Jefferies Financial Group Inc. (JEF) Earnings Call Transcript

Get started. So good morning, everybody. Thank you for coming to the Jefferies Shareholder Day. My name is Rich Handler. I am -- if you remember 1 year ago, I kind of limped up here with a replaced knee, I'm happy to say my knee is fully replaced and I'm fully ready to go. But more importantly, Jefferies, which was never limping is in a remarkably good spot. So I think you're going to hear that today from our team. I'm very excited for you to hear it. The bottom line is, our firm has never ever been stronger. We've never been more globally capable. We've never been more able to collectively affect our destiny, which in this business is a very tough thing to do and it's mostly through our capabilities, our brand but most importantly, our people. We've never been better aligned with our clients, or better positioned to serve them. The human talent, which we talked about for years and years and years, it has never been stronger. And most importantly, our culture which is very unique and very strong, it has that glue that is really propelling us to a whole different level in my opinion. Our capital is robust. Our strategic partnerships have never been more important and more valuable and more complementary to our organization. So what could go wrong? The fact of the matter is there's lots of cross currents out there and we can dwell on them a lot, the U.S. politics coming up, geopolitics around, the deficit, you can go on and on about the issues out there. They never ring a bell when things are good or bad. But quite honestly, in our opinion from what we -- where we see the world today and we're not overly optimistic people in terms of how we see the world. Financially, we are optimists at heart in terms of our people and our culture, it generally feels pretty darn good to us right now. The fact that our firm is so well positioned today, it's in addition to something that's very unique. The fact is, it feels -- and again, it could change, it feels like the wind is really at our back. The debt and capital markets are open and fully functioning. We finally have breadth in the market. It's not just a handful of technology stocks that are really driving it. There really is some breadth, which is very healthy. Speaking of healthy, the M&A environment is very positive. There are motivated buyers. There are motivated sellers. There are people who need to have capital returned. There's plenty of fresh capital out to deploy. It makes for a very good environment there. And there's clearly pent-up demand for transactions and strategic advice. Further, there's the backdrop of generally very positive momentum of normalized interest rates and perhaps even slightly lower interest rates, we can talk about that. Low employment is still amongst us. The financial sector is incredibly liquid. Corporate performance is solid and the consumer is healthy. So that is a pretty darn good backdrop. Allow me to digress just for a second. So I've been here, approaching 35 years at Jefferies, close to 25 years, 2 decades with Brian and I leading this company. It's been quite a ride. And if I just look back at the last 3.5 decades, the firm that I joined -- and you have to forgive me for this, we had 1 product. It was cash equities. It was third market. It was a lean, mean, good culture, super small boutique. And you go through the -- seriously the course of the next 3.5 decades. And you step back for a second and you look at every 3 to 5 years, and we all know at '94, interest rates; '98, the Russian crisis; 2000, technology; 2001, 9/11; 2008, global crisis; 2011, sovereign debt; 2015, '16, energy and distressed, then COVID, you go through all of those. And you look around at our company today and you realize what we have become. And we've become that -- this company for a handful of reasons, which I think are very important to dictate where we're going to go going forward. There are 3 basic values: #1, we embrace alignment as an organization. #2, we live with a true ownership mentality and I talk about all these. And 3, we maintain a consistent and very simple strategy. So call us boring, although my -- the career is going to feel boring but if you look at it this way, it seems kind of boring because we're all -- we've kind of been doing the same thing. It's very important for us to have a culture as an organization. I can't express enough the teamwork and the orientation that our business demands and commands for us to be successful. But we also have to be fully aligned with our clients and our shareholders. And we have to work tirelessly because our job is to basically help our clients with their most complex challenges financially and to seize their biggest opportunities. That's what we do. We've done it through cycles, through fads, through distractions. We've done it as the competitive landscape just changes dramatically. We've done it with a constant sense of urgency but always thinking about the long term. So what does consistent alignment, ownership and strategy really mean? And what does it mean for all of you, our outside shareholders? We are truly owners with you. There's roughly 36.5% of our company is owned and that's close to $6 billion of value on our fully diluted, close to $17 billion market cap, including SMBC shares. That's held by senior management, by our strategic partners, by our Board, by our fellow coworkers at Jefferies. We are all in with you. And it sounds obvious that, that alignment is important but if you look at history, it really says in financial services, it's not particularly obvious. I can't express to you enough how much we value our people and our relationships. We have worked so hard to build a brand. It is really hard to do. It takes ups and downs and consistency and a little bit of luck and we finally have a brand that I am incredibly proud of and I speak for all of us at Jefferies . We're proud of our brand. However, we're never going to confuse the fact that it is our people that drive this company. And you're going to see that today as you go through the presentations. And I'm going to say and I'll say -- I can't say enough, zero arrogance in organization. Many other companies have gone close to our point in this industry. A lot of them have faltered. The #1 reason why they faltered is arrogance and taking each other or their clients or their shareholders or their bondholders for granted. So what does it mean for a firm that is line with outside shareholders? The first thing is, we worry about our downside and it's great in a good environment like this to actually be able to execute and play offense but we worry about our downside. That means we're partners with our bondholders. We're partners with the rating agencies and we make sure we always have to fight another day. That's the only way all of us in our -- in this industry as shareholders are going to create long-term value. We also return excess value -- capital to shareholders whenever it's prudent. So in the last 7 years or so we've returned about $6.3 billion of capital to our shareholders. That's about 83% of our original tangible equity 7 years ago. As owners, we are transparent with all of our constituencies. Our strategy, how we deal with people, what you see is what you get at Jefferies. Everything that you're going to hear today from our team, as I said before, it all has a sense of urgency but it's all designed for long-term value creation. We are not looking at moment-to-moment ROE for a very specific period of time, not suggesting that we don't care desperately about it and want to achieve as much as humanly possible but we do it with the long term in mind. We don't stray into sexy businesses we don't understand and don't have competitive edges in. We invest heavily in our people, technology and infrastructure, that's what owners do. And something that I just want to reinforce, particularly with our new partnership with SMBC but I speak for MassMutual, with Berkshire Hathaway, with all of our partners, we strive to be really good, really fair, really honest, really uplifting value add to our strategic partners. It's something we've been able to do as an organization and very few others have been able to. So what can you expect from us going forward? I hate to say it but our strategy is going to be the exact same, again, kind of boring. Today, it's pretty good out there. So our strategy is to execute and grow our market share. We're going to train and grow our people internally and we're going to selectively find the right people and the right partners who want to come into our company and help us build in spaces that we really could use their help. We're going to dream big. I look at our company today and I see all the capabilities, all the human talent, plenty of capital, a competitive landscape I've always dreamed of having since -- from the day I started here. Another question for us is, how do we get there? And I think we're going to get there the same way we've been here all along. We're going to block and tackle one day at a time, one transaction at a time, one relationship at a time. We're going to leverage off of everything we spent decades building. I quite honestly see ourselves at a point where there's absolutely nothing beyond our capabilities to achieve if we stay true to our roots. You're going to hear from everybody today. I just want you all to hear from me with 2 healthy knees. I am really psyched to be here. I really think that we have something special and I'm very grateful for all of our shareholders. So thank you.

Okay. Thank you and thank you, Rich. When Rich was talking and I was thinking about this slide and the next couple, I think a lot of Jefferies today is back to the future, meaning it's the Jefferies we've always known. It's the Jefferies we've always appreciated and it's also the Wall Street model that has worked for truly 100-and-something years. We're not really reinventing the wheel. We're just rolling in a world that somehow stopped rolling. And in a lot of ways and this will be clear in some of the slides you're going to see, in some of the historic information we're providing, 2008 to 2023 may someday be looked at as 15 years that were different. And in that vein, the Jefferies we have today is really back to the future. This is a 62-plus year-old firm, it was built on a client focus from the first day. It was built on the innovation of the third market. It's always been, as Rich is suggesting, the firm that just comes in each day to get the job done, to focus on clients, to bring value, to bring value with ideas and insight and to bring value with execution. It began as a pure execution firm. And over time, we've expanded dramatically the insight and the value add that we can bring beyond the execution but we've never lost that commitment to execution. When you look at the firm today and it's really been a breathtaking ride for, in my case, 20-something years, in Rich's case 30-something, for the firm 60-something. You're going to hear a lot about the last 5 years. We're using 2019 as a benchmark. It happens to be 5 years ago. It also happens to be pre-COVID and pre-post-COVID. So you get a kind of clean look, although again, I could argue that you have to go back to 2007 to get a clean look and on a couple of slides, we will go all the way back. But today, we are truly global. We are operating 45 offices in 21 countries. There's literally one more country, Saudi Arabia, where we need to firmly plant our flag and not just fly in and out and that is in process but there aren't two. So we really are far along in being a truly global firm. I'm not going to even say the statistics, statistics are out there more than enough. We're in a very, very, very strong position. We are deeply shareholder-minded. At this point, over the last 7 years, the return of cash and marketable securities is 82% of the tangible book value that we had in 2017, has been returned to our shareholders and we're not going to stop. We've increased our dividend 6 of the last 7 years. Our commitment to our shareholders is unwavering. When you look at it again and you're going to see 2019 on and on here because it's the right place for us to start as to what we've accomplished in the last 5 and to get a sense of the momentum and where it can take us. All of these stats benchmark again and its meaningful increase in our market position, meaningful increase in our revenues. If you look at the bottom right corner, what's interesting is that this is with 23% increase in our headcount. And that operating leverage is going to be the story we believe, over the next several years, now that we have formed a base and Matt Larson, our Chief Financial Officer, will go into this in some detail, now that we have formed a base at this new level and as we grow from here, the operating leverage will be very, very significant. We created a peer average. The peer average are the 5 American banks that represent our primary U.S. and, to some degree, global competitors. So this is taken together JPMorgan, Morgan Stanley, Bank of America, Citi and Goldman Sachs, the 5 bank holding companies. It compares the last 12 months to 2019 and it gives you a sense that our investment banking revenues have grown 91% against the market that's all but flat and against competitors that are essentially flat. Our equity revenues outpace meaningfully while our competitors were modestly above the market. And in fixed income, you see the same results. This does the same thing using market share and shows our increase in marking share -- in market share. Again, against relatively flat to slightly down market share for the 5 primary competitors. We can get into later where else was market share moving around. But this is, we think, one of the best measures of what we're doing on a relative basis. We will get over the next 2 hours into the detail of where we think we are going business by business. But as you look at this, you can see the momentum that just 5 years have given us in terms of getting to a base level of return on equity. Again, Matt will start to illuminate why we think there's operating leverage from here and it could be very substantial. Our business units will get into the individual opportunities represented in investment banking, equities, fixed income and asset management. But we have a fair amount of confidence that we can enter the top 5 in our industry. We don't necessarily think we should just enter it. We think we can have a meaningful position inside that group. And we think what we offer and the way we offer it is distinguished in a way that resonates with the customer base and are growing our platform on a sectoral basis, on a product basis, on a regional basis, we have not yet remotely matured into who we are today. This to me is one of the most interesting slides and it's one that I think is very relevant to understanding our opportunity. Rich focused meaningfully on what is special about Jefferies today and very much I agree with him that we are the best Jefferies that we've ever been and we have a route to being even better. The other part of the equation is not just what our competitors are doing or not doing or how they're changing, how they're prioritizing, it is what is the market and where is the market going. And you can see the little blue dot shows you how we've come up through time but equally important is the cycles of the market. And as I mentioned, the last 15 years stand out for the lack of direction, and they stand out for the toing and froing, which is not the history, which, again, for me and maybe we should have themed this back to the future, to me, perhaps this is backed, perhaps we're back to a world with a real interest rate. And if there is one distinguishing argument, in my view, it is the real interest rate. Again, we will see. We truly have no idea, we do not manage the firm to our expectations of market other than on a risk basis each day. We manage the firm to the clients and to the competitive opportunity and then the market will give us the final results. But with the momentum we have, we see a market for M&A, ECM and leveraged finance that has lagged equity market capitalizations, it has lagged GDP, it has lagged most of the conventional measures and whether we get a reversion or a version of -- a version of reversion is what we will see in the next 1 year or 2. The bottom line for us is where we are as a firm, where we think our competition is and where they may be going and at the same time, the addressable market and what happens next. And with that, we will focus on growing our market share, continuing to develop and recruit the best talent. We will always, always center this with a focus on our clients, that is what we get up in the morning to do, is to serve them, bring them insight, execute for them and add meaningful value. Rich mentions our partnerships with SMBC, MassMutual and Berkshire Hathaway, all of them are long-standing now. All of them are important to us and all of them have further upside for us. We do this while we maintain a strong capital base and we continue to manage our risk every day, every moment. We're going to turn this over now first to Matt Larson, our Chief Financial Officer, then our leadership from our business units and they will give you further detail on where we are and where we're going. Matt?

Thanks, Brian. The consistency of our strategy, strength of our balance sheet and capital base and our lean and efficient operating structure allow Jefferies to focus on executing business growth, delivering and creating shareholder value, clearly understanding and actively managing our expense base and always intensely focusing on managing risk while maintaining a strong capital and liquidity profile. Gains in investment banking market share and the beginnings of a market recovery, combined with expanded global equities products and capabilities and continued strength in our fixed income credit businesses has translated to meaningful growth and durability in our overall business. At Investor Day in 2021, we discussed reaching a new level in our capital markets business and said we should sustain levels above $500 million per quarter, which had grown from $350 million per quarter in about 2018, 2019. We've now reached an even higher level, which is producing sustained levels above $600 million per quarter and you'll hear more from Pete and Fred about their businesses and what's driving that growth. As Brian mentioned, and you'll hear more from John, Raphael and Andrea in investment banking, our momentum is accelerating right as the market is recovering and growing from the lows of 2023. I want to reiterate one point that's been made in the past and is even more true as we look ahead. And that's that a significant and growing portion of our revenue comes from riskless or low-risk business. I didn't include a slide on it specifically as I've done in the past but the growth in investment banking revenues and our commission-based activities, particularly in equities, constitutes a significant majority of our business. This, along with an increasing contribution from asset management, ultimately translates into a firm that generates substantial and increasing operating income and free cash flow even as we continue to invest in product capabilities, infrastructure resilience and most importantly, our people. One of the things I've really enjoyed since I've been here at Jefferies for what's about 4.5 years now, is this growth mindset and a clear understanding, you heard from Rich and Brian, you'll hear from others, clear understanding that our opportunity comes from growth in the top line and of course, maintaining a strong cost discipline, as we always have. Again, you've heard this but I'll reiterate, we've always prioritized shareholder value and have consistently returned capital to shareholders through a mix of share buybacks, dividends and special distributions. In 2023 and thus far in '24, we've returned to shareholders approximately 15% of the 2023 beginning tangible equity base. And as you heard, since 2017, that's about 85%. In mid-2024, we increased our annual common stock dividend by 17% to $1.40 per share, which was the sixth increase in the past 7 years. I'd also highlight that special distributions from the spin-offs of Spectrum Brands and Vitesse have both performed very well and have provided meaningful value to long-term holders of those shares. As we look ahead, we expect growth across all of our businesses with the largest opportunity for growth and enhanced operating margin coming from investment banking, which is not a capital-intensive business. This should put us in a position to expand operating margins while keeping our capital needs in check and returning meaningful further capital to shareholders. Our noncomp expense ratio is improving, having dropped from 46% in 2019 to 35% today, even as we've invested meaningfully in technology modernization, to support and grow -- growth -- to support growth and resiliency as well as longer-term efficiency investments in emerging workflow and AI capabilities. Furthermore, we've increased investment in our people through enhanced training programs and modernized facilities. Industry consolidation in the technology and data sectors has put pressure on costs as has the overall inflationary environment. We've experienced this over the past couple of years. However, managing costs will continue to be a focus area for us to help ensure that we realize widening margins as our revenue base grows. With the completed sale of OpNet and Foursight over the past few months, the book value of our noncore investments has dropped almost 75% since 2018. So about $700 million with the vast majority of that balance being made up of HomeFed and the remaining mostly coming from Stratos and Tessellis. As such, virtually all of our equity base is now supporting our core business, where just over a few years ago, over 25% was supporting noncore business. Our capital and liquidity position is very strong. For years, we've talked about the importance of ensuring the vast majority of our assets can be easily understood and valued. One primary measure of that is our Level 3 assets, which would continue to remain minimal relative to our overall balance sheet and capital base. You can see here that we've maintained that discipline even as all our businesses have grown substantially over the years. Our tangible leverage ratio continues to be very modest at 7.7x, which includes the impact of our significant debt capital raise earlier this year. We're well positioned to support the next leg of opportunity as we continue to gain share and expand our global capabilities. With that, I'll turn it over to my partners in investment banking, starting with John Miller.

Wonderful, Matt, thank you. Brian and Matt highlighted our growth through fiscal third quarter, resulting in LTM investment banking revenues of $3.1 billion. Just to level set, our LTM Q3 investment banking revenues are up 35% from where we concluded 2023. They're the second highest in the firm's history and reflect a substantial outperformance of the global wallet that is currently trending to be up about 14% year-over-year. These results are driven by material market share accretion, which we're going to discuss in detail momentarily. Also worthy of observation. Our LTM revenue performance of $3.1 billion is up 82% from the $1.7 billion that we delivered in 2019 against a wallet that is essentially flat over that 5-year period of time, again, evidencing substantial market share accretion. Spend a minute just evaluating the investment banking playing field. This slide charts 30 years of history of global fee activity and is inclusive of M&A, ECM and leveraged finance, which comprise our addressable market. It's clear that we turned the corner in 2024. You can feel it but more importantly, the data supports it. I think as Brian referenced in some of his commentary, we believe that we're in the early stages of a sustained recovery. If you look at 30 years of history, there tend to be periods of long-term growth following a correction and we believe it feels that we're entering such a time period right now. After reaching a historic high in 2021, our industry troughed in '23. And interestingly, over the last 1/4 of a century, we've never seen 3 consecutive down years. So if you look at the bottom row of this slide with the red and green cells highlighted, again, never have we seen 3 consecutive down years. And consistent with that, we saw market resilience starting in late 2023 and continuing into 2024, again, with annualized fee pools currently trending to be up 14% year-over-year. Against this backdrop, Jefferies position in the market has risen consistently from an 88th ranked position back in 2000 to a sixth ranked position today. We believe the material growth evidenced in global market capitalizations that Brian referenced provides further substantiation for continued momentum in global wallet activity. Here, we see a 51% rise in equity index performance against an IB fee pool, the wallet, the addressable wallet that is essentially flat over that same 5-year period of time. Again, we believe that there's material upside implied in this dynamic for the IB opportunity set in the years to come. Notwithstanding the market headwinds in recent years, Jefferies has attracted best-in-class talent in a truly magnetic fashion. Our MD ranks are up 70% since 2020, reflecting 150 lateral hires. As such, more than 1/3 of our MDs are new to the firm in the last 3 years and these new MDs are long-tenured, truly proven leaders in their respective areas of focus with more than 20 years of average experience against their client opportunity sets. Most importantly, we've aligned our hiring very tightly with the deepest parts of the opportunity set where we've historically been furthest away from our share ambitions and where we found truly unique opportunities to attract top decile talent in a dislocated market. We're bringing on members of the team where we think that they can drive outsized results. Industrials and TMT are prime examples of this. As you can see, 23% of our hires over this period of time have been against the industrials opportunity set which comprise about 30% of the wallet. Another 23% have been associated with the TMT opportunity set, which represents about 22% of the wallet. Groups like health care, energy and consumer have deep historic resident benches of talent and therefore -- and strong client presences in their respective spaces and therefore, investment there has been surgical. So too, investment through the lens of region. There you go, region is aligned with the deepest areas of opportunity for growth across the Americas, EMEA and Asia Pac. And now I'm going to turn it over to Ralph to review in detail the very clear and tangible results of our recent headcount investment and how they've manifested themselves in material fee share accretion. Ralph, over to you.

Thank you, John. John spoke about what we've done and how we have invested over the past few years. I'll now touch on what the result of that investment has been. The most objective and accurate measure of progress is GAAP revenue disclosure which we narrow to advisory and ECM so that we have an apples-to-apples comparison with our competitors, as we, by and large, do not compete in investment-grade debt capital markets, which are typically awarded by clients, based on bank lending in which we serve in partnership with SMBC. As you can see on Page 30, Jefferies now stands fifth globally in advisory and ECM revenue. Since 2019, we've meaningfully overtaken competitors that were historically categorized as bulge bracket such as Citigroup or Barclays and have now meaningfully narrowed the gap to competitors who remain larger than us today such as Bank of America and Morgan Stanley. On Page 31, we can see another measure of our progress, which is our growth in market share as measured on an approximate basis by Dealogic. For the first 9 months of 2024, we ranked sixth globally across advisory, ECM and leveraged finance. Critically, we have gained more market share than any of our competitors by a factor of more than 2x. On Page 32, we can see that this growth in market share is broad-based. Our market share in M&A, ECM and leveraged finance are all running at long-term records. And we now rank sixth globally in M&A, a record for our firm. On Page 33, we can further see that our growth in M&A market share is broadly diversified. We rank fifth in U.S. M&A as well as ninth in EMEA, both records for us. Our focus on serving financial sponsors continues to pay dividends. We rank third globally in sponsor M&A. Critically, our focus on serving corporate clients is also bearing fruit. We now rank in the top 10 in corporate M&A for the first time. Similarly, on Page 34, we lay out the broad growth in our ECM franchise. We now rank fifth in U.S. ECM and sixth in EMEA, a new record for us. In APAC, over the last several years, we have built best-in-class teams across Sydney, Mumbai, Seoul, Hong Kong and Singapore and have moved from essentially not ranking to sixth in the region within 2 years, a result that we're proud of and that should create the foundation for further success. In our rankings, we exclude China, where we don't have an onshore presence and Japan, which we largely serve in partnership with SMBC. Finally, on Page 35, the investment we have made has resulted in our serving global franchise clients on their most important transactions. Transactions like Diamondback's $26 billion merger with Endeavor. SRS's nearly $20 billion sale to the Home Depot and the $6 billion sale of Darktrace are illustrative of the global breadth and quality of our advisory teams. Similarly, in ECM, our serving as lead underwriter for the IPO of Loar, sole placement agent for the $1 billion rescue financing of New York Community Bank and leading the $2 billion share sale for Vodafone Idea in India and sell-downs for the Italian state of its stakes in Monte Paschi di Siena and Eni, all illustrate the strength and depth of our capital markets franchise globally. I'll now hand it over to Andrea to conclude with a discussion of our unique culture and offering. And why so many outstanding partners have chosen to join our firm. Andrea, please.

Thanks, Ralph. Raphael and John just shared what our investment banking team has achieved. I want to close with a perspective on how we do it. I joined Jefferies roughly 23 years ago, right, as our leadership team began the journey of transforming a company once largely known as an equity trading house into a global investment bank. Today, we are truly a pure Wall Street firm, providing our clients with traditional investment banking products, including value-added capital market solutions, direct access to capital and financial and strategic advisory services. And that's how our market share has grown exponentially across M&A, ECM and leveraged finance. As I reflect on my time at Jefferies, several traits explain the sustained growth of our investment banking business. The first, it's our culture. We are a flat, nimble entrepreneurial firm that attracts the most talented investment bankers, people who come for the freedom to serve clients in the best way possible without the headaches of working at a commercial bank and that's important. We're a firm of people who outwork the competition. We rely on our insights, broad capabilities and culture of service, not our history or heritage to win the trust of our clients. Go to a Jefferies office in any one of the 21 countries where we operate and you'll find senior bankers with deep relationships who are relentlessly focused on delivering for our clients. When I recruit people to Jefferies, I tell them, you will get every resource you need to help clients succeed without any roadblocks. And it's clear we're delivering on this promise because 70% of our team's business is repeat business. Once our people come to Jefferies, they tend to stay. They see the upside and excitement of belonging to a firm where everyone from our global leadership down works collaboratively to deliver for our clients, where the entire firm rallies around clients, especially in difficult moments and where our collective efforts deliver long-term growth and success across the cycle. The second thing that makes us so special is the breadth and quality of our global footprint. We have the best people across every major country and geography. This allows us to reach global buyers and investors with the depth and consistency that few competitors can replicate, serve our clients with increased differentiation and nurture and attract significant talent that further deepens our bench and drives our insights. This brings us to the other major distinction that separates Jefferies, the breadth and quality of our capital markets and underwriting expertise. As you'll hear shortly from our partners in equities and fixed income, the quality of our research and distribution has become increasingly unique. We have world-class scale and talent in these areas where our competitors have disinvested. We can seamlessly deliver multibillion dollar financing commitments at a scale and speed matched only by our largest global rivals. Again, this quality is a source of vastly differentiated client service and a key asset for us in attracting the best talent. Put this all together and here's what you see. Jefferies is an integrated investment banking and capital markets platform. By combining broad global advisory and capital raising capabilities wrapped within a flat, dynamic and service-oriented firm, we are an investment bank that stands alone in our proposition to clients. While our business has achieved significant scale, we are still early in our journey. That's why I'm so incredibly enthusiastic about being here. That's why we are also confident about what Jefferies investment banking will achieve in the years ahead. Thank you.

Thanks, Andrea and thanks, everyone, for coming. Pete Forlenza and I run the equity division, here at Jefferies. So I'm going to take you through the outline of the strategy for the equity division. Rich used the term earlier this morning, alignment. I can tell you that the equity division at Jefferies is deeply aligned with our overall capital markets strategy. The foundations of which are, firstly -- and Brian used the term insight, we believe an insight, we believe in advisory. And in the equity division and you'll see it as we go forward, what that means for us is deep fundamental and macro research to support both our investor and issuer clients. Another foundation and Andrea mentioned it briefly, is we've invested in both scale and talent in distribution. We have a very large sales team globally, again, to support both our issuer and investor clients. And the third foundation is on -- in execution. And execution can mean many different things. For us, the philosophy is solution-based execution. And that means distribution of capital markets transactions but it also means a continued focus in the industry on high touch sales and trading, we believe in that insight that our teams can provide. While at the same time, we've continued to invest in a suite of algorithmic training solutions that are generally considered amongst the best in the industry. And more and more over the last few years and you'll see it, we saw the opportunity in providing bespoke derivative and financing solutions to our clients. And I want to be clear, we provide those solutions where it fits our clients and us. We're not trying to be everything to everyone in derivatives. As you can see and Brian mentioned it earlier, we're on pace to achieve record sales and trading results, which have outpaced our competitor average. And in fact, 3 of our best quarters have been achieved in this year 2024. And what you'll see here on this slide is that our market share gains continue globally. So we're gaining share and we're also diversifying our revenue streams in equities. And again, the foundation of which is solution-based. I would highlight the one on the bottom that says UA, that's unbundled advisory. So those are clients paying us directly for research. I'd also like to highlight that our record results and these market share gains have come at a time that the VaR for the equity division globally has actually gone down over the last couple of years as we diversify our business both from a product and a geography. And you can see some of our select rankings. One of the foundations I mentioned earlier was, again, in insight or advisory. We continue to invest in research. We believe in it. We now cover, we believe, more stocks than anyone in the industry and we're continuing to invest. Recently, we hired a team and launched in energy transition here in the U.S. We've recently launched this year in Canada and in 2023, we launched in both the Middle East and Latin America. So again, a very core foundation to what we're doing. We want to keep growing and there's 3 pillars to our strategic growth and you've seen some of the success of that -- of these over the last year. The first one is to continue to grow our existing franchises. We've got great momentum in these businesses and we're continuing to grow them. And I want to highlight one that you'll see on the page there and that is our franchise in India. We have been in India for many years. And in the last few years, aligned with our partners in capital markets, we've continued to grow our sales and trading market share. And in fact, we're one of the leading international banks in equity sales and trading in India as well as in equity capital markets. And we're taking this aligned model globally into Australia, Singapore, Canada, throughout the world. The second pillar in driving our growth is really attacking -- and I've shown this slide previously, is the total addressable market or TAM continuing to grow in places that we can compete in. And if you look at the growth for the last year for us, a lot of it has been driven by Prime Services and again, where it fits us to provide financing solutions to our clients. It's been in equity derivatives in providing bespoke solutions for our corporate clients. And it's been in portfolio trading, where we were able to fill a gap when some of the consolidation in the industry happened. We're now one of the leading players. So you can see there's a diversified way that we are growing our business and attacking this TAM. Again, we believe that we continue to have the ability to grow market share and you can see the trend that we've had over the last 5 years. And as I mentioned earlier, we have been filling a gap that's been left by some of the dislocation in the market. And the way I describe it and I've said this before, we're now being invited in more and more often by both our investor and issuer clients. So we believe that we continue to have great opportunity in front of us in equities. And with that, I'll turn it over to my partner, Fred Orlan.

Thanks very much, Pete. Good morning, everyone. So I'll just jump right into our numbers. Our LTM results are up 5% versus 2023 and have risen 67% versus 2019, outperforming our competitor average of 35% over this time period. And we're pleased with this performance delivering better results in our credit trading-centric fixed income business and what has been a less favorable, more compressed spread environment and the improved performance is due to the steady advancement of our client franchise, much as you've heard from everyone else here, which has shown consistent progress over time and we'll talk a lot about that in the presentation. So looking at this another way, you can see we're also outpacing our 2020 to 2023 average that includes our best year, which benefited from the COVID stimulus. And this growth is also supported by the ongoing expansion of our EMEA fixed income business, where our revenues have grown by 136% over the last 5 years. And this success is the result of the long-term investments we've made in this region and together with the intense focus we have on collaboration between businesses, which has added strength to our overall fixed income foundation. This added diversity and global reach has brought more balance and consistency to our performance. So let's talk about the 4 pillars that underpin our franchise. First, in line with all of our partners that you've heard here today, we're committed to building long-term sustainable client franchise -- sorry, client partnerships. Second, we're dedicated to helping our clients achieve their performance goals by consistently delivering differentiated actionable ideas and solutions-oriented advice. Third, we focus on our origination businesses that are synergistically linked with our investment banking partners, which positions us for growth. And finally, we have a strong culture of collaboration across our global businesses, which helps us serve our clients better and capture more opportunities. And our commitment to this strategy has led us to being voted by our clients as having the most positive business momentum across our global credit franchise for 5 consecutive years. And this means when our clients are asked by Coalition Greenwich, which counterparty they expect to do more business with over the next 12 months, more clients have cited Jefferies more often than any other of our competitors. And this is a strong affirmation that our clients recognize the value of our unique approach to their business. So now let's drill down on each of these 4 pillars. So first, as for building client partnerships, we've increased our client revenues by 2.4x over the last 5 years with the top 100 most important global fixed income clients and we have top-tier rankings with respect to being cited as having a top 3 relationship across many of our businesses. And being a top 3, being in their top 3 means that you've created a meaningful connection with the client and you're most likely in their inner circle. And these 2 stats demonstrate we're both expanding the business that we do and deepening these relationships with the most important global fixed income clients. So this brings me to the second pillar, which demonstrates one of the ways that we're achieving this growth. And you'll see a lot of similarity to the way Pete thinks about his business as well. We focus every day on delivering our client partners actionable ideas, insights and solutions, which is -- are designed to help them outperform their benchmarks and also to grow their businesses. We strive to be an extension of their team, which makes the relationship more strategic versus simply transactional in nature. I don't know whose water I'm drinking but it will be okay. To get to this point, having inner circle relationships is an essential ingredient. And you can see here, we have 65 dedicated research strategists across the globe. And these desk analysts sit side by side with sales and trading, which enables them to focus on the most current and timely situations in real time and always be accessible to clients. And as many of you've heard you -- sorry, as many of you have heard me mention in past meetings, moving the relationship from transactional to strategic means earning the opportunity to help clients with their most important [ trades]. Or said another way, our focus is on achieving quality share above and beyond our simple market share. And you can see this in our quality share rankings from Coalition Greenwich, which show the evolution of the recognition from our clients over time across these 9 key business segments. And on the right, you can see our rankings where clients have recognized us among the dealers who are the best at providing trade ideas. So turning to the third pillar, alignment with our partners in Investment Banking, the growth in our Investment Banking franchise results in more product origination, which is an important source of assets for our investing clients and gives us an edge in trading these assets. Additionally, some of our largest banking private equity sponsor clients are also significant Fixed Income investing clients. And these important partners are moving beyond their traditional roots by building significant Fixed Income assets under management through the acquisition of more and more insurance assets. And our relevance and insight in these markets reflexively helps the bankers win more mandates. So we'll continue to focus on the businesses that are aligned with our IB activities, and it will be easier to add share in those businesses that will grow alongside our Investment Banking platform. And the three charts on the left show the growth in our businesses where, in addition to day-to-day trading, we also distribute new issues and benefit from increased trading flow in the aftermarket. The businesses on the right are areas where we originate off the desk, and you can see the strong growth in both our CLOs and ABS businesses. And in the CLO market, we have the top ranking in Europe, and the collaboration with the U.S. team has led to a doubling of our global market share over the last 5 years. So this point is a good lead into Pillar 4, which is collaboration. I think collaboration is something that I believe that we just do better than everyone else because it's a core value at Jefferies. For many years, you've all heard Rich and Brian talk about the flatness of our organization, which makes it easier to collaborate across our businesses. This is ingrained in our culture and makes working here at Jefferies a lot more enjoyable, and it makes it easier to deliver the best possible service to our clients. And in Fixed Income, we're growing and integrating our global platform with our key clients. And success in one region or business reverberates throughout our platform. So you can see here in the top box, our international client revenues have grown by 2.4x over the last 5 years as we've added significant talent outside the U.S. And you can see in the bottom box, we're consistently expanding the number of product areas we connect with our clients on. And we've doubled the amount of business we do with clients transacted outside of a core business team, which means we're broadening our client reach across products. And as a result, the number of products we transact in with the top 100 Fixed Income clients has grown from 6 to 10 over the last 5 years. As most of you know, e-trading is becoming a bigger and bigger part of the Fixed Income trading landscape, and we are among the leaders in this fast-growing area. We're the #2 dealer in high-yield portfolio trading, and we ranked second for the way we collaborate across cash trading, algo trading and portfolio trading and ETFs. And Fixed Income ETFs trading is a joint venture with our equity partners, which is another important example of collaboration. And as for the growth in this segment, our volumes have expanded 16x in U.S. investment grade and high-yield ETF and portfolio trading again since 2019. So to summarize, we've adhered to a consistent strategy, as delineated in this discussion, of our 4 pillars, leading to Jefferies being recognized as an inner circle partner of choice by more and more of our clients, having been voted as the firm which they are most likely to do more business with in each of the last 5 years. And this has translated into significant growth in our client volumes, with the most important clients in Fixed Income, and has also increased our revenue by 67% over that time period. So our success is built on the foundation of our exceptional talent and facilitated by our flat structure and culture of discipline. And given our momentum, we're very confident in our future opportunity and our ability to deliver consistent results throughout the market cycles. Thank you very much. I will now turn it over to Nick and Sol in Asset Management.

Thanks, Fred. Over the next few slides, my partner, Sol and I will walk you through the firm's alternative asset management activities. These are largely conducted under the Leucadia Asset Management umbrella. Our model is to invest [ seed ], acceleration or some other form of strategic capital into the strategies of managers with whom we partner in exchange for a participation in the fees that are generated by those managers. To be clear, this participation in the fees is in addition to the returns that we earn on our invested capital. In essence, the key to our business is that we want to build enterprise value rather than buy enterprise value. And we seek to do this while recycling our capital over time. Obviously, in building this enterprise value, the key is growing AUM over time, assets under management, at the appropriate speed within each of these managers. And the way we've focused on doing that and in helping them grow their assets is by investing in a global marketing team, and Sol is going to describe that for you in a few moments. We'll also walk you through our managers, not one by one, but in categories. But the point I want to emphasize is that we seek to have a diversified portfolio both to manage our own risk and to enhance the returns that we achieve, but also to offer an intriguing and again, truly alternative product offering to our clients, who are global allocators, endowments, foundations, pension funds, sovereign wealth managers globally. And we're bringing to them, hopefully, products that are unique and value added to their portfolios. One other key point I want to make is that we've built this business by utilizing the reach and breadth of the firm, which clearly, as you've heard over the last hour or so, has only continued to grow and expand. And it's through this breadth and reach that we're able to meet what we think are best-in-class managers and potential partners and then to also diligence and conduct in-depth reviews of both these people and their strategies. Our focused platform is implemented in a range of structures. And this can lead to some interesting ways in which it flows through our reported results. But we partner with our managers in whatever form is most appropriate for the opportunity. This can come through a [ seed ] or acceleration deal where we receive a revenue share. In some instances, we've done a revenue share with a GP stake, so that we're both top line and bottom line partners. We've done joint ventures where we jointly control some of these managers. And we've also, at times, brought employees on to -- into the firm to run divisions for us. And in those instances, we can control the entirety of the operations of those managers. This is more about accounting, but the real point is that we participate with these managers in three ways, in the management fees that they earn on assets, in the performance fees or incentive fees that they earn on third-party capital and -- as well as the investment return on our own capital. While all three of these are linked, obviously, you need to perform to generate returns to bring in new investors; we focus on growing this management fee portion of it. To us, that is truly the long-term goal, to have a stable base of management fees in which we participate. And we've been successful at growing this over the longer term, as shown here. Despite there being a difficult fundraising environment for the last few years and despite some idiosyncratic events at some of our larger managers, the trend here has been positive. And most importantly, as I'll show on the next slide, with our current base of offerings and recent performance, we believe we're very well positioned for continued and renewed growth. This slide shows our total revenues on the right side -- on the left-hand side here. No, that's right, sorry -- and breaks out the return on our direct investments into the strategies managed by our partners. We believe we've generated an attractive return as a portfolio for the firm and for our investors in these strategies. And I'd highlight that year-to-date 2024 would be approaching the prior highs, if not for reserves that we've taken for 2 situations that are currently with ongoing litigation. Again, the key point is we believe this overall strong performance highlights the attractiveness of both our individual strategies and also the portfolio as a whole and the offerings within it for our investors -- third-party investors. With that, I'm going to turn it over to Sol to walk you through the rest of our slides.

Thanks, Nick. So a key focus for our business model is to be efficient with our capital and to recycle that capital to support the growth of new strategies and new partnerships. Each year, as we continue to grow and recycle that capital, our business becomes more diversified. More of our revenue comes from management fees and incentive fees and less from investment income. And as Nick touched on, that's a big part of our job. The capital raising environment has been challenging over the last couple of years, especially in the hedge fund space, where we have a lot of exposure. Our team, however, has continued to do a nice job raising money in this tough environment. We've raised just about $2 billion of new capital this year, and we've got a pretty big pipeline for the fourth quarter and early into next year. We recently launched a new strategy called GREYKITE, which focuses on European private equity real estate, and we did that deal along with [ Wafra ]. We seeded them together, which is something we hadn't done in the past. Our sector specialist hedge funds have continued to perform well, and we have started to see a demand in all of them, actually, recently. And our multi-strat managers have performed well this year and have been raising capital, have a very good pipeline for the back half of this year and into the first quarter as well. Our marketing and investor relations team has doubled over the last 4 years and is up to 26 investment professionals today globally. This team is a big value add to our partners when we get into these strategic relationships, and they continue to do a really nice job there. All over the globe, we've got a handful in Asia, a handful in Europe, and then we cover the U.S. and Canada out of here. And this last slide here is just a snapshot of what our portfolio looks like today. The way we look at it is we break it down into 4 different groups. The first would be the multi-manager group, where I'd highlight Dymon Asia and Schonfeld, who are 2 of our larger partnerships in this group. And they both had excellent performance years this year and very good pipelines, as I mentioned before, in terms of raising new capital. The next would be the credit group. I'd highlight Point Bonita here, which is a firm that has continued to do very well. They're up to about $2 billion in assets and have had a very consistent performance. FourSixThree Capital, who has also performed well, is just approaching $1 billion in assets now, and that was a firm we seeded a few years ago. The third group is our equity long/short group. In this group, I'd highlight StemPoint Capital, which is a biotech and pharma hedge fund that we seeded a few years ago. They've recently seen some nice inflows and just recently launched a long-only product. And the last bucket, which we call other, again, you see GREYKITE here, the real estate private equity firm I mentioned earlier. And along with seeding with Wafra, we're expecting to raise a good substantial amount of capital here as we get to our first and second close later in the coming months. This group here outside of Jefferies Finance, which has had a great deal of growth over the last few years, and we expect to continue to grow going forward; has grown their assets by over 40% in the last 3 years. while onboarding 9 new managers. We're excited about how we're positioned. And I think that's it. I think I'll wrap it up. So thanks for your time, and we'll turn it over for questions to Brian and Rich.

I think we can take questions in the room, and I think there's some that are coming in under the system.

We have microphones for the people.

Ryan Kenny with Morgan Stanley. So you clearly hired a lot across all of your businesses. You've taken market share in all of your businesses. How do we think about the pace of that going forward? Are there any growing pains associated with the market share gains? And can you keep the pace of hiring you've done over the last five years, going forward?

As you saw in the slide that Investment Banking went through, the pace of hiring has slowed down. It was really at a high pace in '21, '22 and '23. From here, it's going to be more modest, a combination of the fact that we were able to meaningfully fill out our architecture, but also the fact that if we're right, we're going into a more active period and people tend to have less reason to move and tend to move less readily. We, about 7 years ago, meaningfully expanded our commitment to developing our own talent by setting up an extensive training program and a real effort to grow our own. So our ability to continue to grow our senior ranks will be facilitated by the fact that we've really doubled down on the internal effort. And I think it will turn out that the external efforts ramp up episodically and then quiet down a bit, and we're probably in a little bit of a quieter period. That's okay. We have a couple of years of absorbing the impact of these last several years.

Is my microphone on right here? I would just say in terms of the growing pains, it's remarkably few growing pains. The fact of the matter is the people that we have hired know our existing people. In fact, many of them have helped us hire them. They've known our clients, and their clients have suggested they come here. So it's not by coincidence these people are finding their ways towards Jefferies. And when you have both your -- the existing people at the firm as well as the clients encouraging you to make a change because you're really good, it minimizes internal nonsense, and it's been a really great thing to watch.

And just as one follow-up. On the comments throughout the presentation on operating leverage, does that mean that compensation ratio and non-compensation ratio should traject downwards from here?

We've always talked about that forever as a product of revenue growth than necessarily cost compression. We should be able to scale those expenses. And yes, both of them over time come down as a percentage of revenue if we're right.

Chris?

Christoph Kotowski from Oppenheimer. I think I asked this question about 5 years ago, and I just thought I'd try it again. But you kept your balance sheet remarkably compact and basically kind of flattish since, I think, 2011. And just as you grow the business and push more into larger firms, does it, at some point, become necessary to push deeper into kind of investment grade in banking business and to start growing that balance sheet more?

I mean I think you -- our strategy of keeping a clean, transparent, similarly-sized balance sheet is intact. And I think you'll see us go after other businesses in harmony with some of our joint venture partners, most notably SMBC. I don't think we'll ever be a firm that leads with capital. If you look at the people we compete with, they have $1 trillion, $2 trillion, $3 trillion balance sheet. So it would be a fool's errand to try to begin to compete with them. However, strategically, with good partnerships, we could have ample amount of capital to do and accomplish anything. And not to be said that we don't use our capital for clients, we use all of our capital for clients, we don't use it for ourselves, we use it to facilitate to help get things done; but we're leading with ideas and perspective. You saw our tangible leverage ratio went up a little bit in May, that was primarily because we knew we were prepared for T+1. We weren't sure everybody else was prepared for T+1. And so strategically, we will do things like that out of prudence to make sure we can always protect the foundation of the company, but we're not using that capital to go out there and buy a business.

And I guess, sort of as a follow-up to that, if I can. You're probably more focused on leveraged loans, sponsored finance and all that. And it -- whereas the bigger firms are more diversified, right? They have mortgage desks and muni in a bigger way. And it kind of makes it for a bumpier ride when credit spreads widen out. And is that okay? That's just the nature of the world? And that's just what Jefferies is...

There's no doubt. We've had -- when the world gets a very bad cold, we get sick, too. There's no place to hide in our business. But if you look at all the dislocations that have occurred, even though we're not quite as diversified as the larger firms, they go through a lot of pain, okay? And a lot of the areas that they have been at the forefront of that pain. And quite honestly, a number of them have disappeared because of that pain. So we're also more -- as Brian and [ Raph ] mentioned, we're much more diversified today in non-risk revenue streams. So I think the balance is better than it's ever been. We're still going to be market dependent. There's no place to hide. We still have a balance sheet. But I think we've proven we're pretty prudent when it comes to sizing our risk and living to fight another day.

Brennan Hawken, UBS. Two questions. First on capital. you guys spoke a bunch about returning capital throughout the presentation today. How are you thinking about capital returns in the current environment? What should investors be thinking about buyback, dividend, whatnot?

Clearly, we've pulled back a little bit from the buyback side. We've sent a signal, I think, by increasing the dividend. We are in a year that is meeting our expectations. We said in our end of last year that we thought 2023 was the bottom and 2024 is being -- is giving us that recovery year. As we see greater visibility into 2025, that will shape our capital return thoughts. But some blend of regular dividends, conceivably other types of dividends and share repurchases will continue to be our strategy, but we're going to balance that over time as we see it. So we're coming in a recovery period, and our confidence will go up as we get into next year as our expectations.

Put another way, when you buy 160 million shares at [ 24 ], which was basically the size of Jefferies when we merged it with Leucadia, it shows that we are focused on returning capital. It sure feels like dividends are a better way to go right now, not that we don't like our stock price, not that we won't consider buyback, but it just seems as an owner -- again, it's all long-term mentality as shareholders would want.

Got it. And you've spoken in the past a lot about [ PB ] and building those capabilities out. Can you speak to where that is today? What the revenue mix within the equities business looks like? And what should look like in the coming few years?

Pete, come to the -- take that mic, would be great.

What I would say is I used the term earlier, we're being invited in. Some of the dislocation in the marketplace has caused concentration with some potential financing counterparties who are reaching out to us. So we have an opportunity to grow, and we've been growing this year, both in core [ PB ], but also synthetically through swaps. So we continue to see a larger opportunity, but it has to fit us. Not every counterparty is going to fit us. So I think that's a unique position to be in. So it's going to grow and continue to be. It's going to grow as a percentage of equity revenues, but in a very kind of measured fashion.

Yes. I just want to add to Pete's comment of being invited in. If you were in my seat today versus the many seats I've had along the way here, and you see on banking, equity, fixed income, asset management; we are invited in everywhere as opposed to having the bang on the door and explain what Jefferies is. It is such a different night-and-day mentality. It's partially because of all the people that have -- internally, at Jefferies, we have grown. It's partially because all the people that have brought us in, it's been the global nature of it. And that's a different mindset. And as Brian said -- we said this was kind of a transition year of beginning to digest a lot of big investments, many of those investments have not quite taken -- it takes a while. It takes a while, and we're pleased with the progress to date. I think that really signifies a bunch of potential upside that we see going forward. And the analysts always drive us, and that's because we don't give earnings guidance, we don't give ROE expectations because quite honestly, every 3 to 4 years, the world seems to blow up, it makes all those predictions kind of useless. But the fact of the matter is we've shown the scale of how we can move ROE on revenue growth during COVID. We saw the operating leverage. The problem was during COVID, and we told people at the time, that wasn't real. That was a unique opportunity, a unique window. These last couple of years, our goal has been to create -- take advantage of higher interest rates, which cease capital markets capabilities to higher-grade talent. So as we begin to progress, we can start to really grow that revenue base again and drive our ROE to really attractive rates. That's the whole philosophy. I can't tell you what quarter, what day, what hour, nor will we. But that's the long-term mentality that drives long-term value for our shareholders.

James Yaro, Goldman Sachs. Maybe I could just ask for the synergies from the Sumitomo partnership. So far that you've seen, obviously, now the partnership for a number of years and then maybe as you look ahead, with a couple of years of this partnership in place, what are you hoping for over the long term?

Yes. Let me say that I think the real time frame is about 1.5 years. In other words, we initiated the alliance in -- I think it was August of 2021. And that was somewhat limited in terms of focus it was meaningfully expanded, I would say, by multiples in late April of 2023. So I really market from that moment, that was when we kind of opened the gates on both sides and said, let's go. Invariably, it takes longer. It always goes a little slower, but we're 18 months into it. We are hoping by the end of this year to have designated 100 joint clients, meaning 100 clients where the goal is for us to be providing the services in investment banking and capital markets ex investment grade for them to be there on the commercial banking investment grade and other related services and for it to be as seamless as possible to the clients. That number, 100, will grow, hopefully, meaningfully next year, is something that can grow at pretty good numbers for the next number of years. I mean there is no necessarily limit to it because we are working with, by stats, the #8 largest bank in the world ex the Chinese banks. I actually believe that we're partnered with one of the top 5 great global banks because SMBC has been global longer than most banks. It followed a lot of the Japanese trading, auto and other companies as they became global early. And the result is we find that they're in 40-plus countries, we're in 20-plus, and the overlap is dramatic. So it's accelerating. It's coming through in our ECM line, it's coming through in our M&A line, and it's also coming through in our ability to jointly finance in the leveraged finance market. So we, Jefferies, are now in a position to make staple commitments and other commitments and leverage finance at almost double the level that we were at 3, 4, 5 years ago, and that is very meaningful, and it's been meaningful for us this year in capturing M&A opportunities, either in the fact that we might not have captured it without or more significantly that our opportunity to do them on a sole or strong lead basis because of the fact that we can fully staple the transaction. So there's a lot of anecdotal evidence. It's starting to show up in the numbers. They're not so big yet that we're going to necessarily call them out, but we see it coming, we see it strengthening. We also have put a lot of effort into Japan cross-border. It's early in seeing the fruit of that. But if we are right in our research view that the trend in Japan toward higher ROEs and greater global engagement is correct, then we think we and SMBC together can capture a real share of the cross-border flow.

It also might be worth mentioning because there is confusion, both on Bloomberg with the share count and the way people perceive it. The shares that SMBC has purchased in open market have not been retired -- has not changed our share count. It's just converted comment into preferred, which eventually goes back into common. So fully diluted, we have 253.7 million shares outstanding. There just take 12 different ways people are looking at this. That's the -- that's the way we look at it.

And those shares are really temporarily here. It's basically a 3-year preferred that then comes back into nonvoting common. So it is one large exercise that doesn't have any real meaning.