Today’s Capital Markets

Three months ago, we wrote to you about inflection points, challenges and opportunities, as well as learning from history. Now that the first calendar quarter of 2016 has come to a close, it is clear that these past few months have brought incredible levels of volatility and pain to almost every corner of the investing world. Equity and leveraged finance markets were all but totally shut down, the concept of a Brexit raised a potentially new systemic issue, and horrific acts of terror like the bombings in Brussels seem to be becoming the norm versus isolated incidents. As is often the case, periods such as this are not about winning, but about persevering, surviving and regrouping. As many of you may have read, Jefferies was not immune from these events and challenges, but we too hunkered down, absorbed the blows that came our way, and have emerged more focused and driven than ever.

At the moment, the financial world is enjoying a respite and somewhat of an uplift due to what seems like another round of well-coinciding strategies from the major central banks around the world. Their efforts to lighten their touch to the markets, go their separate ways or, to some extent, compete with each other, all proved too much for the markets to bear, and we have returned to what may be an even more aligned effort at reflation and encouraging of risk taking. There was even a rare period of “panic buying” when investors decided they were now painfully too short on risk. Whatever the facts, the result is clear, at least for now: the markets have settled back into a comfort zone of moderate risk on, with wary eyes over all shoulders. Credit is making a comeback and leveraged finance is getting some appreciation. Our hunch is that a warmer Spring is ahead, but most likely with a few rainy and windy days. For companies and sponsors, there will be the opportunity to sell, finance and refinance, but as always at times like this, please take advantage of the markets as they are and don’t count on or seek a better day. For investors, value is coming into focus and opportunities do exist, albeit with the possible need to hedge or otherwise offset the risks one is taking.

At Jefferies, we are open for business, as always. Our tribe of investment bankers, salespeople, traders, analysts and other professionals are focused 100% on serving our clients with our best advice and execution.

Jefferies sits in a unique position at a pivotal moment in the evolution of the capital markets. If regulators, issuers and investors could turn back the clock, what might they wish for? Separation of banks and securities firms? Limits on the scale and concentration in banking? Specialists assigned to assure some rational level of liquidity in stocks? More centralized trading venues whose purpose is to facilitate rather than profit? More than mils or one cent in price differential between buyers and sellers such that intermediaries can provide some cushion and support? We ask these questions because the issues of depth of liquidity, volatility and systemic risk remain gating concerns for the markets and all participants. We expect the world will continue to move forward, and markets, investors, issuers and intermediaries will continue to adapt their strategies and systems to best cope with the opportunity and challenges ahead.

At Jefferies, our response to our clients’ needs and our own perception of the direction of market structure, as well as that of our competitors and potential future competitors, is to continue to strengthen and deepen our capabilities. What you may have understood from our actions over the past year is that we are laser focused on our core businesses of Equities, Fixed Income and Investment Banking, and are continuing to add exceptional individuals into key roles around our firm where they can improve or establish our service to you in a particular sector, service or product. We continue to develop further and strengthen the solutions we offer you to navigate increasingly complex markets. In Equities, we offer state of the art algorithms and electronic access, and in both Equities and Fixed Income, we have broadened the range of access to execution alternatives and continued to strengthen the quality and volume of ideas we share with you each day. As our continued efforts to build and strengthen our business demonstrate, we are more committed than ever to being a leader in all the Fixed Income products we trade. In the last twelve months, we have added measurably to the breadth of our Investment Banking capabilities, as well as the depth of our sector knowledge and coverage. At this time of epic change on Wall Street, the City of London and around the world, Jefferies will continue to deliver for you, our clients, and to strive to be better every day.

We thank you for your support and look forward to seeing you soon,

Sincerely,

Rich and Brian