithmic trading platform. When you put those together in volatile markets, what we're seeing is that clients are candidly leaning on us more and you'll see it reflective in our market shares I'm going to show you. So what you'll see here is a reflection of really growth momentum that we've had over the last 12 years. And you can see both in market share and revenues, how it's gained. But I'll point out really the step change that we've had over the last 4 or 5 years as we've aligned this strategy, these three pillars with our overall capital markets and investment banking strategy. We are becoming -- we have become a very trusted partner to the biggest investors and issuers around the globe. Let's give a little bit more detail on that. You can see over the last 5 years that I referenced that globally, our shares have grown dramatically from overall 155 basis points of growth. But I'll highlight -- if you thought we had a mature business in the U.S., yes, it was mature, but we still had so much market share opportunity to gain and we've been gaining it. And now we've taken these three pillars and that model and we've gone global with it. And you'll see, and I'll make this statement a couple of times, the market we believe is only going to have somewhere between eight and 10 truly global players. We are one now. And you can see that there is still market share for us to gain. And if you look at Europe and the U.S., you can see they're very close to each other. Asia, which we've been investing in for about 12 years and then meaningfully in the last three or four years, you can see the trend that we're on. I just want to point out a couple of things that might not be intuitive in our market share gains on this page. The first one, you'll see that we're #1 ranked according to the Asia Money survey in both Japan and India and advisory. And that's a combination of sales and research, again, back to those pillars of insight and distribution. Jefferies is the #1 ranked international firm in both Japan and India. I would also go and highlight, again, you can see our high and low touch rankings, how they continue to grow, and that's that leaning in that I referenced that you were seeing. Lastly, you'll see global advisory payments. It was just a few years ago, I was at this meeting asking questions around the enactment of the MiFID regulations and what that was going to do to research globally. And there was a tremendous amount of scrutiny on what that would mean for research. What we have seen for Jefferies, we've continued to invest in research, that's point one. Two, we're getting paid for it, both in advisory payments which are MiFID payment checks while at the same time, growing trading share. So you can see that, if anything, MiFID has given us an opportunity as others have stepped away from research, and again, back to our pillars. This one speaks to really our client breadth, if you will. I said that we still had opportunities in front of us. We've had them for the last 5, 12 years, and we're going to have them going forward. You can see just the number of active clients and clients we're engaging with globally has grown significantly over the last few years. You can see on the right side of the page, that not only are we growing the breadth of clients we're touching, and again, I referenced that differentiated distribution that we believe we have a larger and more senior sales force. You can see there's also depth. So we've become a top 3 ranked partner for more clients. And again, if you step back and you think about, again, that alignment with our overall investment banking franchise, why that's important. I mentioned research, and you can see that here, we're covering more stocks globally. This is according to StarMine in mid-cap than anyone else in the industry. We believe that, that was an underserved opportunity for our investor clients. And again, this does align with our overall strategy. It's, again, not just breadth, its depth and the value of that research. We're proud of our rankings. I will say in the U.S., I just got a preview of this year's II rankings. It's embargoed. All I'll tell you is that it's better than #8. So again, continued momentum with that part of the strategy. The most exciting part of all this for me is the opportunity in front of us. We continue to be the way I would phrase it, and I phrase it every year, be invited in by clients. Clients are asking us to do what we've done for them. First, it started in the U.S., then it went to Europe, then Asia. Now we're being invited into other markets and other products. What does that mean? For example, Rich referenced that we're moving into the Middle East. That was driven by large institutional investors coming to us and saying, we'd love it if you were there in a more meaningful way. So there is a bigger opportunity in front of us, both geographically and from a product perspective. So we're going to continue to grow our existing businesses and continue to get more global. And as we do this, what you're going to see is we have a larger total addressable market, or TAM. So if you look at these bubbles here, you'll see that currently in our core businesses, the size of the market we've been playing in, and you can see our market shares have grown. Now, and again, being invited in largely by our clients, we're taking that on a more global basis, but we also, importantly, from a product perspective, have increased opportunity. For example, prime brokerage and swaps which we will target, what fits for us. We will not be everything to everyone, but we're being asked by partners to become more meaningful for them. Derivatives -- we've now -- we're building a derivative business in Europe to support our investment banking franchise. Again, targeted to what Jefferies can be, should be, where it aligns with our overall strategy. So you can see we've grown share in our core businesses, but yet we still have share gains that are available to us that are meaningful in businesses that we will target that are aligned with our overall strategy. So with that, I'll turn it over to my friend, Fred Orlan.

Thanks very much, Pete. Good morning, everyone. So while our fixed income results over the last 2 quarters were more modest and held back by the markdowns associated with the significant interest rate transition occurring in the markets that Rich mentioned in his opening remarks, we are pleased with the continued progress we are achieving in building long-term client partnerships and employing smart, disciplined resource utilization to deliver consistent and accretive returns to all of our stakeholders. We're very excited and confident about our future and in the durability of our franchise, given the following: our position as a top 10 global credit trading franchise that works synergistically with our leading leveraged finance investment banking platform, we're built around delivering differentiated insight and supported by exceptional high touch and a growing low-touch execution capability globally that enables us to realize a higher quality share of the business with our clients, which helps enhance our client partnerships and employs a culture of discipline that we've been emphasizing for many years and have outlined previously in these presentations with respect to risk, capital and cost to optimize our returns across changing market environments. So just looking at our results, we would have hoped that even with the very challenging environment across the fixed income markets that our revenues would have been stronger in the last 2 quarters. As mentioned in our press releases, we've had some markdowns in our mortgage inventory associated with the dramatic realignment of global interest rates. Despite these challenges, we performed well in many of our businesses as we continue to progress our capabilities across our global credit franchise, which we'll talk more about on the next 3 slides. While our 9-month annualized results are running at 28% below our average of 2019 to 2021, they are 42% above the average of the 2015 to 2018 time frame. And given the reduced opportunity set in the market, we've significantly reduced our risk with our average stress loss thus far in 2022, running at 21% below that of 2021, as the opportunity to drive revenues with more inventory is not productive in this environment. And as a result, we're running our balance sheet and capital and risk really at the minimum level needed to service our clients and facilitate trading flows. So turning to the next page. You can see the growth in our credit trading franchise, which is now operating at almost 2.5x the rate of the 2015 to 2018 time period, and is largely unchanged versus the average of the last 3 years despite the challenging market conditions that we faced thus far in 2022. This growth, which includes the businesses listed here on the right are the result of the quality of our people, the relentless focus on our clients and our expansion of our business in Europe, which has added more diversity and durability to our business. The hard work we have put in over the years, building the depth and breadth of our franchise will lead to significantly better results when the market environment becomes more advantageous. But for right now, we're focused on continually improving our business every day to make the most of every environment that we face. On the next page -- on the next page, we highlighted some examples of the strength of our client footprint. We're leveraging our relationships by expanding them into multiple businesses, as you can see here, the businesses -- I just lost my place here for a second -- the businesses that we now have -- sorry, -- so in the first column, you can see we're leveraging the growth of our businesses across the platform that we define here as operating in 7 or more of our businesses, and this has doubled over the past 6 years. Additionally, over the same time period, we increased our penetration of the top 100 clients, which have the largest wallet opportunities. And as you can see from the second column, we've more than doubled our revenues that we get from this very important account base. And on the right-hand side, we continue to demonstrate improvement in the quality of the service that we provide as measured by Greenwich Coalition, thus leading to a higher quality share with our clients. So turning to Page 47. You can see here that we have significantly expanded our market footprint over the past 6 years, which is driving momentum across our business. And just as a footnote, all the data on this slide, other than the eTrading, Municipals and CLO rankings come from Greenwich Coalition. On the left-hand side of the slide and in the Muni box on the bottom right, you can see the significant improvements that we have made in the market share we have earned from our clients, which are very meaningful. And on the right-hand side of the slide, we drill down further on the quality share rankings, which again shows our relentless commitment to providing the highest quality of service across sales, research, capital markets and trading, which has been recognized by our clients across many of our businesses. And as a result of this, and now we're looking at the middle column, in the U.S. credit markets, we've expanded our relationships with the core most active clients that rank Jefferies as one of their most important counterparties by 20%. And this is very significant as these clients also provide us with the most important market intelligence, which leads to better management of our risk and balance sheet. Additionally, they also expect to do more business with us as we are cited in the survey as having the third highest business momentum in U.S. core credit. In European credit trading, we see a very similar positive story. We have increased the number of clients signing a relationship with us by 75% and have the #1 most positive business momentum there for the second year in a row. Also, the improvements in our leverage credit trading business shown here such as Par loans, High Yield and Distressed are also consistent with the market share we have taken in our investment banking franchise, specifically with the private equity sponsors that Chris mentioned in his presentation. They're not only important investment banking clients, but are also significant fixed income clients given the rapid growth in their asset management divisions and their acquisitions of insurance company portfolios over the last few years. We also see the same pattern developing in our municipal bond trading business. We picked up significant market share as we've aligned our trading focus to take advantage of our increased Municipal Finance origination business, which sits in investment banking. And as a result, we've grown our market share by 450 basis points in the 1- to 10-year maturities, that's year-over-year, and we now hold 11% market share there, and not on the slide, our market share in 10 years and longer was also an increase of 150 basis points year-over-year. And this is all according to the Fed data statistics. And lastly, our investment in low-touch eTrading has translated into significant market share relevance with a top 3 ranking in the markets that we have employed this capability in and is a big part of our growth strategy going forward. So turning to our strategic priorities. Our future success is grounded in the quality of our people and the distinctive culture which we leverage every day to drive the momentum of our fixed income business. It's partnering with clients, which requires a team mindset and the sharing of relevant information across all of our businesses to help identify opportunities for our clients and manage risk holistically across fixed income. The ability to do this effectively is a function of our flat and nimble structure that Rich and Brian referenced earlier. It's also about delivering all of the resources of the firm to provide differentiated insight. And when we do this well, our clients trust us with their most important trades. And as I referenced before, we think of this as driving quality share over simple market share because these are usually higher-margin situations and lead to repeat business. And our ability to accomplish this is enhanced by our ability to deliver a differentiated combination of a low-touch e-trading and high-touch voice coverage. We're very excited about the progress that we've made using technology and data science to deliver e-trading -- to deliver a leading e-trading platform in our high-yield business, and we're in the process of rolling this out to other businesses across our platform. And as we talked about earlier, we're aligning our businesses globally and are leveraging the success of our U.S. business abroad, especially in Europe. And while we have achieved quite a lot in Europe already, our opportunity there is still much greater, as we saw in the previous slide, we have the most positive business momentum amongst the competition in credit trading. As always, we remain committed to discipline around risk-taking and the efficient utilization of our resources and the productivity of our balance sheet. We always focus on keeping the balance sheet fresh, liquid and turning over quickly with relevant inventory that is sized appropriately for the given environment. So just to wrap up, we're very excited about the progress that we have made and strengthening our platform globally with meaningful increases in the market shares that we have achieved, and we think this positions us well to drive greater returns over the cycle for our stakeholders in the future. Thank you very much, and I'll turn it over to Nick.

Thank you, Fred. I'm Nick Daraviras. My partner Sol Kumin and I will be giving you an update on the asset management business. We are running an alternative asset management platform. This is -- incorporates hedge funds, credit funds. We have commodities managers. We have multi-managers, multi-strats. So it is all in active management, all in alternative products. This is a diversified offering. This allows us to speak with investors about many different types of products that they're looking for, for their portfolios and how to be constructive and how they think about diversifying their risks and returns. We have a very flexible model aside from offering these different types of products. We also work with managers in different types of ways so that we can be a preferred partner for high-quality managers. We do this through certain managers, join our firm as employees and run divisions for us, certain managers, we have entered into joint ventures with. At times, we provide seed capital or acceleration capital or some other strategic capital to a manager who is looking to launch a business or need some sort of seed to get going and in exchange we receive a revenue share in their business. I think it's important to note that given this model, we're actually not purchasing GP stakes. This is very different than many others in the industry. We don't pay enterprise value for anything that -- for any of the businesses that which we partner with. We're not competing with the players in that marketplace. What we're doing is being a strategic partner to very high-quality managers. And I think the other thing that's important to mention is that our -- being a part of Jefferies is a truly unique and strategic positioning for us. We have access to managers because of the reach and breadth of the firm that because of the teams that you've just heard about that we learn about people who are performing well. We get to know who's thinking about doing something different, who might need a partner. So we have a differentiated deal flow within our segment. And then we get to lean on the operations at times of the firm to be back office for some of our managers, so that we can provide them the infrastructure at very attractive cost as they think about growing their businesses. And lastly, we have a marketing team that we can support that reaches out on behalf of all of our managers and helps raise third-party capital for them. And again, the relationships there that we are supporting and raising capital from are relationships the firm has broadly, so that there is a synergistic sort of loop where we become closer with those investors and the firm becomes closer with those investors. If we look at the growth in the business, I think the best way to measure this is the increase in assets under management over time. You can see this on this chart. We've both been growing AUM through organic fundraising, through adding managers and through our managers continuing to compound the assets that they have. So we've benefited from growth across the platform. And I think what we're focused on with this growth in assets is the growth in the management fees. That is clearly the most stable part of an asset management business. And on the next slide, we'll discuss a little more how that management fee stream has continued to grow. But as is shown here in one of the bullets, that piece continues to grow for us despite the difficult environment. And I think what is telling is our performance on our portfolio, which includes investments in all of the managers with whom we're partnered has been positive this year, despite what we all know are the negative trends in the performance, in the broad equity markets, in hedge funds, in general. And not shown here, but in the Bloomberg fixed income indices, where all of them have had double-digit negative performance in the period of time we're talking here, we've been nicely positive. Now that's great for our capital, but most importantly, what that says is our managers are differentiating themselves. They're showing the value add that they bring through their active management. And that speaks to our ability to continue to raise capital in the future as investors look at these managers and see how they can protect capital and generate alpha and show the value they bring to putting them in their portfolios. This slide shows what I just described. The management fees continue to grow. If you look at where we were as of the third quarter, again, that would be a new peak. We can expect that continue to move in the right direction. Clearly, performance fees, while very valuable, can be lumpy and they are tied to the underlying performance. So even in a positive year and in a relatively very strong year, that number can go down as compared to prior years just because the relative size of the gains that our managers are generating is lesser. That's the nature of the business, but we're still at high watermarks on most of our managers. So we'll continue to generate performance fees. The investment returns are similarly driven by the returns that our managers generate. They too are lower than in the prior year because of the magnitude of the gains that we're generating in a more difficult environment. But the relative performance is actually much, much better. It just has a -- it flows through our P&L in this way. I think one thing that's also important to mention is there is a timing, a mismatch because of our fiscal year. If you think about performance fees, they are all crystallized at the end of a calendar year for almost all managers, so that the performance fees that were crystallized by our managers for their calendar year 2020 show up in our fiscal year 2021. And so when you look at our performance fees for 2021, they're actually related to performance from the majority of 2020. And similarly, our 2022 numbers are the 2021 performance fees and next year's results will include what is crystallized at the end of this year, still unknown. We shall see what happens as the year comes to a close, but that is our business. We're very happy with the trajectory of it Sol is going to now walk you through the business development, a little more detail on our marketing efforts and the managers we've been adding.

Okay. So I'm going to start talking a little bit about just our capital raising. And we've actually had pretty good momentum, raising money this year. We've raised about $3 billion so far through our marketing team. And it's been a challenging environment that we feel like is starting to come to a close here. We're finally able to get on the road, start seeing our clients, start going to Asia, places that were pretty difficult for our marketers to go, where the things are now finally open for business. So that's been a big positive. You can kind of feel it when you're spending time with the marketing team. That $3 billion has come from all over the place. A good chunk of it has come from North America. We've invested in our teams in Europe and Asia as well. And we're starting to see some dollars come in from there as well. As you can see here in the slide, we talk about a few of the businesses that have raised substantial money this year, Jefferies Finance, Point Bonita, Schonfeld and Weiss. The pipeline continues to be really strong on the investment side here as we go into the fourth quarter and obviously, the first quarter of next year when you think about calendar quarters. We made a big bet in credit. We had sort of avoided the credit space for a while. And we found a few different managers that we were really excited about in the credit space. And then we did a few partnerships a year ago and a few in the past year. The performance has actually been excellent for all of them. And we've got some good momentum there and are excited about raising some money for that group. A few of the firms that kind of stick out here, 3l5l2 is one of those credit funds, Hildene also one of those credit funds. We have recently added Illuminate, Manteio, which is a quant business and Pearlstone, is a credit business in Europe. Our long/short funds have actually performed extremely well. Nick talked a little bit about some of the volatility that we've seen in the markets. It's been difficult in long/short, generally across the board. We've got 3 businesses here. One is called Kathmandu. They trade energy stocks, JAT, which focuses on TMT and SVI, which focuses on mostly just Asia and Hong Kong. JAT and SVI specifically have been in a pretty tough sandbox this year and have actually performed extremely well. So we're excited about the prospects of raising money for this group. We continue to build relationships with some of the largest investors in the world. I think the last part on this slide is just to talk a little bit about our marketing and Investor Relations team. We've invested a lot into this team. We're now 24 people, just to compare, we were 13 in 2020. So it has grown. It's growing around the world. We've got 3 people in Asia now. We've got 4 or 5 in Europe and the rest in the U.S. The quality of the team continues to improve and we're really excited. We're covering all the biggest accounts around the world. This will give you just a quick snapshot of really all the different partnerships that we have. You can see there's a group of multi-manager businesses, tends to be a good fit for us. They run very tight net exposure. They tend to be less volatile. And they, obviously, have a lot of capacity and those are all things that are important to us. On the fundamental side, we talked about some of these businesses already. This is obviously, where the long/short businesses fall in with Kathmandu, JAT and SVI. Credit, again, we just touched on. That's newer for us and a place that we are -- I think our timing is going to be pretty good. A few of these firms. 3l5l2, FourSixThree have been now just finished their 1-year track record and both have done well. So we're starting to see some really good momentum in that space. And obviously, Hildene and Pearlstone and ISO are newer for us. The other thing worth maybe adding on this slide is there are 5 things that we have done, 5 partnerships in the last year, but really 10 in the last 24 to 26 months. So we've embarked on a lot of new strategic relationships. Now that we can hit the road and we're able to get some track record for some of these for a little bit longer, we're able to spend more time with clients in person. We're really excited about the pipeline for a lot of these things going forward. And the last slide, just to bring it home and Nick touched on most of these things. I mean we focus on growing our fee revenue, right? It's what we think about all the time. We're looking to grow a long-term business with stable cash flows. Obviously, there will be some volatility in those performance fees. But if those management fees continue to grow, that's obviously where we focus. We focus on earning a good return on our capital. We're efficient with our capital. We like to recycle our capital when we can into new strategies. And that's something, again, that we always focus on. And then obviously, we continue to add new strategies at the appropriate times. Thanks. Brian?

We're in the home stretch and hopefully the technology is going to work. We have the CEO of Vitesse going to be coming by video from Denver. Good news is he just appeared. Bob Gerrity has built and driven the tests with us now for the last about 7, 8 years and overall has been in the industry for 35-plus years. We again expect to complete the spin-off, hopefully, in November. We're waiting on an IRS ruling and we're in the midst of a confidential filing with the SEC. So obviously a little bit constrained on what he can say, pending the publishing of our registration statement. But he'll say what he can say and if you have questions, we'll have to limit it just within the balance of that. So Bob is our last speaker and then we'll go to Q&A. So over to Bob. Thank you.

Thank you very much, Brian. We have been partnered with Jefferies for the last 8 years, and I can tell you, every member of Vitesse has been honored by the support and mentorship of Brian, Joe, Rich and George. It's been a terrific relationship. We've been successful and we're ready to go off on our own. So let me just give you a little bit of -- slide, please -- a background about Vitesse. I know a lot of you have already heard this story. Vitesse is a non-operating, working interest, royalty owner of oil and gas properties. So what does that mean? We take a financial interest in the drilling and completion of wells that are operated by some of the leading operators in the country. The nice part about being a non-op is you can be very selective about how you spend your money. Where an operator will have substantial costs in 1 to 1.5 years before they actually present what's known as an AFE or an authorization for expenditures, we, as their pari-passu working interest owner don't have to spend any money until the well has been drilled. So that preserves our usage of capital terrifically well. So little bit just refresher of Vitesse. We're in 6,000 wells, mostly in the Bakken shale oil field. We've completed 120 acquisitions, but we'll get into the important part of how we built the company in a second. The -- we've always been very low debt. And as Brian had mentioned, we're in the process of a Form 10 spin that we hope to be completed by the end of the year. So even though we're not going to be at a deep part of Jefferies, Joe Steinberg, Brian Friedman and Linda Adamany, we all know very well, have agreed to be on the board of newly public Vitesse, which symbol is VTS. So slide, please. So how do we get here? Let's go back to 2010. So there are 2 ways to invest in the upstream oil and gas business. One is you buy an interest in a well that's already been drilled. Low risk, low return, but there's a tremendous amount of liquidity there. It's about a 10%, 12% PV10, PV12 piece of business. The other way to -- and that liquidity, there's about $1 billion of those assets traded a year. The other way to invest in upstream E&P is to buy an interest in a well that's being drilled. If you do it right and you time it right, it can be a much higher rate of return. The concept that I had back in 2010 was that the Bakken was going to be a world-class oilfield. The chart on the left here with all those squiggling lines, those are 2-mile lateral oil wells, horizontal oil wells. And this -- the outline is the state of North Dakota. Well, in 2010, I thought that the Bakken had a lot of potential, and my thesis was that it was going to get to be deeper, denser, cheaper, better, expanded. And that word salad means that the field over the course of time would get more economic. Deeper meaning that there'll be not just the Bakken, but there'll be another bench called the Three Forks. Denser means there'll be more than 2 wells per drilling and spacing unit. Cheaper then simply is, as time goes on, things are done more efficiently. Better, reserves will be enhanced through technology. The reserves, by the way, have doubled over the course of 2010 to today. And expanded, which is a key part of this story, is that we thought that the field would keep growing in size. So 2010, that's with our own capital, my wife and myself, we bought those little yellow units there, which are -- look like they're out in the wilderness and they were. So from 2010 to 2014, we spent a lot of time in North Dakota trying to find acreage that we thought was going to get drilled on. Next slide, please. Well, then comes 2014. And it looks like the field, it's getting expanded. And the reason why it's getting expanded is it's very economic. So in 2014, we were able to partner very thankfully with Jefferies. Again, our approach to the oil business is we want to buy acreage that's going to get drilled on. We want to participate in the drilling and completion of wells. Now to do that, you need very patient capital. So we came to Jefferies in 2014 and said, look I, we think it can -- we think this play is going to get even more economic. And we think that the play will be get -- become even more expanded. So this will give us an opportunity for a return on investment asset instead of just buying what's already there. So it was a great partnership. And really from 2014 to 2018, even though we were very selective and disciplined, we were pretty aggressive in buying assets. A lot of the assets we bought were for the original thesis, deeper, denser, cheaper, better. A lot of these acquisitions were based on 2 to 4 wells per drilling and spacing unit. As it turns out, they're drilling as many as 12 wells in a drilling and spacing unit. And a lot of this acreage we bought was very inexpensive. Because, again, the most popular way to grow in the oil business is to buy something that's already drilled. So next slide, please. Now it's amazing how the field has expanded, and it's all money. It's all just economics. The couple of things that you really need to understand about Vitesse is that 80%, 8-0% of our asset is still undeveloped. Pretty hard to believe in that it's yet to be drilled on. The Bakken itself is becoming more and more economic every day. The average IRR for the wells that we participated in, in the last 2 years has been well over 100% rate of return. Well, that happened because of a partnership with Jefferies that we're very thankful with. At the current pace of drilling, the Bakken has an additional 40,000 wells that are going to be drilled over the next 50-plus years. So the Bakken is still a young play. Vitesse is a very young play. So next slide, please. To give you an idea of our economics is that we have been able to keep our net debt low and we are through the funding gaps such that we're able to upstream dividends in -- next slide, please. So what are we going to do as a public company? We're going to pay a regular fixed dividend. The -- this is a money machine at this point. We'll continue to invest in wells that as they are drilled and turned into cash. A lot is said about the operators in the Bakken that people say, well, we sure wish they would drill more wells at a higher, at a faster pace. Well, if they're able to do it without increasing -- without cost inflation, that would be great for us. But we really like those fat rates of return. The other thing is we are going to look at everything. The situation -- we have made a number of fat pitch acquisitions in that 2014 to 2018 time period. A lot of it is just, we know that field incredibly well. Since we're in 6,000 wells, we know where the sweet spots are. We know where the problem areas are. So we just have avoided making a big mistake. We will continue to hedge. We're -- we'll always maintain a low debt-to-EBITDA multiple. We currently have $66 million outstanding on our credit facility as of the end of August. Obviously, that's lower today. So the opportunity going forward is, you take a look at the IPO market, which is shut, you take a look at the SPAC market, which is bumpy. There are a lot of actually pretty well-funded, successful oil companies that are owned by private equity that their clock is up and they would like liquidity. So we're -- in the macro environment, it's a tough time to be in business. For us, we think this is just great. So it is a very good time to be public. We really appreciate the sponsorship from Jefferies and we look forward to earning your trust as continuing shareholders. Thank you very much.

Thanks, Bob, and we're open for questions. Please, I think a microphone is coming your way.

Manan Gosalia, Morgan Stanley. I think the strategy has been fairly consistent and that came out loud and clear today. And 2 pillars of your strategy, as you outlined, have been to invest in the business through lateral hires and through internal promotes and also to maintain consistent double-digit RoTE through the cycle. Can you help us triangulate between the two, especially as it comes to the near term over the next 1 year, 1.5 years? How would you plan to invest through a period of some market dislocation that we see over the next 1 year, 1.5 years, while at the same time, your returns could be under a little bit of pressure, given the environment?

First, I would just add that consistently, our strategy has been to hire during tougher times. That's always the best way to do it. In times of froth, you can't get the best people to leave, you have to pay too much. It's not economic and it's just -- it's very challenging to change the scope of your organization when things are great in the world. For us, I can go through just about every choppy period since I've been here for decades, including when I got here after my prior firm disappeared. That's when you can actually change the firm. And it's the hard thing to do to invest when you have to put pressure on your ROE. The good news for us is we have hit critical mass of scale. And when we were a $3 billion revenue company, it was very tough for us to have the levers to try to get a reasonable ROE and continue to grow. We did it anyway, by the way. And it turned out, in hindsight, to be the right thing to do. With the ability to have the breadth of all of our businesses and you can tell, you heard a bunch of managers, they are a very integrated group of businesses. So it's is a very well-structured machine that we have built over the decades. I believe we'll be able to do it. It'll put some pressure on in the short term. And we're also not the firm that's out there bragging to people we're going to have a 20% ROE. Even though we had one last year, we made it very clear that that's not a normal market environment. Double-digit ROEs in a tough period are very acceptable. And quite frankly, I think it could be much higher than low double digits in reasonable times. So I think we have the right mix, the right balance. We're going to keep playing offense when people are on their heels and we're going to put some pressure on our ROE but not disproportionate pressure.

So; maybe just a follow-up to that. The capital requirements for some of the largest U.S. banks has gone up most recently with the stress test. They're currently working through some balance sheet and capital constraints. Where would you see the most opportunity for Jefferies to lean in, in that period of market dislocation?

It's definitely not to try out balance sheet risk or capital, okay? So that's not narrowly an opportunity for us. The opportunity for us will almost always begin with people and the delivering of insight. So what's happening and whether we're in the late innings or not, I keep getting fooled that it always turns out to be earlier than we think, is that the character of those places changes with their regulatory changes and with other developments that they tend to go through. I mean, we've clearly witnessed it with the European banks. We're witnessing it perhaps a little bit with some of the U.S. banks and it changes the stickiness of some of their key people. So it may help us on the recruiting front. It's not necessarily an opportunity. I mean, for example, we could put out all the balance sheet we'd want in prime brokerage it's not what we're doing. We're looking for quality opportunity. I can give you other examples. That's probably the most current example of it. So it's -- our opportunity is not in their balance sheet constraints. Our opportunity is in the client needs and the ability to meet them.

I'll just add that while we're not a bank holding company, we're not regulated by the Fed, we pretty much self-regulate ourselves. Back to the concept of being an owner, an owner means you don't lead with capital when you have a $55 billion balance sheet and you're competing with people with $1 trillion balance sheets. And if you look at the scale and scope of our banking business relative to people who have enormous balance sheets, it shows that if you lead by ideas, people, culture, relationships, you could build a very significant business. That's our competitive edge.

Mike Brown, KBW. Thank you for hosting the event today. It's great to see everybody again in person. I guess the key debate right now is clearly the challenged market backdrop. So you guys have seen many market cycles through your times. What do you think needs to happen here for the leverage finance and the IPO markets to open up again? What are some of the indicators that we should keep an eye out on? And how do you think things play out from here?

I'll just start and say a couple of things. This is nothing like the last time the leveraged finance market was really closed in 2008, when individual banks had $50 billion of hung exposure that were levered on their balance sheet with cockamamie illiquid assets all around it. Now there's that kind of size on the street, but it's spread amongst a lot of players. Everyone is taking a little bit of their medicine from the prior commitments. We're going to work through those commitments. None of them are game changers in terms of -- no one is going to disappear because of their exposure. There is a much more healthy group of buyers in terms of -- the buy side has really proliferated during this period of time. And we're going to work through the process. And the fact of the matter is, eventually, you're going to see some type of sight onto inflation. The market will anticipate it and enter the race. And it's really -- we probably now it's really the transition to higher rates that all hell breaks loose, okay? Once you get some sight in terms of where the new normal will be, there will be a cost of capital that people will understand. There'll be a process that people understand. There'll be capital formation again. And we're just in the period right now, there's not a huge amount of default cycle coming through. Most of the companies have no covenants and their coupons are so low anyway. So it's not like you're going to see a wave of defaults. The CLOs are relatively healthy and it's just going to be a process. It happens periodically. And for us, Jefferies Finance, we've been through cycle after cycle after cycle. During bad times, you lose. And keep in mind, we own half of Jefferies Finance for a reason. From a -- as an owner perspective, we're willing to share the upside with our great partners at MassMutual to protect our company during the downside, so we can stay in this business. So it's sized appropriately for us and it allows us to play even offense during this period of time. We're making commitments. We're doing transactions. It's not like we're shut for business. It's just a different tone and a different type. I think we're going to get through this cycle, it's going to fine, but it's a slug. It's not fun and there's markdowns and most people have taken their pain. Do you want to add?

Yes. The only thing I'd add to is this has already been a relatively long down period. The good news is our business has held up relatively well so far. Could it get a little worse? No question. But if you look back at '01,'02, if you look back at '08, '09, we can go back into the '90s and the '80s. But when you look at those cycles, the turn has been surprisingly meaningful. In other words, we mentioned this -- Chris mentioned in respect of Jefferies Finance, right? Every time we've had a tough period, we've come out of it with more than a payback. And in our case, particularly, it's coupled with growing market share. So that's kind of been our story. It's ever higher lows and the good news ever higher highs, but also ever higher lows. And I think the sophistication in the marketplace lets us react to cycles better and faster. So the translation, not just the anticipation, but the translation tends to be crisper. So again, everyone in the room can put their own strategy or their own scenario as to where we are in this churn of the rate cycle. But I got to believe, we're more towards the later innings and the early innings.

But think about it just from our side, If we lost, we said $95 million in Jefferies Finance, our half is called $50 million, on a $8 billion type of balance sheet. And use that math, assuming the rest of the players have similar type of exposure. This is not the world coming to an end.

I appreciate the color there. Can I just do one more here?

Sure.

So I think one of the impressive things this year that I think a lot of investors have been focusing in on is that the comp ratio this year has been really quite impressive for this tough revenue environment. Looking at Jefferies Group, it's at 47.8% year-to-date. So I guess kind of a 2 parter here, shorter and a longer-term view. Do you -- what are the risks to that comp ratio for the full year for this year? Do you feel like that kind of 48% level is where you can come in for the full year? And then longer term, if we think about a more normalized environment, what is the right spot for Jefferies Group? Let's talk maybe just the core business. Is it mid-40s or low 40s, an achievable comp ratio for the business?

Difficult question to answer on a couple of levels, but we'll give you some direction. There could be true-up in the fourth quarter. There always could be -- it's never exact. So we can't say. We're in a transitional year. Are we still in a transitional year next year? That's a big question. If we're right that we're gaining market share and if we're right that the leverage finance, ECM markets normalize, and if in fact, we continue to gain share, then somewhere between this year and last year is our reality. If that's the case, we may have some more flexibility in comp. I would argue that's not even third probably on our list of priorities or opportunities that gaining that normalcy, gaining market share. Essentially, we've said this many times over the years, I think it's as true today as ever, which is we're still going to be more driven by our revenue than by our expenses. Matt went over a bit on the OpEx side. And I would almost say the same thing on the comp side. That's not the opportunity. The opportunity is in our market position, our branding and monetizing it. We're doing it. It doesn't come out as well this year as it did last year. Last year, again, was extreme. But I think the answer is somewhere in between, and it's not far out.

And I would just add from a philosophical perspective, back to an ownership perspective. There's not -- the two of us don't sit in an office upstairs and say, how do we manage to this comp ratio at the end of the year. What we do is we look at all of our people, all of our businesses, how they did individually, how the department did, how the firm did and we try to create fair compensation for our people to stay over the long term. And that backs its way into what our comp ratio is going to be. It's a very different philosophy than, I would say, hired managers who aren't owners and who aren't stakeholders. Because we know that for us to keep growing the long-term franchise value of our company, we have to pay fairly. Now last year was disproportionate. Everyone knows that. We made it clear to everybody. And this year is going to be a tougher conversation across the board. There's no question about it. We'll have to pay people fairly and the number will be where the number will be. And that will be the right decision for the long-term growth of our company to how do we get to become a $10 billion, $15 billion, $20 billion, $25 billion market cap company and continue the market share. That's where our mindset is and that's the value we're trying to build towards.

James Yaro from Goldman Sachs. I think you have a unique perspective on the leverage finance market, given that you're in the capital markets on the CLO and high-yield bond side as well as, now you're building this direct lending business. So you talked a little bit about the problems with the CLO market and leverage finance on the large cap side. Can you talk about how the direct lending business is functioning and just sort of the opportunity set you see there? Is that sort of the growth avenue for leverage finance from here?

A couple of things I'll say about direct lending. Direct lending has never been through a cycle. And the company -- there's a lot of smaller companies -- the last few years, there's a lot of bigger companies, but the foundation is a lot of smaller companies. There's not a lot of liquidity with your positions. There's not a lot of flexibility for restructurings and capturing discount. And there's a lot of concentration of industries in various pools of capital. So I think it's here to stay. The good news is the duration of capital matches your investments. So there's not going to be a gun on people's heads to do something. But I think the returns are going to be more challenging. And they were able to give very attractive returns in a zero-interest rate environment and that was a very compelling thing for LPs to put money into. When they have alternatives that are much more liquid with reasonable interest rates, I don't know that money continues to power into that direct lending business to the extent it has historically. That being said, it is massive competition for us in Jefferies Finance. You can't beat them, join them, so we're doing it ourselves as well. I think we have a competitive edge in that -- we're not just money, we're an investment bank. We can give you advice, so we can take you public. We can help you do an acquisition and we can provide direct lending. And we have 1,400 bankers who are around the world who are sourcing interesting ideas for us. So we like the business model for ourselves. And as I said, CLOs are being formed right now, okay? Yes, there is a week where England does something a little aggressive and people start to panic. But for the most part, we're doing CLOs for our clients. There's active formations. The IRRs are -- some of the pieces of the tranches are harder to sell than they used to be, but that's just normal. And I think stepping back, leverage finance is a very important aspect of Jefferies growth. It's a foundational pillar. It -- because of our M&A business being as strong as it is, having the leverage finance component to it is complementary. We have it sized appropriately throughout the organization. We have it diversified throughout the organization. We probably at almost every single size and we're pretty good at it. So I think this could be very important part for us for the next -- for the far, far, foreseeable future.

I just had one other one, which is just thinking about the capital constraints of the big banks, obviously, you're not saying you're going to expand the amount of capital that you're providing, but have you seen any pricing changes either on the equities or fixed income products as a result of some of these bigger banks not being able to provide their balance sheet and sort of buy market share?

We've seen people who want to come to us on the prime brokerage side, on leverage finance clients, I mean people who are giving us direct block trades because they want to have a deeper relationship with us. We're seeing people appreciate the value proposition that our organization can bring to them. And it's definitely gotten a lot better. There's still plenty of competition. I don't want to overstate it. But I just got an e-mail, I was sitting there, one of the larger asset managers is -- just made a decision. They're not going to allocate their revenues based upon their prime relationships anymore. That they're going to go based upon value add and they had the list of 15 people at Jefferies they value and they want them in the office as soon as possible to try to take the relationship to a new level. We're seeing that across the board. Part of it is balance sheet constraint. Part of it is cultures at other organizations are a little challenged right now and part of it is the talent that we've brought into the organization.

Brett Reiss, Jenny Montgomery Scott. Brookfield Asset Management is not happy with their stock price. And one of the things -- one of the tools they're taking out of their toolbox to rectify it, is they're going to be dividending out the fee-based business and then have the fee-based entity trade as a separate entity. Is that something that if our fee-based business continues to grow in scale that you would consider doing in the future?