Jefferies, which usually kicks off the earnings season for US banks, is often seen as providing a preview. On that basis, another big quarter of trading and investment banking profits lies ahead. In some other respects, this midsized, standalone investment bank is a misleading bellwether.

Jefferies, set up as a West Coast-based block trader in the 1960s, reported record fourth-quarter revenue as the pandemic fuelled a surge in trading and underwriting.

Its investment bankers pulled in a combined $915m in revenue for the three months through November, a 232 per cent rise year-on-year. Traders saw more modest gains compared with earlier quarters. Revenues from their unit still rose 62 per cent to $590m. Together, the two divisions helped push overall group revenue two-thirds higher to $1.86bn.

Jefferies’ underwriting activity benefited disproportionately from the boom in so-called blank cheque companies. These raised a record $82bn in 2020 as it emerged as a fashionable alternative to a traditional initial public offering. Jefferies was one of the top five underwriters, according to Refinitiv.

This bodes well for Goldman Sachs. Morgan Stanley should also do well thanks to a broader bounce back in M&A in the fourth quarter. But results at JPMorgan, Citigroup and Bank of America will be tempered by their exposure to main street lending.

Another area where Jefferies may give false hope is near-term shareholder returns. The firm is not subject to dividend or stock buyback curbs. It therefore has boosted its quarterly cash dividend by a third and increased share buybacks by $193m to $250m.

While the Fed has given the green light for the big Wall Street banks to resume stock repurchases, this does not mean the flood gates are open. Dividends will remain unchanged through March, capped at the levels set during the second quarter of 2020.

Moreover, dividends and buybacks together cannot exceed banks’ average quarterly income over the previous four quarters. Jefferies’ own analysts have calculated — without too much gloating, one hopes — that, on average, banks will be able to repurchase roughly 1 per cent of their market worth. Big lenders will remain constrained and awash with excess capital.

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