Jefferies Group: Going negative

Back in mid-October, things were tracking nicely for investment bank Jefferies Group (NYSE: JEF). Somehow, the firm was able to weather the turbulence, which ensnared elite firms like Citigroup (NYSE: C) and Merrill Lynch (NYSE: MER).

However, things didn't hold up. In November and December, Jefferies suffered some big setbacks. While Jefferies expects net earnings of $140 million for 2007, the fourth quarter will have a net loss of $24 million, or $0.17 per share.

What happened? Well, Jefferies had issues with two principal trading efforts. There were also problems with the junk bond department. Oh, and there were some postponements of investment banking deals.

Simply put, the markets are experiencing extreme volatility (which was certainly evident last week). No doubt, this makes it pretty tough for firms like Jefferies.

The good news is that Jefferies has a strong capital base and has no need for outside capital infusions. Besides, the firm has taken great efforts to diversify its business (going beyond just a pure broker).

But with investors extremely jittery right now, such things are not being considered – at least in the short-run.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.