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Executives

Richard B. Handler – Chairman of the Board, President, Chief Executive Officer

Peregrine C. Broadbent – Chief Financial Officer, Executive Vice President

Brian P. Friedman – Chairman of Executive Committee, Director

Analysts

Chris Kotowski – Oppenheimer

Patrick David – Bank of America Securities

Douglas Sipkin – Pali Capital

[Casey Amberg] - Millennium

[Steven Chubak] – JMP Securities

Steve Stelmach – FBR Capital Markets

Lauren Smith – Keefe, Bruyette & Woods

Michael Wong - Morningstar Incorporated

Jefferies Group Inc. (JEF) Q2 2009 Earnings Call July 21, 2009 9:00 AM ET

Operator

Welcome to the Jefferies 2009 second quarter financial results conference call. A question and answer period will follow management's prepared remarks. (Operator Instructions) A press release containing Jefferies 2009 second quarter financial results was distributed via business wire before the market opened today and can be accessed at Jefferies website at www.jefferies.com.

Some of the comments made on this conference call may include forward-looking statements. These forward-looking statements may contain statements about management's current expectations, strategic objectives, growth opportunities, and business and prospects. These forward-looking statements are not statements of historical fact and represent only Jefferies belief as to future performance. They usually include the words continue, will, believe, should or other similar expressions.

Actual results could differ materially from those projected in these forward-looking statements. Please refer to Jefferies annual report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2009 and in Jefferies Forms 10-Q and 8-K for discussions of important factors that could cause actual results to differ materially from those projected in these forward-looking statements.

I would now like to introduce your host for today's conference call, Mr. Richard Handler Chairman and CEO of Jefferies.

Richard B. Handler

I am Rich Handler, CEO of Jefferies and with me on the call today are Brian Friedman, Chairman of our executive committee, and Peg Broadbent our Chief Financial Officer.

For our second quarter ended June 30, 2009, we recorded net revenues after preferred interest of $578 million, a net income to common shareholders of $62 million or $0.30 per share. Peg will take you through the details of these results in a moment.

Needless to say, we are proud of our second quarter performance and it confirms that our first quarter results did indeed reflect a positive turn in our business. We are benefiting from both an improved operating environment, as well as the strategic build-out of our sales and trading business across the firm.

As we have mentioned before, during the last 15 months we aggressively and countercyclical capitalized on the market turmoil by adding many talented client focused sales and trading professionals to our fixed income, high yield bank debt convertible and equities business lines on a global basis. This has provided us with the opportunity to gain market shares previously held by competitors who have either been weakened by the turmoil or no longer exist.

We are pleased with our solid results, but are not remotely close to declaring victory. While we believe we are in a strong position to continue to drive the growth of our businesses over future periods, our memories are very fresh from the pain, risk and uncertainty that have been overwhelming our industry.

We intend to continue to prudently expand globally. We are conducting this conference call from our 359 person London office, which is testimony to the truly global nature of our large and diversified full service platform, as well as the seriousness with which we take contributions that our internationally based businesses can make in the future.

During the second quarter, we continued to execute our growth strategy. We believe we did not see the full benefits of our efforts in our second quarter results. To be specific, first in mid-June the Federal Reserve Bank of New York designated Jefferies as a primary dealer. Besides further diversifying our business with more product offerings to our customer base in giving us the opportunity to penetrate new clients, this designation reflects yet another important step in our emergence as a major Wall Street firm.

Second, during the quarter we continued to add professionals to our rates, mortgage, high yield bank loan, convertible and equities quantitative trading platforms. Third, we are extremely pleased to announce today the significant expansion of our healthcare investment banking effort and the addition of Ben Lorello as Chairman of Investment Banking at Jefferies.

We are excited about the additional opportunities, enthusiasm and leadership that will be provided by Ben, Sage Kelly who will serve as Head of Healthcare Investment Banking, and the many other professionals who will be joining our team. Finally, we have hired Mark Peters to lead and build out Wealth Management business. Mark has a proven track record and all initial signs are that we will be successful in this growth initiative.

During the quarter, we enhanced our liquidity position and long-term capital base by issuing $400 million of new ten-year capital. We had just $1 billion of cash on hand at the end of the quarter, zero bank borrowings and no long-term debt maturities before 2012 with a weighted average debt and preferred stock maturity of nearly 14 years.

We are pleased with the strength of our balance sheet, the competency and energy of our team, the increased diversification of our business model, and our ability to add value to our clients in virtually every aspect of the capital markers. In fact, our firm has never been stronger and it's very exciting to be at Jefferies today.

Now I'll turn it over to Peg.

Peregrine C. Broadbent

As Rich mentioned, our net revenues after preferred interest for the quarter were $578 million, which is a 51% increase compared to the $383 million generated in the second quarter of 2008 and a 66% increase from the $347 million of net revenues we recorded in the first quarter of 2009. Equities net reviews were $130 million for the quarter versus $165 million for the second quarter last year and $103 million for the first quarter of 2009.

Cash equity volumes remain low compared to historic levels, but did modestly increase compared to the first quarter of 2009. Our record 16 common commodities net revenues of $277 million represents an increase of 280% over the comparable quarter last year, and a 36% increase over our record first quarter. Corporate emerging markets, rates, and mortgage-backed sales and trading all generated noticeably stronger results than in the previous record quarter and municipals were part of our results for the first time ever.

High yield net revenues were $61 million, a considerable increase over both the second quarter of last year and the first quarter of 2009, which were $31 million and a loss of $7 million respectively. Our expansion efforts increased focus in bank loan trading and an increase in secondary high yield trading volumes were the primary drivers of these results.

Investment banking revenues were $121 million in the second quarter, up 10% from the comparable quarter last year and up 226% from the first quarter of 2009 when the markets were virtually closed. Capital markets revenue were $84 million for the quarter and advisory revenues were $37 million. Asset management revenues for the quarter were just above flat compared to our $13.5 million second quarter of 2008 when we had substantially more capital invested in this business.

Non-compensation expenses were $107 million versus $100 million and $85 million in the second quarter of 2008 and first quarter of 2009 respectively, with the recent quarter's higher expenses driven mainly by increases in brokerage caring and technology costs. Compensation expense for the quarter was $348 million or 59% of net revenues.

Earnings per common share were $0.30 as compared to a loss of $0.05 in the comparable quarter last year and a positive $0.19 last quarter. During the quarter we repurchased 72,000 shares an averaged price of $20.29 per share. Book value per share was $12.45 at quarter end based on 172 million shares outstanding. Our pro forma book value for common share was $10.74 based on 199 million shares outstanding, including restricted stock units.

We estimate our gross and adjusted assets and total equity leverage ratios are still low on a relative and absolute basis at 10.8 times and 7.3 times respectively. As expected, our balance sheet has increased since the 31st of March, 2009 driven by seasonal increases in securities financing and expanded trading inventory, particularly in our developing treasury and agency securities business.

We estimate our Level 3 assets after accounting for non-economic interests were less than $500 million for the second quarter of 2009 or approximately 6% of our total assets value. We estimate our average VaR was approximately $6.2 million compared to $4.45 million for the first quarter of 2009. We ended the quarter with 2,307 employees, a net increase of 11 people since the end of the first quarter of 2009 and a substantial reduction versus the 2,514 at our peak on the 1st of January, 2008.

Rich will now address in more detail the results of our trading platforms.

Richard B. Handler

As was the case last quarter, the star performer of our increasingly diversified business model was fixed income. Although it should be clear from our quarterly average bar, we have accomplished our growth this quarter to $277 million in fixed income and commodity revenues substantially through facilitation and execution of car inflow. We continue to benefit from the significant addition of talented professionals and from the changes in the competitive landscaping.

Having invested to attract and build top tier sales and trading teams across the fixed income spectrum, we are beginning to realize the potential of our efforts. We continue to increase market share in high grade corporate bonds, mortgage and asset-backed securities, emerging market securities, municipals, and now with the addition of our rates platform and being designated primary dealer we expect to add U.S. governments and agencies to this list.

As Peg mentioned, our high yield revenues were $61 million, which is substantially stronger than both last quarter and the second quarter of 2008. This is primarily a result of our expansion efforts including the increased focus on leverage loans, but also due to the broad based recover in the markers and sectors on which we focus. We continue to focus on getting market share in customer facilitation and execution.

Our equity revenues were $130 million for the second quarter up 26% in the first quarter, but down 22% in the second quarter of last year. Similar to last quarter, our commissions were down versus last year due to a combination of lower average prices of securities traded and the overall reduced market trading activity.

Now, I'd like to turn it over to Brian Friedman who will discuss our investment banking results.

Brian P. Friedman

As Peg indicated, investment banking revenues were $121 million for Q2, three times the $37 million result in the first quarter when the markets were virtually shut and over 10% better than the $109 million we generated in the second quarter of 2008. Capital markets revenues of $84 million in the second quarter were up 478% compared to the weak first quarter and up 244% from the second quarter of 2008.

M&A and advisory revenues of $37 million in the second quarter were up 63% from the first quarter but down 57% from the strong second quarter of last year. The capital markets environment improved considerably during the second quarter, which resulted in a significantly stronger debt capital markets performance compared to the same quarter last year.

The flow of equity transactions was consistent to the second quarter of 2008 in aggregate, although the market did improve as the recent quarter progressed. During the second quarter, we completed 29 deals of which 20 were managed by Jefferies.

In contrast to the improving capital markets flow, our M&A revenues were markedly down from the second quarter of '08. This is a result of reduced M&A activity and depressed company valuations. Offsetting this decline is our recapitalization and restructuring activity, which continues to grow and to which we added a number of new engagements during the second quarter.

While our investment banking results are still not as robust as we desire or expecting to be in the future, given the state of the current markets we are very pleased with our results. As Rich mentioned, we are in the process of welcoming some new top talent to our investment banking business. We believe these individuals will lead us to a leading position in healthcare investment banking and we are hopefully that they will have a positive further impact across our overall investment banking platform.

Jefferies Finance in our joint venture with MassMutual performed well during Q2, even with the syndication market remaining quiet at best. We completed four transactions in the second quarter all as lead.

Now, Rich has some final comments before we take your questions.

Richard B. Handler

We can sum it all up by saying our strategy is paying off. We are a global full service client focused investment bank. Since we managed our balance sheet and capital and we're not held back by bad assets or liquidity concerns, we had the ability to pay offense in 2008 and the first half of 2009 and we are starting to reap the benefits.

While have maintained and in many cases enhanced our historical core businesses and competencies, it is clear that we are a very different firm today than we were just two years ago. We believe Jefferies is emerging as one of the major leaders of the securities and investment banking business, and we fully recognize that the hard work is just beginning.

Thank you and we are now available for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from [Guy Mankowski] - Bank of America Securities.

Patrick David in for [Guy Mankowski] - Bank of America Securities

Given the number of products you kind of expanded to particularly in fixed income and investment banking over the last year, can you kind of give us an idea of what businesses you believe are kind of fully ramped versus those that are still kind of getting ramped up?

Richard B. Handler

I think on the fixed income side of the equation, there really are five distinct businesses and they're all in the process of beginning to gain market share and beginning to get ramped up. That being said, we're not projecting anything into the future but I think we're relatively at early stage with each one of the businesses.

Patrick David in for [Guy Mankowski] – Bank of America Securities

And where do you think there are still kind of holes where you're looking to fill in or do you think you've kind of got the base of what you're looking for?

Richard B. Handler

I think for us, especially given how aggressive we were in the course of the last 18 months, there is a lot on our platform for us to work to integrate and to enhance just basically focusing on the various products and services. So, I don't think there are a whole lot of holes on our platform and there's a lot of us to do assimilating and getting to work together throughout the organization all the teams that we have.

Patrick David in for [Guy Mankowski] – Bank of America Securities

And could you give us an idea of how much of the sequential improvement in fixed income was a result of the muni business or is that too much detail?

Richard B. Handler

We don't break it out, but I would say we're happy to have them participate. They're participating exactly as we had planned and it's really been across the board within the fixed income platform. There's been pretty good client flows and that has resulted in the broad representation of good numbers.

Operator

Your next question comes from Chris Kotowski – Oppenheimer.

Chris Kotowski – Oppenheimer

I was wondering, when you have a team like Ben Lorello joined you or any of the other teams, I was wondering if the treatment on the deferred compensation. Does that all have to be expensed up front if you have to issue them restricted stock to take them out of their existing stock?

Peregrine C. Broadbent

No, it doesn't have to be expensed up front despite the change in the provisions to our stock compensation program that we made in the fourth quarter of last year.

Richard B. Handler

And to be clear, what we've told people is on all annual compensation we're expensing the year that was earned and any upfront grants or it could be expensed over the life of whatever terms we negotiate with the employee. Obviously, the vast majority of our shares that through our share account historically was annual compensation versus upfront.

Chris Kotowski – Oppenheimer.

So it's mainly the [yearly] income? So then I'm also trying to get a little gauge on sort of what we should expect in terms of the quarterly leakage of shares. I think that's on page five of the press release I see the shares going from 203 to 206 on average, is that sort of a to be expected normal run rate?

Richard B. Handler

I think the way to look at it is we are mindful of dilution. There will be some changes on a quarter-by-quarter basis, but we as heavily employee-owned and board-owned shareholders are very mindful of dilution. That's really all I can really say on that.

Chris Kotowski – Oppenheimer

And then on the high yield results, I was wondering is there any way to separate out sort of the benefit of credit spread tightening during the quarter versus underlying customer flow?

Richard B. Handler

I think it was a good mix of both. Obviously, the market has improved but our client flow is up incredibly, significantly compared to just a short period of time, even 1.5 years ago in normal conditions our client flow was up. It exceeds those historical levels primarily because of the build-out within high yield and the extension to bank debt trading. I don't think there was any one specific thing that generated the results. It was really a combination of the two.

Operator

Your next question comes from Douglas Sipkin – Pali Capital

Warren Gardiner in for Douglas Sipkin – Pali Capital

This is Warren Gardiner for Doug. What were total assets for the quarter?

Peregrine C. Broadbent

We're estimating total assets to be about $26 billion at the end of June.

Warren Gardiner in for Douglas Sipkin – Pali Capital

And you guys had a strong first half so I was just wondering, any plans to reinstate the dividend?

Richard B. Handler

That will up to our board, and that's all I can say about that.

Operator

Your next question comes from [Casey Amberg] - Millennium

[Casey Amberg] - Millennium

Can you just kind of walk me through exactly what the principal transaction group that revenue line item is?

Richard B. Handler

If you're asking if there's any large concentrated transaction there, the answer is no.

[Casey Amberg] - Millennium

How much would that line item benefit from spreading tightening over the quarter?

Peregrine C. Broadbent

Not a significant amount. Predominately that represents is a function of the client flow activity that we've experienced, particularly on the fixed income side. So predominately it represents cash in the bank from a balance sheet perspective as opposed to unrealized gains. A significant portion of that is a function of client flow.

Richard B. Handler

Its client flow and non-concentrated in any one particular trade.

Operator

Your next question comes from [Steven Chubak] – JMP Securities

[Steven Chubak] – JMP Securities

This quarter you guys achieved the 60% comp ratio I've heard you discuss as a goal in previous calls. Should we be thinking about this as a long-term run rate going forward?

Richard B. Handler

I think what we told people given the dislocation in 2008 we were going to target 60% for this year and then work on the smart, methodical reduction over time that made sense for the overall platform. And so we're happy that we're achieving our target and we're mindful of improving our margins and it's a long-term plan.

[Steven Chubak] – JMP Securities

And I guess one follow-up. Could you provide any color on the strength of your investment banking revenues and the backlog that you see?

Peregrine C. Broadbent

I think you've probably heard this from one or two others, but visibility of backlog has gone down considerably because the capital markets side of the world has a much shorter fuse to it. So to the extent that the actual revenue is proportionately much more capital markets, our visibility has gone down.

So backlog information, frankly, right now is not that helpful as a predictive matter. It will become more valuable over some number of quarters as M&A comes back, but right now backlog, unfortunately, is not something that we're addressing.

Operator

Your next question comes from Steve Stelmach – FBR Capital Markets

Steve Stelmach – FBR Capital Markets

Just to ask that backlog question a little bit separately, a little bit differently, if in competitors have indicated that maybe activity levels pick up in the second half of the year but the revenue picture pie doesn't improve until 2010, do you think it's a fair characterization or is it just too early to say?

Brian P. Friedman

Yes, it's a little early. The way the cycle works is that pretty much in November of '08 deals that were on the table started to sputter out. A few of them closed in December virtually nothing was closing the first quarter. People are getting back to M&A so the cycle is restarting. A deal that you get engaged on today, its 50/50 whether it closes in the fourth quarter or it closes in the first quarter of next year.

I think the answer to your question is you have a shot for M&A be somewhat back far from pulling back in the fourth quarter more likely in the first quarter. So somewhere between the end of the year and the first part of next year, you should see M&A a bit wholesome but a lot depends on overall mood, economy, lots of other factors.

Steve Stelmach – FBR Capital Markets

And then quite simply how should we think about employee growth from here on out. Do you guys have any targets in mind over the short-term or you just simply being opportunistic based on what the available talent is on the street? How should we think about growth in the –

Brian P. Friedman

If you go back and Peg mentioned that our peak number was a little over 2,500, we eliminated over the last 18 months arguably as much as 20% of the jobs that existed there, unfortunately, it was a very tough process and a very tough period. We arguably created about 300 new positions through businesses like the municipal business, the rates business, the healthcare group that's now coming on creates new positions. So the answer is that we've effectively increased our productivity considerably.

We had a plan to build out fixed income and we have a plan to finish our sector penetration in investment banking, healthcare was obviously an important part of that. So I would say consistent with what Rich said before, for the next period of time we're much more about integrating and executing. We still will be opportunistic within the plans that we have. It'll be definitely, I shouldn't say definitely, likely be a slower growth in headcount than we had over the last nine months. I think it's a ways before we're back even at 2,500.

Richard B. Handler

With that being the case, we don't project and we are opportunistic, but Brian's points are all dead on.

Steve Stelmach – FBR Capital Markets

Yes. I guess you mentioned productivity in there as well. Do you suspect in the guys you're bringing on today are much, significantly more productive than the guy who may have in 2006…?

Richard B. Handler

That's not necessarily the case. It is the case that in the reductions in force that we made over the last 9, 12 months, well more than that even, we were selective to maintain our productive capacity. In some cases we've used automation in trading to make ourselves more productive. In the banking area, we've concentrated our efforts where we have found the greatest fruit. So in a way we've managed ourselves to a better productivity and we continue to attract some terrific people.

Brian P. Friedman

It was also the case where there was what we saw as a 14, 15 month window of opportunity of a lifetime, which is why it was very important for us to have our house in order so we could take advantage of it.

Steve Stelmach – FBR Capital Markets

So, from a revenue per employee basis, probably flat to up from here on out versus historical averages, is this fair to say?

Richard B. Handler

We're not going to comment or predict. I mean what we did say is we think there is upside in our business.

Steve Stelmach – FBR Capital Markets

Then this last question is on long-term debt. Obviously, liquidity is not an issue here with long-term debt maturing in 2012. You did issue some recently, given your growth plans, any expectations that have to come back from market any time soon?

Richard B. Handler

Look, our debt ratings are very important to us. Our capitalization is very important to us. Just by virtue of the fact that we considered a 2.5 year debt maturity, a short-term maturity shows you the mindset of our organization. As we need capital and we have good uses of it, we will take advantage of windows, but at the same token we are fully capitalized at this [inaudible].

Operator

Your next question comes from Lauren Smith – KBW

Lauren Smith – Keefe, Bruyette & Woods

A couple of questions, investment banking, you said that $37 million, if I'm correct, was M&A out of the $120. Is that correct?

Brian P. Friedman

M&A and advisory, so there'd be a bit of restructuring in that.

Lauren Smith – Keefe, Bruyette & Woods

So restructuring is put into that line item. And do you envision, given at least from my view is that we're kind of in the second inning of an extra inning game with respect to restructuring. Do you envision breaking that line item out of M&A going forward at some point?

Brian P. Friedman

I would say the metaphor you want is either a doubleheader or a five game home stand. We won't be breaking it out, again, not making any predications, but I think you're right that the restructuring and recapitalization process which will be both a restructuring advisory opportunity plus, hopefully for us, a significant cap markets opportunity. It's not likely to be just a couple of more quarters.

Lauren Smith – Keefe, Bruyette & Woods

Then the mix of the balance the $83 million of underwriting, can you just give us a sense was debt considerably bigger than ECM or just any penny for your thought on that.

Brian P. Friedman

The numbers will be in our Q, but it was significantly more on the debt side than on the equity side.

Lauren Smith – Keefe, Bruyette & Woods

Then I guess just going back to the six businesses, could you give just sort of a sense of progression, April, May, June. I recognize there's a lot of product built into that, but I'm just trying to get a sense if there was any one month that was disproportionally stronger or weaker, or is it pretty steady slow across the quarter?

Richard B. Handler

It was consistently level and good throughout the quarter.

Lauren Smith – Keefe, Bruyette & Woods

And recognizing the primary dealer was only I guess approved June, I guess June 18 mid-June, any meaningful lift for those two weeks in June or is it not even showing in the numbers yet?

Brian P. Friedman

It's not a meaningful lift and we recognize that we were active in the secondary market a bit in the first quarter and more so in the second quarter even before we were designated. The designation itself didn't particularly lift us, but over time as we add more sales people globally, we do expect that business to develop. Apropos the earlier question is probably the least mature of all the fixed income businesses, although we've got up side in several of them.

Richard B. Handler

That being said, we think it is a material event for the company given the fact from a counterparty perspective and just a standing perspective with the number of accounts on a global basis, the feedback from our clients have been extremely positive and more people want to do business with us and we think its all positive.

Lauren Smith – Keefe, Bruyette & Woods

With respect to geographical mix, is there any [inaudible] around quarter-to-quarter. Last quarter was weaker than typical in Europe, but any color you can shed for us there. I mean you guys in Europe your comment is what about 350 people now in your London or Europe franchise. Any color there would be helpful.

Brian P. Friedman

I think the things to point out there are that it happens that in the second quarter we probably had disproportionate momentum in the U.S. businesses as some of the fixed income businesses are initially more U.S. oriented. They will fill out more globally overtime.

Right now I'm going to throw out a percentage but its very, very rough. I'd say over an extended period we've been running about 12% non-U.S. and plus or minus that figure would be lower for the second quarter of 2009. Long-term we see that proportion going up hopefully with the U.S. holding to growing, but the percentage should skew with a better international overtime. That's a multiyear look forward though.

So, right now we've got a little more out of the U.S. proportionally in the second quarter, not because of any issue internationally other than the slowdown as Europe comes out a little after the U.S. comes out from the challenges. In addition, we're going to be driving growth in Europe a little more in the second half and into next year.

Lauren Smith – Keefe, Bruyette & Woods

The tax rate of 40% was higher than it typically, anything there to note or point out. Is 40% kind of the new fund rate or should we be thinking more about the sort of first half '09? I guess, is 34% in 1Q and 33.2%, I guess, in 4Q, so 40% just seems a lot higher at least than I was thinking about.

Peregrine C. Broadbent

Well, our tax rate is a function of our ability to predict what portion of our full year profit before tax is domestic versus non-domestic, and we revise those forecasts pretty frequently. So the change in tax rate first quarter over second quarter was a revision to those mix of revenues.

As a general statement, our tax rate is on the higher side compared to some of others in our industry who have a larger portion of borrowing source income and are able, on that basis, to take advantage of slightly lower rates than we experience domestically.

Obviously, we don't know what tax rates are going to be in the future internationally, but one made the assumption that they stayed as they where today and we grew a larger proportion of our profit before taxes from our international businesses one could anticipate that coming down.

Lauren Smith – Keefe, Bruyette & Woods

I recognize the upward grants that you noted or I know you said it amortized over agreed period and I'm sure that's different based on various hires or groups, but is there just like an average we could be thinking of, is it two, three, five years.

Richard B. Handler

Well what we'll note to you is that even though we expense fully our annual grants because of the retirement clauses that they contain, the vesting periods on our annual grants are four years. One can assume that upfront grants might have similar vesting periods, although there will be variations.

Lauren Smith – Keefe, Bruyette & Woods

Last question on share repurchase, I think you said 72,000 shares were purchased in the quarter. What do you have remaining on your authorization?

Peregrine C. Broadbent

Around 15 million.

Lauren Smith – Keefe, Bruyette & Woods

Fifteen?

Peregrine C. Broadbent

One five, yes.

Operator

Our next question comes from Michael Wong - Morningstar Incorporated.

Michael Wong - Morningstar Incorporated

I was just wondering, with the large rebound in all the markets I was surprised that your asset management investment income line wasn't more positive. Can you talk a little bit more about that?

Brian P. Friedman

As you may recall from prior periods and the actions that we took particularly in 2008, we substantially reduced our asset management activity, so what remains on that line item is our global convertible business in Europe and a small hedge fund group in the United States. And the global convertible business is long only, therefore, is revenue producing and has about $1.7 billion in assets under management.

The U. S. hedged fund platform includes some investment of our dollars and one can conclude from what we've said that there were mixed results in the hedged fund platform, so the result is a negligible effect on our financials. That will fluctuate from period to period but we don't have frankly at this point a large commitment to the area. We continue to report it as a segment so hence the separate disclosure, but it's not material at this point.

Richard B. Handler

With that being, the funds that we have in our platform we're very supportive of and appreciate and they're doing a good job.

Michael Wong - Morningstar Incorporated

For lots of underwriting fees or your underwriting clients, do you have a feeling of is it all for rolling debt or what do you feel is the primary purpose of the underwritings going on at the moment?

Brian P. Friedman

I don't think there's any question that the dominant activity would be broadly classified as recapitalization. Recapitalization could be a refinance of the debt, it could be an equification of debt, but more often than not it is someone who is seeking either longer maturities or additional liquidity, and in certain cases taking advantage to discounts in pricing of existing securities and the opportunity to reissue. So, yes, recapitalization broadly is a dominant theme in the market right now.

Michael Wong - Morningstar Corporative

Moving on to your primary dealer status, so ramp up is it that you need to establish new relationships or you just need to leverage your currently existing relationships more into the treasury and U. S. government debt?

Brian P. Friedman

We have established a dedicated sales and trading force for governments. You've seen announcements from us in the course of this year as we added to that platform. We're not done adding to the platform particularly outside the United States. What I would say is that we have dedicated sales people with historic relationships that are opening up those relationships at Jeffries. We also have additional sales people still coming so we're not yet at full strength in our relationship effort there.

Michael Wong - Morningstar Corporative

Okay last question. Just given your expertise in high yield market, what's your general feeling for that market at the moment?

Richard B. Handler

The market's open and ready for business and it's nice to have some liquidity and cash inflows and have people who desire to put some risk on the board on their inventory again. So it's open for business.

Operator

Mr. Handler, there are no further questions at this time. Please continue with your presentation or closing remarks.

Richard B. Handler

Thank you for listening to our call today. We at Jeffries have never been more energized about the opportunity ahead of us. Our plan is to continue to execute, integrate and market our capabilities with the goal of delivering maximum value to our client base. Our 2,307 employee partners are focused, motivated and committed. We will continue to do our best everyday for the benefit of our clients, shareholders and bondholders. Thank you very much.

Operator

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day everybody.

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Source: Jefferies Group Inc. Q2 2009 Earnings Call Transcript
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