EDGAR 10-K Filing

Company CIK: 96223
Filing Year: 2021
Filename: 96223_10-K_2021_0000096223-21-000009.json

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ITEM 1. BUSINESS
Item 1. Business.
Overview
Jefferies Financial Group Inc. ("Jefferies," "we," "our" or the "Company") is engaged in investment banking and capital markets, asset management and direct investing. Jefferies Group LLC ("Jefferies Group"), our largest subsidiary, was established in 1962 and is now the largest independent full-service global investment banking firm headquartered in the U.S.
Our strategy focuses on strengthening and expanding our core businesses of Investment Banking and Capital Markets and Asset Management, while continuing to simplify our structure and return capital to our shareholders. We are simplifying our structure through a managed transformation of our direct investing, or "Merchant Banking," business, which, to date, has included divestitures, special distributions to shareholders of assets, as well as transfers of financial assets out of our Merchant Banking portfolio and into Jefferies Group. We anticipate additional transactions as our transformation is completed. Some of these transactions have generated significant excess liquidity; some of these transactions have also reduced the future receipt of periodic distributions from subsidiaries to the parent company. In keeping with our strategy, a meaningful portion of the proceeds of these transactions has been returned to shareholders through share repurchases. During the past three fiscal years, we have returned to shareholders almost $3.4 billion through share repurchases and dividends.
Our executive offices are located at 520 Madison Avenue, New York, NY 10022, as is the global headquarters of Jefferies Group. Our primary telephone number is (212) 460-1900 and our website address is www.jefferies.com. At November 30, 2020, we had 4,945 full-time employees, including 3,922 full-time employees at Jefferies Group. Jefferies Group retains a credit rating separate from Jefferies and remains a U.S. Securities and Exchange Commission ("SEC") reporting company.
The discussion in this Annual Report on Form 10-K should be read in conjunction with the Risk Factors presented in Item 1A of Part I and the Cautionary Statement for Forward-Looking Information and Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 7 of Part II.
Recent Events
During the first quarter of 2020, we changed our internal structure with regard to our operating segments. Previously, our segments consisted of (1) Investment Banking, Capital Markets and Asset Management, which included all of the financial results of Jefferies Group; (2) Merchant Banking; and (3) Corporate. In the first quarter, we appointed co-Presidents of Asset Management and created a separate fourth operating segment that consists of the asset management activity previously included in our Investment Banking, Capital Markets and Asset Management segment, together with asset management activity previously included in our Merchant Banking segment.
During 2020, we repurchased a total of 42,134,910 of our common shares for $812.7 million, or an average price per share of $19.29.
Investment Banking and Capital Markets
Investment Banking and Capital Markets focuses on Investment Banking, Equities and Fixed Income. We primarily serve institutional investors, corporations and government entities.
Investment Banking
We provide our clients around the world with a full range of financial advisory, equity underwriting and debt underwriting services. Our services are enhanced by our deep industry expertise, our global distribution capabilities and our senior level commitment to our clients.
Over 950 investment banking professionals operate in the Americas, Europe and Asia Pacific, and are organized into industry, product and geographic coverage groups. Our industry coverage groups include Consumer; Energy; Financial Services; Healthcare; Industrials; Technology; Media and Telecommunications; Real Estate; Gaming and Lodging; Financial Sponsors and Public Finance. Our product coverage groups include advisory (which comprises both mergers and acquisitions and restructuring and recapitalization expertise), equity underwriting and debt underwriting. Our geographic coverage groups include teams based in major cities in the United States, London, Frankfurt, Paris, Milan, Amsterdam, Stockholm, Mumbai, Hong Kong, Singapore, Sydney, Tokyo and Zurich.
Advisory Services
We provide mergers and acquisition and restructuring and recapitalization services to companies, financial sponsors and government entities. In the mergers and acquisition area, we advise business owners and corporations on corporate sales and divestitures, acquisitions, mergers, tender offers, spinoffs, joint ventures, strategic alliances and takeover and proxy fight defense. In the restructuring and recapitalization area, we provide companies, bondholders and lenders a full range of restructuring advisory capabilities as well as expertise in the structuring, valuation and placement of securities issued in recapitalizations.
Equity Underwriting
We provide a broad range of equity financing capabilities to companies and financial sponsors. These capabilities include private placements of equity; initial public offerings, including initial public offerings for special acquisition companies; follow-on offerings; block trades and equity-linked convertible securities transactions.
Debt Underwriting
We provide a wide range of debt and acquisition financing capabilities for companies, financial sponsors and government entities. We focus on structuring, underwriting and distributing public and private debt, including investment grade debt, high yield bonds, leveraged loans, municipal debt, mortgage-backed and other asset-backed securities, and liability management solutions.
Corporate Lending
Jefferies Finance LLC ("Jefferies Finance"), a 50/50 joint venture between Jefferies Group and Massachusetts Mutual Life Insurance Company, is a commercial finance company that structures, underwrites and syndicates primarily senior secured loans to corporate borrowers and manages proprietary and third-party investments in middle market and broadly syndicated loans. Jefferies Finance conducts its operations primarily through two business lines, Leveraged Finance Arrangement and Portfolio and Asset Management. Jefferies Finance typically syndicates to third-party investors substantially all of its arranged volume. Its Portfolio and Asset Management business line manages a broad portfolio of assets under management comprised of portions of loans it has arranged, as well as loan positions that it has purchased in the primary and secondary markets. The Portfolio and Asset Management business is comprised of three registered Investment Advisors: Jefferies Finance, Apex Credit Partners LLC and JFIN Asset Management LLC, which each separately focus on investments in cash flow and traditional asset-based revolving credit, collateralized loan obligations which invest in predominately broadly syndicated loans and proprietary and third-party investments in middle market loans held in private funds and separately managed accounts.
Equities
Equities Research, Capital Markets
We provide our clients full-service equities research, sales and trading capabilities across global securities markets. We earn commissions or spread revenue by executing, settling and clearing transactions for clients across these markets in equity and equity-related products, including common stock, American depository receipts, global depository receipts, exchange-traded funds, exchange-traded and over-the-counter ("OTC") equity derivatives, convertible and other equity-linked products and closed-end funds. Our equity research, sales and trading efforts are organized across three geographical regions: the Americas; Europe and the Middle East and Africa; and Asia Pacific. Our clients are primarily institutional market participants such as mutual funds, hedge funds, investment advisors, pension and profit sharing plans, and insurance companies. Through our global research team and sales force, we maintain relationships with our clients, distribute investment research and strategy, trading ideas, market information and analyses across a range of industries and receive and execute client orders. Our equity research covers over 2,500 companies around the world and a further more than 700 companies are covered by eight leading local firms in Asia Pacific with which we maintain alliances.
Equity Finance
Our Equity Finance business provides financing, securities lending and other prime brokerage services. We offer prime brokerage services in the U.S. that provide hedge funds, money managers and registered investment advisors with execution, financing, clearing, outsourced trading, reporting and administrative services. We finance our clients' securities positions through margin loans that are collateralized by securities, cash or other acceptable liquid collateral. We earn an interest spread equal to the difference between the amount we pay for funds and the amount we receive from our clients. We also operate a
matched book in equity and corporate bond securities, whereby we borrow and lend securities versus cash or liquid collateral and earn a net interest spread. We offer selected prime brokerage clients the option of custodying their assets at an unaffiliated U.S. broker-dealer that is a subsidiary of a bank holding company. Under this arrangement, we directly provide our clients with all customary prime brokerage services.
Wealth Management
We provide tailored wealth management services designed to meet the needs of high net worth individuals, their families and their businesses, private equity and venture funds and small institutions. Our advisors provide access to all of our institutional execution capabilities and deliver other financial services. Our open architecture platform affords clients access to products and services from both our firm and from a variety of other major financial services institutions.
Fixed Income
Fixed Income Capital Markets
We provide our clients with sales and trading of investment grade corporate bonds, U.S. and European government and agency securities, municipal bonds, mortgage-backed and asset-backed securities, leveraged loans, consumer loans, high yield and distressed securities, emerging markets debt, interest rate and credit derivative products, as well as foreign exchange trade execution and securitization capabilities. Jefferies LLC is designated as a Primary Dealer by the Federal Reserve Bank of New York and Jefferies International Limited is designated in similar capacities for several countries in Europe. Additionally, through the use of repurchase agreements, we act as an intermediary between borrowers and lenders of short-term funds and obtain funding for various of our inventory positions. We trade and make markets globally in cleared and uncleared swaps and forwards referencing, among other things, interest rates, investment grade and non-investment grade corporate credits, credit indexes and asset-backed security indexes.
Our strategists and economists provide ongoing commentary and analysis of the global fixed income markets. In addition, our fixed income desk strategists provide ideas and analysis to clients across a variety of fixed income products.
Other
We make principal investments in private equity and hedge funds managed by third-parties as well as, from time to time, take on strategic investment positions.
Berkadia
Berkadia Commercial Mortgage Holding LLC ("Berkadia") is a 50/50 joint venture with Berkshire Hathaway, Inc. that provides capital solutions, investments sales advisory and mortgage servicing for multifamily and commercial real estate. Berkadia originates commercial real estate loans, primarily in respect of multifamily housing units, for Fannie Mae, Freddie Mac and the Federal Housing Authority using their underwriting guidelines and will typically sell the loans to such entities shortly after the loans are funded with Berkadia retaining the mortgage servicing rights. For loans sold to Fannie Mae, Berkadia assumes a shared loss position throughout the term of each loan, with a maximum loss percentage of approximately one-third of the original principal balance. Berkadia also originates and brokers commercial/multifamily mortgage loans which are not part of the government agency programs.
In addition, Berkadia originates loans for its own balance sheet. These loans provide interim financing to borrowers who intend to refinance the loan with longer-term loans from an eligible government agency or other third-party. Berkadia also provides services related to the acquisition and disposition of multifamily real estate projects, including brokerage services, asset review, market research, financial analysis and due diligence support and is a servicer of U.S. commercial real estate loans, performing primary, master and special servicing functions for U.S. government agency programs, commercial mortgage-backed securities transactions, banks, insurance companies and other financial institutions.
Asset Management
Our Asset Management segment includes both the asset management operations within Jefferies Group as well as those that were previously part of our Merchant Banking segment. Under the combined Leucadia Asset Management ("LAM") umbrella, we manage and provide services to a diverse group of alternative asset management platforms across a spectrum of investment strategies and asset classes. LAM offers institutional clients an innovative range of investment strategies through its affiliated managers. Our products are currently offered to pension funds, insurance companies, sovereign wealth funds, and other
institutional investors globally. The investment products under LAM range from multi-manager products, such as Schonfeld Fundamental Equities, Dymon Asia Capital and Weiss Multi-Strategy, to niche equity long/short strategies, such as Riposte Capital and Kathmandu, to credit strategies, such as Point Bonita Capital and 3|5|2 Capital. We offer our affiliated asset managers access to capital, operational infrastructure and global marketing and distribution. We often invest seed or additional strategic capital for our own account in the strategies offered by us and associated third-party asset managers in which we have an interest.
We continue to expand our asset management efforts. During 2020, we established a strategic relationship with Dymon Asia Capital (Asian multi-strategy) and FourSixThree Capital (distressed credit and special situations) and added Riposte Capital (contrarian long/short equity) and 3|5|2 Capital (consumer-focused asset-backed securities) to our LAM platform.
Merchant Banking
We own a diverse portfolio of businesses and investments that have the potential for significant value appreciation. The structure of each of our investments was tailored to the unique opportunity each transaction presented. Our investments may be reflected in our consolidated results as consolidated subsidiaries, equity investments, securities or in other ways, depending on the structure of our specific holdings. We continue to evaluate new investments, primarily in financial services. We are in the process of a managed transformation of Merchant Banking, with the intention of selling to third-parties or restructuring under LAM all of our Merchant Banking businesses. Continuing changes in the mix of our businesses and investments therefore should be expected.
Our Merchant Banking portfolio currently includes primarily investments in Linkem, 56% (fixed wireless broadband services in Italy); Vitesse Energy, LLC ("Vitesse Energy Finance"), 97%, and JETX Energy, LLC ("JETX Energy"), 98%, (oil and gas); real estate, primarily HomeFed LLC ("HomeFed"), 100%; Idaho Timber, 100% (manufacturing); and FXCM Group, LLC ("FXCM"), 50% voting interest in FXCM and a majority of all distributions in respect of the equity of FXCM (provider of online foreign exchange trading services). The net book value of our entire Merchant Banking portfolio was $1.9 billion at November 30, 2020.
Linkem
We own 56% (48% voting) of Linkem S.p.A., the largest fixed wireless broadband service provider in Italy with approximately 710,000 subscribers. Its broadband service utilizes its proprietary fixed wireless network on its valuable nationwide 3.5GHz spectrum holdings. The 3.5GHz frequency band has been designated globally as one of the core bands for 5G services, placing Linkem in a strong position to continue its growth in a 5G environment. Linkem launched its first 5G towers in late 2020 and plans to rapidly increase its network coverage and service offerings over the coming years as it upgrades to 5G, adds subscribers and leverages its assets. Expansion and customer acquisition costs are expected to result in operating losses over the next couple of years.
Our initial investment in Linkem was made in July 2011. Since that time, we have funded much of Linkem's growth and become its largest shareholder. We own approximately 42% of the common shares of Linkem, as well as convertible preferred stock, which is automatically convertible to common shares in 2022, and warrants. If all of our convertible preferred stock was converted and warrants were exercised, it would increase our ownership to approximately 56% of Linkem's common equity at November 30, 2020. We have approximately 48% of the total voting securities of Linkem. Additionally, we have made shareholder loans to Linkem with principal outstanding of $102.4 million at November 30, 2020. The net book value of our investment in Linkem was $199.0 million at November 30, 2020.
Vitesse Energy Finance
Vitesse Energy Finance is our 97% owned consolidated subsidiary that acquires, invests and monetizes non-operated working interests and royalties predominantly in the Bakken Shale of the Williston Basin in North Dakota. These non-operated interests include working interests in flowing wells, leases that are held by production and undeveloped drilling locations within drilling spacing units ("DSUs"). The DSUs are expected to be developed via horizontal wells in the future by Vitesse Energy Finance's dozen plus operating partners. As Vitesse Energy Finance's operators convert the DSUs (undeveloped acreage) into flowing horizontal wells, our working interests and minerals are converted into cash flows produced by the flowing wells. Vitesse Energy Finance has acquired more than 47,200 net acres of leaseholds and has an interest in over 5,000 producing wells (106 net wells) with current production as of November 2020 of 10,000 barrels of oil equivalent per day. In addition, Vitesse Energy Finance has an interest in approximately 600 wells (14 net wells) that are shut-in due to offset development activity or low oil prices. Vitesse Energy Finance also has 876 gross wells (22.5 net wells) that are currently drilling, completing, or permitted for
future drilling. Our strategic priorities for Vitesse Energy Finance are to selectively add to our core acreage, participate in future profitable horizontal wells, increase aggregate cash flow, limit the volatility of cash flows by appropriately hedging oil and profitably sell selective assets when appropriate. The net book value of our investment in Vitesse Energy Finance was $516.3 million at November 30, 2020.
Real Estate Assets
Our real estate assets primarily consist of our 100% ownership of HomeFed, a developer and owner of residential and mixed-use real estate properties in California, New York, Florida, Virginia and South Carolina. HomeFed's key assets include Otay Ranch, a master planned community that is under development in Chula Vista, CA, made up of approximately 4,450 acres of land entitled for 13,050 total units; and Renaissance Plaza, a mixed-use asset in Brooklyn, NY, comprised of an office building, garage and hotel. The net book value of our investment in real estate assets was $531.6 million at November 30, 2020.
Financial Information about Segments
Our operating and reportable segments consist of Investment Banking and Capital Markets; Asset Management; Merchant Banking; and Corporate. Our financial information regarding our reportable segments is contained in Note 27 in our consolidated financial statements.
Human Capital
We are focused on the durability, health and long-term growth and development of our business, as well as our long-term contribution to our shareholders, our clients, our employees, the communities in which we live and work, and society in general. Instrumental to all of this is our culture, which derives from our employees.
As of November 30, 2020, we had 4,945 employees located throughout the world. Our largest subsidiary, Jefferies Group, had 3,922 employees globally with approximately 64%, 24% and 12% of its workforce distributed across the Americas, Europe and Asia Pacific, respectively. Jefferies Group employees are predominately in our Investment Banking and Capital Markets segment or the support thereof. During fiscal 2020, Jefferies Group overall employee levels increased by 3% as we have continued to expand our presence in Asia, particularly in our Equities business, and we have continued to grow certain of our businesses in Europe. During fiscal 2020, there was a slight decline in the overall percentage of our employees in our Asset Management segment due to the wind down of a wholly-owned asset management platform during the year.
Our ability to develop and retain our clients depends on the reputation, marketing efforts, capabilities and knowledge of our employees and our firm. Jefferies Group workforce is predominately composed of employees in roles such as investment bankers, salespeople, trading professionals, research professionals and other revenue producing or specialized personnel. In order to compete effectively and continue to provide best in class service to our clients, we must attract, retain and motivate qualified professionals. During 2020, our voluntary turnover rate was 8%. Our overall retention rate is very high in our view. We believe our culture, our effort to maintain a meritocracy in terms of opportunity and our continued evolution and growth contribute to our success in attracting and retaining strong talent.
We had 931 employees in our Merchant Banking segment as of November 30, 2020, which were predominantly located in the U.S. The majority of these individuals are employed by our wholly-owned subsidiary, Idaho Timber. As with most manufacturing operations, safety is a key component of the overall process and Idaho Timber has a multitude of safety programs in place designed to protect the health and well-being of its employees. These programs and other employee-focused initiatives help Idaho Timber retain experienced employees who create operating efficiencies critical to our overall success.
The foundation of our culture is our approach to employee engagement, diversity, equity and inclusion, which is summed up in our Corporate Social Responsibility Principle: Respect People. We have implemented a number of policies and measures focused on non-discrimination, sexual harassment prevention, health and safety, training and education and Employee Resource Groups. We embrace diversity and inclusion, which we believe fosters creativity, innovation and thought leadership through the infusion of new ideas and perspectives. Our Board of Directors has underscored our commitment to diversity by appointing diverse candidates to fill the seats of one-third of our independent directors. We have also made a commitment to building a culture that provides opportunities for all employees regardless of our differences. As a result, we are able to pool our collective insights and intelligence to provide fresh and innovate thinking for our clients. Solid internal partnerships with Employee Resource Groups allow us to develop and retain our wealth of diverse talent and ensure continued growth and success. We encourage you to review our Environmental, Social and Governance Report ("ESG Report") (located on our website) for more detailed information regarding our human capital programs and initiatives. Nothing on our website, including our ESG Report
or sections thereof, is deemed incorporated by reference into this Report. In addition, for discussion of the risks relating to our ability to attract, develop and retain highly skilled and productive employees, see "Part 1. Item 1A. Risk Factors."
Competition
All aspects of our business are intensely competitive. We compete primarily with large global bank holding companies that engage in capital markets activities, but also with other broker-dealers, asset managers and boutique investment banking firms. The large global bank holding companies have substantially greater capital and resources than we do. We believe that the principal factors affecting our competitive standing include the quality, experience and skills of our professionals, the depth of our relationships, the breadth of our service offerings, our ability to deliver consistently our integrated capabilities, and our culture, tenacity and commitment to serve our clients.
Regulation
Regulation in the United States. The financial services industry in which we operate is subject to extensive regulation. In the U.S., the SEC is the federal agency responsible for the administration of federal securities laws, and the Commodity Futures Trading Commission ("CFTC") is the federal agency responsible for the administration of laws relating to commodity interests (including futures, commodity options and swaps). In addition, the Financial Industry Regulatory Authority, Inc. ("FINRA") and the National Futures Association ("NFA") are self-regulatory organizations ("SROs") that are actively involved in the regulation of financial services businesses (securities businesses in the case of FINRA and commodities/futures businesses in the case of the NFA). In addition, broker-dealers that conduct securities activities involving municipal securities are subject to regulation by the Municipal Securities Rulemaking Board ("MSRB"). In addition to federal regulation, we are subject to state securities regulations in each state and U.S. territory in which we conduct securities or investment advisory activities. The SEC, FINRA, CFTC, NFA and state securities regulators conduct periodic examinations of broker-dealers, investment advisors, futures commission merchants ("FCMs") and swap dealers. The designated examining authority under the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") for Jefferies LLC's activities as a broker-dealer is FINRA, and the designated self-regulatory organization under the U.S. Commodity Exchange Act for Jefferies LLC's non-clearing FCM activities is the NFA. Financial services businesses are also subject to regulation and examination by state securities regulators and attorneys general in those states in which they do business. In addition, broker-dealers, investment advisors, FCMs and swap dealers must also comply with the rules and regulation of clearing houses, exchanges, swap execution facilities and trading platforms of which they are a member.
Broker-dealers are subject to SEC, FINRA, MSRB and state securities regulations that cover all aspects of the securities business, including sales and trading methods, trade practices among broker-dealers, use and safekeeping of customers' funds and securities, capital structure and requirements, anti-money laundering efforts, recordkeeping and the conduct of broker-dealer personnel including officers and employees (although state securities regulations are, in a number of cases, more limited). Registered investment advisors are subject to, among other requirements, SEC regulations concerning marketing, transactions with affiliates, custody of client assets, disclosures to clients, conflict of interest, insider trading and recordkeeping; and investment advisors that are also registered as commodity trading advisors or commodity pool operators are also subject to regulation by the CFTC and the NFA. FCMs, introducing brokers and swap dealers that engage in commodity options, futures or swap transactions are subject to regulation by the CFTC and the NFA. Additional legislation, changes in rules promulgated by the SEC, FINRA, CFTC, NFA, other SROs of which the broker-dealer is a member, and state securities regulators, or changes in the interpretation or enforcement of existing laws or rules may directly affect the operations and profitability of broker-dealers, investment advisors, FCMs, commodity trading advisors, commodity pool operators and swap dealers. The SEC, CFTC, FINRA, NFA, state securities regulators and state attorneys general may conduct administrative proceedings or initiate civil litigation that can result in adverse consequences for Jefferies LLC, its affiliates, including affiliated investment advisors, as well as its and their officers and employees (including, without limitation, injunctions, censures, fines, suspensions, directives that impact business operations (including proposed expansions), membership expulsions, or revocations of licenses and registrations).
SEC Regulation Best Interest ("Reg BI") requires that a broker-dealer and its associated persons to act in a retail customer's best interest and not place their own financial or other interests ahead of a retail customer's interests when recommending securities transactions or investment strategies, including recommendations of types of accounts. To meet this best interest standard, a broker-dealer must satisfy four component obligations including a disclosure obligation, a care obligation, a conflict of interest obligation, and a compliance obligation and both broker-dealers and investment advisors are required to provide disclosures about their standard of conduct and conflicts of interest.
In addition, certain states, have proposed or adopted measures that would make broker-dealers, sales agents and investment advisors and their representatives subject to a fiduciary duty when providing products and services to customers. The SEC did
not indicate an intent to pre-empt state regulation in this area and some of the state proposals would allow for a private right of action. Since our Wealth Management division makes recommendations to retail customers, it is required to comply with the obligations under the Reg BI and applicable state laws.
Regulatory Capital Requirements. Several of our entities are subject to financial capital requirements that are set by regulation. Jefferies LLC is a dually-registered broker-dealer and FCM and is required to maintain net capital in excess of the greater of the SEC or CFTC minimum financial requirements. As a broker-dealer, Jefferies LLC is subject to the SEC's Uniform Net Capital Rule (the "Net Capital Rule"). Jefferies LLC has elected to compute its minimum net capital requirement in accordance with the "Alternative Net Capital Requirement" as permitted by the Net Capital Rule, which provides that a broker-dealer shall not permit its net capital, as defined, to be less than the greater of 2% of its aggregate debit balances (primarily customer-related receivables) or $250,000 ($1.5 million for prime brokers). Compliance with the Net Capital Rule could limit Jefferies LLC's operations, such as underwriting and trading activities, and financing customers' prime brokerage or other margin activities, in each case, that could require the use of significant amounts of capital, limit its ability to engage in certain financing transactions, such as repurchase agreements, and may restrict its ability to (i) to make payments of dividends, withdrawals or similar distributions or payments to a stockholder/parent or other affiliate, (ii) to make a redemption or repurchase of shares of stock, or (iii) to make an unsecured loan or advance to such shareholders or affiliates. As a carrying/clearing broker-dealer, under FINRA Rule 4110, FINRA could impose higher minimum net capital requirements than required by the SEC, and could restrict a broker-dealer from expanding business or require the broker-dealer to reduce its business activities. If the broker dealer also carries accounts for other broker dealers which are engaged in proprietary trading, it may need net capital of $7 million or tentative net capital of $25 million, depending on circumstances. As a non-clearing FCM, Jefferies LLC is required to maintain minimum adjusted net capital of $1.0 million.
SEC registered broker-dealers that will also register with the SEC as security-based swap dealers engaging in principal transactions of security-based swaps ("SBS") are subject to rules regarding capital, segregation and margin requirements. The SEC rules establish similar standards for an entity registering as a standalone SBS dealer. The CFTC has also approved swap dealer capital rules. Both the SEC rules governing a standalone SBS dealer and the CFTC rules governing swap dealers are expected to come into effect in late 2021. Under the rules there is a minimum net capital requirement for, among others, an entity that acts as a dealer in SBS or swaps, which is the greater of $20 million or 2% (that the SEC could, in the future, increase up to 4% or 8%) of a risk margin amount. The risk margin amount means the sum of (i) the total initial margin required to be maintained by the SEC SBS dealer or CFTC swap dealer at each clearing agency with respect to SBS or swap transactions cleared for SBS or swap customers and (ii) the total initial margin amount calculated by the SEC SBS dealer or CFTC swap dealer with respect to non-cleared SBS under new SEC rules and swaps under the CFTC rules.
Jefferies Group has two entities provisionally registered with the CFTC as swap dealers - Jefferies Financial Services Inc. ("JFSI") and Jefferies Financial Products LLC ("JFP"). Both JFSI and JFP are expected to comply with the SEC and CFTC capital rules for SBS and swap dealers, respectively, in the fourth quarter of 2021.
Under the Exchange Act, state securities regulators are not permitted to impose capital, margin, custody, financial responsibility, making and keeping records, bonding, or financial or operational reporting requirements on registered broker-dealers that differ from, or are in addition to, the requirements in those areas established under the Exchange Act, including the rules and regulations promulgated thereunder.
For additional information see Item 1A. Risk Factors.
Jefferies Group LLC is not subject to any regulatory capital rules.
See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, and Note 23 to our consolidated financial statements for additional discussion of net capital calculations.
Regulation outside the United States. We are an active participant in the international capital markets and provide investment banking services internationally, primarily in Europe and Asia Pacific. As in the U.S., our international subsidiaries are subject to extensive regulations proposed, promulgated and enforced by, among other regulatory bodies, the European Commission and European Supervisory Authorities (including the European Banking Authority and European Securities and Market Authority), U.K. Financial Conduct Authority, German Federal Financial Supervisory Authority ("BaFin"), Investment Industry Regulatory Organization of Canada, Hong Kong Securities and Futures Commission, the Japan Financial Services Agency, the Monetary Authority of Singapore and the Australian Securities and Investments Commission. Every country in which we do business imposes upon us laws, rules and regulations similar to those in the U.S., including with respect to some form of capital adequacy rules, customer protection rules, data protection regulations, anti-money laundering and anti-bribery rules, compliance with other applicable trading and investment banking regulations and similar regulatory reform.
Information about Jefferies on the Internet
We file annual, quarterly and current reports and other information with the SEC. These SEC filings are also available to the public from commercial document retrieval services and the website maintained by the SEC at www.sec.gov.
The following documents and reports are available on or through our website (www.jefferies.com) as soon as reasonably practicable after we electronically file such materials with, or furnish to, the SEC, as applicable:
• Code of Business Practice;
• Reportable waivers, if any, from our Code of Business Practice by our executive officers;
• Board of Directors Corporate Governance Guidelines;
• Charter of the Audit Committee of the Board of Directors;
• Charter of the Nominating and Corporate Governance Committee of the Board of Directors;
• Charter of the Compensation Committee of the Board of Directors;
• Annual reports on Form 10-K;
• Quarterly reports on Form 10-Q;
• Current reports on Form 8-K;
• Beneficial ownership reports on Forms 3, 4 and 5; and
• Any amendments to the above-mentioned documents and reports.
Shareholders may also obtain a printed copy of any of these documents or reports free of charge by sending a request to Jefferies Financial Group Inc., Investor Relations, 520 Madison Avenue, New York, NY 10022 or by calling (212) 460-1900.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors.
Our business is subject to a number of risks. You should carefully consider the following risk factors, together with all of the other information included or incorporated by reference in this report, before you decide whether to purchase our securities. The risks set out below are not the only risks we face. In addition to the specific risks mentioned in this report, we may also be affected by other factors that affect businesses generally such as global or regional changes in economic, business or political conditions, acts of war, terrorism, pandemics, climate change or natural disasters. If any of such risks occur, our business, financial condition and results of operations could be materially adversely affected. In such case, the trading price of our securities could decline, and you may lose all or part of your investment.
We have also set forth certain specific risks associated with certain of our investments. The inclusion or non-inclusion of these risks for specific investments should not be interpreted to mean that a mentioned or non-mentioned investment is more or less important or material than another. Additionally, some of our investments are in securities of issuers that file reports with the SEC. You should also carefully consider the additional risks disclosed by those issuers with the SEC as those risks may also impact your investment in our securities.
Market and Liquidity Risks
Our business is subject to significant credit risk. In the normal course of our businesses, we are involved in the execution, settlement and financing of various customer and principal securities and derivative transactions. These activities are transacted on a cash, margin or delivery-versus-payment basis and are subject to the risk of counterparty or customer nonperformance. Even when transactions are collateralized by the underlying security or other securities, we still face the risks associated with changes in the market value of the collateral through settlement date or during the time when margin is extended and collateral has not been secured or the counterparty defaults before collateral or margin can be adjusted. We may also incur credit risk in our derivative transactions to the extent such transactions result in uncollateralized credit exposure to our counterparties.
We seek to control the risk associated with these transactions by establishing and monitoring credit limits and by monitoring collateral and transaction levels daily. We may require counterparties to deposit additional collateral or return collateral pledged. In certain circumstances, we may, under industry regulations, purchase the underlying securities in the market and seek reimbursement for any losses from the counterparty. However, there can be no assurances that our risk controls will be successful.
A credit rating agency downgrade could significantly impact our businesses. We and Jefferies Group have credit ratings issued by various credit rating agencies. Maintaining our credit ratings is important to our and Jefferies Group's business and financial condition. We advised certain credit rating agencies that we would target specific concentration and liquidity principles, expressed in the form of certain ratios and percentages. A failure to meet these ratios and percentages could trigger a ratings downgrade. We and Jefferies Group intend to access the capital markets and issue debt securities from time to time, and a decrease in our credit ratings or outlook could adversely affect our liquidity and competitive position, increase our borrowing costs, decrease demand for our debt securities and increase the expense and difficulty of financing our operations. In addition, in connection with certain over-the-counter derivative contract arrangements and certain other trading arrangements, Jefferies Group or us may be required to provide additional collateral to counterparties, exchanges and clearing organizations in the event of a credit rating downgrade. Such a downgrade could also negatively impact our and Jefferies Group's outstanding debt prices and our stock price. There can be no assurance that our or Jefferies Group's credit ratings will not be downgraded.
Our principal trading and investments expose us to risk of loss. A considerable portion of our revenues is derived from trading in which we act as principal. We may incur trading losses relating to the purchase, sale or short sale of fixed income, high-yield, international, convertible, and equity securities, loans, derivative contracts and commodities for our own account. In any period, we may experience losses on our inventory positions as a result of the level and volatility of equity, fixed income and commodity prices (including oil prices), lack of trading volume, and illiquidity. From time to time, we may engage in a large block trade in a single security or maintain large position concentrations in a single security, securities of a single issuer, securities of issuers engaged in a specific industry, or securities from issuers located in a particular country or region. In general, because certain of our investments are marked to market on a daily basis, any adverse price movement in these investments could result in a reduction of our revenues and profits. In addition, we may engage in hedging transactions that if not successful, could result in losses.
We are exposed to market risk. We are, directly and indirectly, affected by changes in market conditions. Market risk generally represents the risk that values of assets and liabilities or revenues will be adversely affected by changes in market conditions. For example, changes in interest rates could adversely affect our net interest spread, the difference between the yield we earn on our assets and the interest rate we pay for sources of funding, which, in turn, impacts our net interest revenue and earnings. Changes in interest rates could affect the interest earned on assets differently than interest paid on liabilities. In our brokerage operations, a rising interest rate environment generally results in our earning a larger net interest spread. Conversely, in those operations, a falling interest rate environment generally results in our earning a smaller net interest spread. If we are unable to effectively manage our interest rate risk, changes in interest rates could have a material adverse effect on our profitability.
Market risk is inherent in the financial instruments associated with our operations and activities, including trading account assets and liabilities, loans, securities, short-term borrowings, corporate debt, and derivatives. Market conditions that change from time to time, thereby exposing us to market risk, include fluctuations in interest rates, equity prices, relative exchange rates, and price deterioration or changes in value due to changes in market perception or actual credit quality of an issuer.
In addition, disruptions in the liquidity or transparency of the financial markets may result in our inability to sell, syndicate, or realize the value of security positions, thereby leading to increased concentrations. The inability to reduce our positions in specific securities may not only increase the market and credit risks associated with such positions, but also increase capital requirements, which could have an adverse effect on our business, results of operations, financial condition and liquidity.
We may be adversely affected by changes in or the discontinuance of Interbank Offered Rates ("IBORs"), in particular, London Interbank Offered Rate ("LIBOR"). Central banks and regulators in a number of major jurisdictions (for example, the U.S., U.K., European Union ("EU"), Switzerland and Japan) have convened working groups to find, and implement the transition to, suitable replacements for IBORs. The U.K. Financial Conduct Authority, which regulates LIBOR, has announced that it will not compel panel banks to contribute to LIBOR after 2021 and possibly prior to then. We currently hold IBOR positions with maturities past 2020. In addition, we rely on vendor applications and data providers that support downstream IBOR data. We are reviewing our positions for a strategic conversion to alternative rates for each currency we deal in. Each jurisdiction has proposed an alternative to LIBOR and other IBORs based on a risk free rate (the Secured Overnight Funding Rate for U.S. Dollars, Sterling Overnight Index Average for Sterling markets, Euro Short Term Rate for Euros and Tokyo Overnight Average Rate for Japanese Yens). It is possible that the discontinuance of the IBORs will result in disruption in the financial markets, suppressed capital markets activities and liquidity, pricing volatility, loss of market share in certain products, adverse tax or accounting impacts, increased compliance, legal and operational costs, increased capital requirements and business continuity issues.
We continue to monitor and facilitate the transition from IBOR-referencing products to products referencing alternative reference rates. We have also been monitoring the development of the IBOR Fallbacks Protocol of the International Swaps and
Derivatives Association, which was published on October 23, 2020, and will enable market participants to incorporate the revisions into their legacy non-cleared derivatives trades with other counterparties as part of IBOR transition.
Our business, financial condition and results of operations are dependent upon those of our individual businesses, and our aggregate investments in particular industries. We are a holding company with investments in businesses and assets in a number of industries. Jefferies Group is our largest investment and we have significant additional investments in the financial services industry. Our business, financial condition and results of operations are dependent upon our various businesses and investments. Any material adverse change in one of our businesses or investments, or in a particular industry in which we operate or invest, may cause material adverse changes to our business, financial condition and results of operations. The more capital we devote to a particular investment or industry may increase the risk that such investment could significantly impact our financial condition and results of operations, possibly in a material adverse way.
As a holding company, we depend on dividends, distributions and other payments from our subsidiaries to fund payments on our obligations, including debt obligations. Many of our subsidiaries, including our broker-dealer subsidiaries, are subject to regulation that restrict dividend payments or reduce the availability of the flow of funds from those subsidiaries to us. In addition, our broker-dealer subsidiaries are subject to restrictions on their ability to lend or transact with affiliates and to minimum regulatory capital requirements.
From time to time we may invest in securities that are illiquid or subject to restrictions. From time to time we may invest in securities that are subject to restrictions which prohibit us from selling the subject securities for a period of time. Such agreements may limit our ability to generate liquidity quickly through the disposition of the underlying investment while the agreement is effective.
Economic Environment Risks
The effects of the outbreak of the novel coronavirus ("COVID-19") have negatively affected the global economy, the United States economy and the global financial markets, and may disrupt our operations and our clients' operations, which could have an adverse effect on our business, financial condition and results of operations. The ongoing COVID-19 global and national health emergency has caused significant disruption in the international and United States economies and financial markets. On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The spread of COVID-19 has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity and financial transactions, labor shortages, supply chain interruptions and overall economic and financial market instability. The United States now has the world's most reported COVID-19 cases, and all 50 states and the District of Columbia have reported cases of infected individuals. Several states, including New York, where we are headquartered, have declared states of emergency. Similar impacts have been experienced in every country in which we do business. Impacts to our business could be widespread and global, and material impacts may be possible, including the following:
• Employees contracting COVID-19
• Reductions in our operating effectiveness as our employees work from home or disaster-recovery locations
• Unavailability of key personnel necessary to conduct our business activities
• Unprecedented volatility in global financial markets
• Reductions in revenue across our operating businesses
• Closure of our offices or the offices of our clients
• De-globalization
• Potential regulatory scrutiny of our ability to adequately supervise our activities in accordance with applicable regulatory requirements
We are taking necessary and recommended precautions to protect the safety and well-being of our employees and customers, including by means of conducting certain business activities and operations remotely. However, no assurance can be given that the steps being taken will be deemed to be adequate or appropriate, nor can we predict the level of disruption which will occur to our employees' ability to provide customer support and service.
Although the onset of the COVID-19 pandemic resulted in meaningfully lower stock prices for many companies, as well as the trading prices for our own securities, the markets have not only stabilized but returned to near pre-COVID-19 levels. However, the further spread of the COVID-19 outbreak may materially negatively impact stock and other securities prices and materially disrupt banking and other financial activity generally and in the areas in which we operate. This would likely result in a decline in demand for our products and services, which would negatively impact our liquidity position and our growth strategy. Any one or more of these developments could have a material adverse effect on our and our consolidated subsidiaries' business, operations, consolidated financial condition, and consolidated results of operations.
We may incur losses as a result of unforeseen or catastrophic events, including the emergence of a pandemic, terrorist attacks, extreme weather events or other natural disasters. The occurrence of unforeseen or catastrophic events, including the emergence of a pandemic, such as COVID-19, or other widespread health emergency (or concerns over the possibility of such an emergency), terrorist attacks, extreme terrestrial or solar weather events or other natural disasters, could create economic and financial disruptions, and could lead to operational difficulties (including travel limitations) that could impair our ability to manage our businesses.
Abrupt changes in market and general economic conditions have in the past adversely affected, and may in the future adversely affect, our business and profitability and cause volatility in our results of operations. Economic and market conditions have had, and will continue to have, a direct and material impact on our results of operations and financial condition because performance in the financial services industry is heavily influenced by the overall strength of general economic conditions and financial market activity.
Our investment banking revenue, in the form of advisory services and underwriting, is directly related to general economic conditions and corresponding financial market activity. When the outlook for such economic conditions is uncertain or negative, financial market activity generally tends to decrease, which reduces our investment banking revenues. Reduced expectations of U.S. economic growth or a decline in the global economic outlook could cause financial market activity to decrease and negatively affect our investment banking revenues.
A sustained and continuing market downturn could lead to or exacerbate declines in the number of securities transactions executed for customers and, therefore, to a decline in the revenues we receive from commissions and spreads. Correspondingly, a reduction of prices of the securities we hold in inventory or as investments would lead to reduced revenues.
Revenues from our asset management businesses have been and may continue to be negatively impacted by declining securities prices, as well as widely fluctuating securities prices. Because our asset management businesses hold long and short positions in equity and debt securities, changes in the prices of these securities, as well as any decrease in the liquidity of these securities, may materially and adversely affect our revenues from asset management.
Similarly, our merchant banking businesses may suffer from the above-mentioned impacts of COVID-19 including employee and customer illnesses and quarantines, cancellations of events and travel, reductions in business activity and financial transactions, labor shortages, supply chain interruptions and overall economic and financial market instability. As an example, an overall reduction in business activity has led to a decrease in global demand for oil and natural gas thereby causing lower prices for these commodities. Such dramatic price decreases may have a material adverse effect on our investments in Vitesse Energy Finance and JETX Energy.
In addition, global economic conditions and global financial markets remain vulnerable to the potential risks posed by certain events, which could include, among other things, political and financial uncertainty in the United States and the European Union, renewed concern about China's economy, complications involving terrorism and armed conflicts around the world, or other challenges to global trade or travel, such as those that have occurred due to the COVID-19 pandemic. More generally, because our business is closely correlated to the general economic outlook, a significant deterioration in that outlook or realization of certain events would likely have an immediate and significant negative impact on our business and overall results of operations.
Changing financial, economic and political conditions could result in decreased revenues, losses or other adverse consequences. These include economic conditions that may be specific to the industries in which our businesses and investments operate, as well as a general economic slowdown, prolonged recession or other market downturn or disruption. Adverse impacts may include the following:
•A market downturn could lead to a decline in the volume of transactions executed for customers and, therefore, to a decline in revenues we receive from commissions and spreads
•Adverse changes in the market could lead to decreases in the value of our holdings, both realized and unrealized.
•Unfavorable conditions or changes in general political, economic or market conditions could reduce the number and size of transactions in which we provide underwriting, financial advisory and other services. Our investment banking revenues, in the form of financial advisory and sales and trading or placement fees, are directly related to the number and size of the transactions in which we participate and could therefore be adversely affected by unfavorable financial, economic or political conditions. In particular, the increasing trend toward sovereign protectionism and deglobalization resulting from the current populist political movement has resulted or could result in decreases in free trade, erosion of traditional international coalitions, the imposition of sanctions and tariffs, governmental closures and no-confidence votes, domestic and international strife, and general market upheaval in response to such results, all of which could negatively impact our business
•Adverse changes in the securities markets could lead to a reduction in revenues from asset management fees and losses on our capital invested in managed funds. Even in the absence of a market downturn, below-market investment performance by our funds and portfolio managers could reduce asset management revenues and assets under management and result in reputational damage that might make it more difficult to attract new investors
•Adverse changes in the financial markets could lead to regulatory restrictions that may limit or halt certain of our business activities
•Limitations on the availability of credit can affect the ability of our businesses and investments to borrow on a secured or unsecured basis, which may adversely affect liquidity and results of operations. Global market and economic conditions have been particularly disrupted and volatile in the last several years and may be in the future. Our cost and availability of funding could be affected by illiquid credit markets and wider credit spreads
•Certain of our current and future businesses and investments may require additional third-party funding to succeed, such as venture capital funding, joint venture funding or other third-party capital. Failure to obtain such third-party funding may cause such business, investment or prospective investment to fail or progress slower than expected which could adversely affect its and our funding, liquidity, operations and profitability. In addition, such failure could also adversely affect our reputation which could adversely affect our business and future business prospects
•New or increased taxes on compensation payments such as bonuses may adversely affect our profits
•Should one or more of the competitors of our businesses or investments fail, business prospects and revenue could be negatively impacted due to negative market sentiment causing customers to cease doing business with us and our lenders to cease loaning us money, which could adversely affect our operations, funding and liquidity
•Unfavorable economic conditions could have an adverse effect on the demand for new loans and the servicing of loans originated by third-parties, which would have an adverse impact on the operations and profitability of some of our financial services businesses and investments
The United Kingdom's ("U.K.") exit from the EU could adversely affect our businesses and investments. The U.K. left the EU on January 31, 2020, with a transition period until December 31, 2020 during which time the U.K. followed EU rules and a U.K.-EU trade agreement was negotiated governing EU and U.K. relations from January 1, 2021 resulting in a Trade and Cooperation Agreement together with a Political Declaration covering a number of areas including financial services. The Trade and Cooperation Agreement does not include substantive provisions for financial services, in particular it does not allow U.K. investment firms to provide services into the EU under the Passporting regime.
The potential impacts related to the delivery of Brexit or the terms of the new economic and security relationship between the U.K. and the EU on the movement of goods, services, people and capital between the U.K. and the EU, customer behavior, economic conditions, interest rates, currency exchange rates, availability of capital or other matters are unclear and could adversely affect our businesses, including our revenues from trading and investment banking activities, particularly in Europe, and our results of operations and financial condition.
Jefferies Group operates substantial parts of its EU businesses from entities based in the U.K. and has taken steps to ensure that it is able to continue to provide services to clients located in the European Economic Area ("EEA") jurisdiction without interruption. As such, a Jefferies Group wholly-owned subsidiary, ("Jefferies GmbH"), has been established in Germany which is authorized as a MiFID investment firm by BaFin and client relationships have been migrated so that Jefferies GmbH can service EEA institutional clients across Investment Banking, Equities and Fixed Income sectors from its office in Frankfurt and branch offices in Amsterdam, Madrid, Milan, Paris and Stockholm. Due to considerations such as operating expenses, liquidity, leverage and capital, the modified European operating framework will be more complex, less efficient and more costly than would otherwise have been the case.
Operational Risks
Damage to our reputation could damage our business. Maintaining our reputation is critical to our attracting and maintaining customers, investors and employees. If we fail to deal with, or appear to fail to deal with, various issues that may give rise to reputational risk, we could significantly harm our business prospects. These issues include, but are not limited to, any of the risks discussed in this Item 1A, appropriately dealing with potential conflicts of interest, legal and regulatory requirements, ethical issues, money-laundering, cybersecurity and privacy, record keeping, sales and trading practices, failure to sell securities we have underwritten at the anticipated price levels, and the proper identification of the legal, reputational, credit, liquidity and market risks inherent in our products. A failure to deliver appropriate standards of service and quality, or a failure or perceived failure to treat customers and clients fairly, can result in customer dissatisfaction, litigation and heightened regulatory scrutiny, all of which can lead to lost revenue, higher operating costs and harm to our reputation. Further, negative publicity regarding us, whether or not true, may also result in harm to our prospects. Our operations in the past have been impacted as some clients either ceased doing business or temporarily slowed down the level of business they do, thereby decreasing our revenue. There is
no assurance that we will be able to successfully reverse the negative impact of allegations and rumors in the future and our potential failure to do so could have a material adverse effect on our business, financial condition and liquidity.
We may incur losses if our risk management is not effective. We seek to monitor and control our risk exposure. Our risk management processes and procedures are designed to limit our and certain of our subsidiaries' exposure to acceptable levels as we conduct our businesses. We and certain of our subsidiaries apply comprehensive frameworks of limits on a variety of key metrics to constrain the risk profile of our business activities. These limits reflect our risk tolerances for business activity. The frameworks may include inventory position and exposure limits on a gross and net basis, scenario analysis and stress tests, Value-at-Risk, sensitivities, exposure concentrations, aged inventory, amount of Level 3 assets, counterparty exposure, leverage, cash capital, and performance analysis. While we and certain of our subsidiaries employ various risk monitoring and risk mitigation techniques, those techniques and the judgments that accompany their application, including risk tolerance determinations, cannot anticipate every economic and financial outcome or the specifics and timing of such outcomes. As a result, we may incur losses notwithstanding our risk management processes and procedures.
The ability to attract, develop and retain highly skilled and productive employees is critical to the success of our business. Our ability to develop and retain our clients depends on the reputation, judgment, business generation capabilities and skills of our professionals. To compete effectively, we must attract, retain and motivate qualified professionals, including successful financial advisors, investment bankers, trading professionals, portfolio managers and other revenue producing or specialized personnel, in addition to qualified, successful personnel in functional, non-revenue producing roles. Competitive pressures we experience with respect to employees could have an adverse effect on our business, results of operations, financial condition and liquidity.
Turnover in the financial services industry is high. The cost of retaining skilled professionals in the financial services industry has escalated considerably. Financial industry employers are increasingly offering guaranteed contracts, upfront payments, and increased compensation. These can be important factors in a current employee's decision to leave us as well as in a prospective employee's decision to join us. As competition for skilled professionals in the industry remains intense, we may have to devote significant resources to attracting and retaining qualified personnel.
If we were to lose the services of certain of our professionals, we may not be able to retain valuable relationships and some of our clients could choose to use the services of a competitor instead of our services. If we are unable to retain our professionals or recruit additional professionals, our reputation, business, results of operations and financial condition will be adversely affected. Further, new business initiatives and efforts to expand existing businesses frequently require that we incur compensation and benefits expense before generating additional revenues.
Moreover, companies in our industries whose employees accept positions with competitors often claim that those competitors have engaged in unfair hiring practices. We may be subject to such claims in the future as we seek to hire qualified personnel who have worked for our competitors. Some of these claims may result in material litigation. We could incur substantial costs in defending against these claims, regardless of their merits. Such claims could also discourage potential employees who work for our competitors from joining us.
Operational risks may disrupt our business, result in regulatory action against us or limit our growth. Our businesses are highly dependent on our ability to process, on a daily basis, a large number of transactions across numerous and diverse markets in many currencies, and the transactions we process have become increasingly complex. If any of our financial, accounting or other data processing systems do not operate properly or are disabled or if there are other shortcomings or failures in our internal processes, people or systems, we could suffer an impairment to our liquidity, financial loss, a disruption of our businesses, liability to clients, regulatory intervention or reputational damage. These systems may fail to operate properly or become disabled as a result of events that are wholly or partially beyond our control, including a disruption of electrical or communications services or our inability to occupy one or more of our buildings. The inability of our systems to accommodate an increasing volume and complexity of transactions could also constrain our ability to expand our businesses.
Certain of our financial and other data processing systems rely on access to and the functionality of operating systems maintained by third-parties. If the accounting, trading or other data processing systems on which we are dependent are unable to meet increasingly demanding standards for processing and security or, if they fail or have other significant shortcomings, we could be adversely affected. Such consequences may include our inability to effect transactions and manage our exposure to risk.
In addition, despite the contingency plans we and certain of our subsidiaries have in place, our ability to conduct business may be adversely impacted by a disruption in the infrastructure that supports our businesses and the communities in which they are
located. This may include a disruption involving electrical, communications, transportation or other services used by us or third-parties with which we conduct business.
Any cyber attack, cybersecurity incident, or other information security breach of, or vulnerability in, our technology systems, or those of our clients, partners, counterparties, or other third-party service providers we rely on, could have operational impacts, subject us to significant liability and harm our reputation. Our operations rely heavily on the secure processing, storage and transmission of financial, personal and other information in our computer systems and networks. In recent years, there have been several highly publicized incidents involving financial services companies reporting the unauthorized disclosure of client or other confidential information, as well as cyber attacks involving theft, dissemination and destruction of corporate information or other assets, which in some cases occurred as a result of failure to follow procedures by employees or contractors or as a result of actions by third-parties. Cyber attacks can originate from a variety of sources, including third-parties affiliated with foreign governments, organized crime or terrorist organizations. Third-parties may also attempt to place individuals within our firm or induce employees, clients or other users of our systems to disclose sensitive information or provide access to our data, and these types of risks may be difficult to detect or prevent.
Like other financial services firms, we have been the target of attempted cyber attacks and we understand that cybersecurity incidents among financial services firms are on the rise. We are not aware of any material losses relating to cyber attacks or other information security breaches. The techniques used in these cyber attacks and cybersecurity incidents are increasingly sophisticated, change frequently and are often not recognized until launched. Although we seek to maintain reasonable security measures, including a suite of authentication and layered information security controls, no security measures are infallible, and we cannot guarantee that our safeguards will always work or that they would detect, mitigate or remediate these risks in a timely manner. Despite our implementation of reasonable security measures and endeavoring to modify them as circumstances warrant, our computer systems, software and networks may be vulnerable to human error, natural disasters, power loss, spam attacks, unauthorized access, distributed denial of service attacks, computer viruses and other malicious code, and other events that could result in significant liability and damage to our reputation, and have an ongoing impact on the security and stability of our operations.
We also rely on numerous third-party service providers to conduct other aspects of our business operations, and we face similar risks relating to them. While we regularly conduct security assessments on these third-party vendors, we cannot be certain that their information security protocols are sufficient to withstand a cyber attack, cybersecurity incident, or other information security breach. In addition, in order to access our products and services, our customers may use computers and other devices that are beyond our security control systems and processes.
Notwithstanding the precautions we take, if a cyber attack, cybersecurity incident, or other information security breach were to occur, this could jeopardize the information we confidentially maintain, or otherwise cause interruptions in our operations or those of our clients and counterparties, exposing us to liability. As attempted attacks continue to evolve in scope and sophistication, we may be required to expend substantial additional resources to modify or enhance our reasonable security measures, to investigate and remediate vulnerabilities or other exposures or to communicate about cyber attacks, cybersecurity incidents, or other information security breaches to our customers, partners, third-party service providers, and counterparties. Though we have insurance against some cyber risks and attacks, we may be subject to litigation and financial losses that exceed our insurance policy limits or are not covered under any of our current insurance policies. A technological breakdown could also interfere with our ability to comply with financial reporting and other regulatory requirements, exposing us to potential disciplinary action by regulators. Successful cyber attacks, cybersecurity incidents, or other information security breaches at other large financial institutions or other market participants, whether or not we are affected, could lead to a general loss of customer confidence in financial institutions that could negatively affect us, including harming the market perception of the effectiveness of our reasonable security measures or the financial system in general, which could result in a loss of business.
Further, in light of the high volume of transactions we process, the large number of our clients, partners and counterparties, and the increasing sophistication of malicious actors, a cyber attack, cybersecurity incident, or other information security breach could occur and persist for an extended period of time without detection. We expect that any investigation of a cyber attack, cybersecurity incident, or other information security breach would take substantial amounts of time and resources, and that there may be extensive delays before we obtain full and reliable information. During such time we would not necessarily know the extent of the harm caused by the cyber attack, cybersecurity incident, or other information security breach or how best to remediate it, and certain errors or actions could be repeated or compounded before they are discovered and remediated. All of these factors could further increase the costs and consequences of such a cyber attack, or cybersecurity incident. In providing services to clients, we manage, utilize and store sensitive or confidential client or employee data, including personal data. As a result, we are subject to numerous laws and regulations designed to protect this information, such as U.S. federal, state and international laws governing the protection of personally identifiable information. If any person, including any of our associates, negligently disregards or intentionally breaches our established controls with respect to client or employee data, or
otherwise mismanages or misappropriates such data, we could be subject to significant monetary damages, regulatory enforcement actions, fines and/or criminal prosecution. In addition, unauthorized disclosure of sensitive or confidential client or employee data, whether through system failure, employee negligence, fraud or misappropriation, could damage our reputation and cause us to lose clients and related revenue. Depending on the circumstances giving rise to the information security breach, this liability may not be subject to a contractual limit or an exclusion of consequential or indirect damages.
Employee misconduct could harm us by impairing our ability to attract and retain clients and subject us to significant legal liability and reputational harm. There is a risk that our employees could engage in misconduct that adversely affects our business. For example, our business often requires that we deal with confidential matters of great significance to our clients. If our employees were to improperly use or disclose confidential information provided by our clients, we could be subject to regulatory sanctions and suffer serious harm to our reputation, financial position, current client relationships and ability to attract future clients. We are also subject to a number of obligations and standards arising from our asset management business and our authority over the assets managed by our asset management business. In addition, our financial advisors may act in a fiduciary capacity, providing financial planning, investment advice, and discretionary asset management. The violation of these obligations and standards by any of our employees would adversely affect our clients and us. It is not always possible to deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective against certain misconduct, including conduct which is difficult to detect. The occurrence of significant employee misconduct could have a material adverse financial effect or cause us significant reputational harm and/or legal and regulatory liability, which in turn could seriously harm our business and our prospects.
We may not be able to insure certain risks economically. We cannot be certain that we will be able to insure all risks that we desire to insure economically or that all of our insurers or reinsurers will be financially viable if we make a claim. If an uninsured loss or a loss in excess of insured limits should occur, or if we are required to pay a deductible for an insured loss, results of operations could be adversely affected.
Future acquisitions and dispositions of our businesses and investments are possible, changing the components of our assets and liabilities, and if unsuccessful or unfavorable, could reduce the value of our securities. Any future acquisitions or dispositions may result in significant changes in the composition of our assets and liabilities, as well as our business mix and prospects. Consequently, our financial condition, results of operations and the trading price of our securities may be affected by factors different from those affecting our financial condition, results of operations and trading price at the present time.
Our investment in Berkadia may not prove to be successful and may adversely affect our results of operations or financial condition. At November 30, 2020, we had an approximately $301.2 million investment in Berkadia. Many factors, most of which are outside of our control, can affect Berkadia's business, including loan losses in excess of reserves, a change in the relationships with U.S. Government-Sponsored Enterprises or federal agencies, a significant loss of customers, and other factors that directly and indirectly effect the results of operations, including the sales and profitability of Berkadia, and consequently may adversely affect our results of operations or financial condition.
If Berkadia suffered significant losses and was unable to repay its commercial paper borrowings, we would be exposed to loss pursuant to a reimbursement obligation to Berkshire Hathaway. Berkadia obtains funds generated by commercial paper sales of an affiliate of Berkadia. All of the proceeds from the commercial paper sales are used by Berkadia to fund new mortgage loans, servicer advances, investments and other working capital requirements. Repayment of the commercial paper is supported by a $1.5 billion surety policy issued by a Berkshire Hathaway insurance subsidiary and a Berkshire Hathaway corporate guaranty, and we have agreed to reimburse Berkshire Hathaway for one-half of any losses incurred thereunder. If Berkadia suffers significant losses and is unable to repay its commercial paper borrowings, we would suffer losses to the extent of our reimbursement obligation to Berkshire Hathaway. As of November 30, 2020, the aggregate amount of commercial paper outstanding was $1.47 billion.
Legal, Legislation and Regulation Risks
New legislation and regulation may significantly affect our businesses and investments. Significant new legislation and regulation affecting the financial services industry is regularly proposed and sometimes adopted. These legislative and regulatory initiatives affect not only us, but also our competitors and certain of our clients. These changes could have an effect on our revenue and profitability, limit our ability to pursue certain business opportunities, impact the value of assets that we hold, require us to change certain business practices, impose additional costs on us and otherwise adversely affect our business. Accordingly, we cannot provide assurance that legislation and regulation will not eventually have an adverse effect on our business, results of operations, cash flows and financial condition. In the U.S., such initiatives frequently arise in the aftermath of elections that change the party of the president or the majority party in the House and/or Senate.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") and the rules and regulations adopted by the CFTC and the SEC have introduced a comprehensive regulatory regime for swaps and SBS and parties that deal in such derivatives (although some rules, including the SEC rules for SBS, have compliance dates that will occur in the future). Two of our subsidiaries are provisionally registered as swap dealers with the CFTC and are members of the NFA. We may also be required in the future to register one or more additional subsidiaries as SBS dealers with the SEC. Certain swaps have been made subject to mandatory clearing and exchange trading and additional swaps and SBS may become subject to such requirements in the future. Pursuant to regulations adopted by the CFTC and bank regulators, swap dealers are required to post and collect variation margin in connection with the trading of uncleared swaps. We have already incurred significant compliance and operational costs as a result of the Dodd-Frank Act swap business conduct and mandatory variation margin rules, and when the compliance dates for all the final rules contemplated by Title VII have been implemented, our swap dealer entities will also be subject to mandatory capital requirements that will likely have an effect on our business. Although there is uncertainty about the full impact of these changes, we expect we will continue to be subject to a complex regulatory framework that will require significant monitoring and compliance expenditures. Negative effects could result from an expansive extraterritorial application of the Dodd-Frank Act and/or insufficient international coordination with respect to adoption of rules for derivatives and other financial reforms in other jurisdictions.
The European Market Infrastructure Regulation ("EMIR") relating to derivatives entered into force during August 2012 and introduced certain requirements in respect of derivative contracts including: (i) the mandatory clearing of OTC derivative contracts declared subject to the clearing obligation; (ii) risk mitigation techniques in respect of uncleared OTC derivative contracts, including the mandatory margining of uncleared OTC derivative contracts; and (iii) reporting and record keeping requirements in respect of all derivative contracts. EMIR's requirements apply to "financial counterparties" such as EU authorized investment firms, credit institutions, insurance companies, undertakings for collective investment in transferable securities and alternative investment funds, and "non-financial counterparties" (being an EU entity which is not a financial counterparty). Members of our group who are EU entities or subsidiaries and, when transacting with in-scope EU counterparties, members of our group who are non-EU regulated entities or subsidiaries may be subject to additional obligations and/or costs that may not otherwise have applied. Amendments to EMIR entered into force during 2019 to make the rules more streamlined and proportionate. From January 1, 2021, following the end of the transition period agreed between the EU and the U.K., EMIR will no longer apply under U.K. law; it will be replaced by "U.K. EMIR", being EMIR as it forms part of U.K. domestic law by virtue of Section 3 of the European Union (Withdrawal) Act 2018. U.K. EMIR is therefore expected, at least initially, to impose substantially similar requirements on in-scope U.K. counterparties as those imposed on in-scope EU counterparties under EMIR.
The Markets in Financial Instruments Regulation and a revision of the Market in Financial Instruments Directive (collectively referred to as "MiFID II") imposes certain restrictions as to the trading of shares and derivatives including market structure-related, reporting, investor protection-related and organizational requirements, requirements on pre- and post-trade transparency, requirements to use certain venues when trading financial instruments (which includes shares and certain derivative instruments), requirements affecting the way investment managers can obtain research, powers of regulators to impose position limits and provisions on regulatory sanctions. The European Commission ("EC") has been reviewing MiFID II throughout 2020 and is expected to publish a legislative proposal for changes to MiFID II. The extent of the changes that will be proposed under the MiFID II review is not known; however, subject to certain conditions and exceptions we may be unable to trade shares or derivatives with in-scope counterparties other than as provided by MiFID II and we may also be unable to trade shares or derivatives with, or as, in-scope counterparties under the U.K.'s "onshored" version of MiFID II.
The EU capital and liquidity legislation for banks and investment firms implemented many of the finalized Basel III capital and liquidity standards, including in relation to the leverage ratio, market risk capital, and a net stable funding ratio. These changes will begin to take effect from June 2021.
Increasing regulatory focus on privacy and security issues and expanding laws could impact our businesses and investments and expose us to increased liability. The General Data Protection Regulation ("GDPR"), which went into effect in the EU in May 2018, imposes obligations including, among other things:
•accountability and transparency requirements, which require companies to demonstrate and record compliance with the GDPR and to provide more detailed information to data subjects regarding the processing of their personal data obligations to consider data protection when any new products or services are developed and to limit the amount of personal data processed
•compliance with the data protection rights of data subjects including a right of access to or correction of personal data and a right of erasure of personal data
•the prompt reporting of personal data breaches to the relevant data supervisory authority without undue delay unless the personal data breach is unlikely to result in a risk to the data subject's rights and freedoms
The GDPR also includes restrictions on the transfers of personal data from the European Union to jurisdictions that have not been deemed to provide essentially equivalent data protection safeguards through national laws outside of certain legal transfer mechanisms. The GDPR imposes significant fines for serious non-compliance of up to the higher of 4% of an organization's annual worldwide turnover or €20 million. Data subjects also have a right to compensation as a result of infringement of the GDPR for financial or non-financial losses.
Obligations under the GDPR and implementing member state legislation continue to evolve through legislation and regulatory guidance. In addition to other privacy legislation that is in effect in other regions, numerous proposals regarding privacy and data protection are pending before U.S. and non-U.S. legislative and regulatory bodies. The adopted form of such developing legislation and regulation will determine the level of any resources which we will need to invest to ensure compliance.
Extensive regulation of our businesses limits our activities, and, if we violate these regulations, we may be subject to significant penalties. We are subject to extensive laws, rules and regulations in the countries in which we operate. Firms that engage in providing financial services must comply with the laws, rules and regulations imposed by national and state governments and regulatory and self-regulatory bodies with jurisdiction over such activities. Such laws, rules and regulations cover many aspects of providing financial services.
Regulators supervise certain of Jefferies Group's business activities to monitor compliance with applicable laws, rules and regulations. In addition, if there are instances in which our regulators question our compliance with laws, rules, or regulations, they may investigate the facts and circumstances to determine whether we have complied. At any moment in time, we may be subject to one or more such investigations or similar reviews. At this time, all such investigations and similar reviews are insignificant in scope and immaterial to us. However, there can be no assurance that, in the future, the operations of our businesses will not violate such laws, rules, or regulations, or that such investigations and similar reviews will not result in significant or material adverse regulatory requirements, regulatory enforcement actions, fines or other adverse impact to the operation of our business.
Additionally, violations of laws, rules and regulations could subject us to one or more of the following events: civil and criminal liability; sanctions, which could include the revocation of our subsidiaries' registrations as investment advisors or broker-dealers; the revocation of the licenses of our financial advisors; censures; fines; or a temporary suspension or permanent bar from conducting business. The occurrence of any of these events could have a material adverse effect on our business, financial condition and prospects.
Certain of our subsidiaries are subject to regulatory financial capital holding requirements, such as the Net Capital Rule, that could impact various capital allocation decisions or limit the operations of our broker-dealers. In particular, compliance with the Net Capital Rule may restrict our broker-dealers' ability to engage in capital-intensive activities such as underwriting and trading, and may also limit their ability to make loans, advances, dividends and other payments.
Additional legislation, changes in rules, changes in the interpretation or enforcement of existing laws and rules, conflicts and inconsistencies among rules and regulations, or the entering into businesses that subject us to new rules and regulations may directly affect our business, results of operations and financial condition. We continue to monitor the impact of new U.S. and international regulation on our businesses.
Legal liability may harm our business. Many aspects of our businesses involve substantial risks of liability, and in the normal course of business, we have been named as a defendant or codefendant in lawsuits involving primarily claims for damages. The risks associated with potential legal liabilities often may be difficult to assess or quantify and their existence and magnitude often remain unknown for substantial periods of time. The expansion of our businesses, including increases in the number and size of investment banking transactions and our expansion into new areas impose greater risks of liability. Substantial legal liability could have a material adverse financial effect or cause us significant reputational harm, which in turn could seriously harm our business and our prospects.
A change in tax laws in key jurisdictions could materially increase our tax expense. We are subject to tax in the U.S. and numerous international jurisdictions. Changes to income tax laws and regulations in any of the jurisdictions in which we operate, or in the interpretation of such laws, or the introduction of new taxes, could significantly increase our effective tax rate and ultimately reduce our cash flow from operating activities and otherwise have an adverse effect on our financial condition.
If our tax filing positions were to be challenged by federal, state and local, or foreign tax jurisdictions, we may not be wholly successful in defending our tax filing positions. We record reserves for unrecognized tax benefits based on our assessment of the probability of successfully sustaining tax filing positions. Management exercises significant judgment when assessing the probability of successfully sustaining tax filing positions, and in determining whether a contingent tax liability should be
recorded and, if so, estimating the amount. If our tax filing positions are successfully challenged, payments could be required that are in excess of reserved amounts or we may be required to reduce the carrying amount of our net deferred tax asset, either of which result could be significant to our financial condition or results of operations.
Merchant Banking Risks
Our estimates of the fair values of holdings of certain merchant banking investments, which we will cease to provide, may differ from what can be realized and how these investments are reflected in our financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). In our January 2021 and June 2020 earnings releases, we disclosed certain estimated fair values of our merchant banking investments, some of which are consolidated. These estimates may differ from how these investments are reflected in our financial statements prepared in accordance with GAAP. Factors to consider in connection with reviewing these estimates of fair value include, but are not limited to, the following:
•These estimates are forward-looking statements and should be read in connection with our Cautionary Statement for Forward-Looking Information
•Although we believe these estimates to be fair and reasonable, these estimates may differ materially from realized values or future estimates
•Our fair values are, indeed, estimates only and are subject to change
•Management does not necessarily use these estimates in making business decisions regarding the operation of our business or any decision relating to these investments
•These estimates may constitute non-GAAP financial measures and should be read in connection with disclosures relating to our use of non-GAAP financial measures
•We have decided to stop providing these estimates. In our January 4, 2021 earnings release, we stated that, going forward, we would be discontinuing this disclosure as we believe the wind-down of the portfolio diminishes the value of this information, which requires meaningful management time and expenditure to produce
The performance of our oil and gas production and development investments, Vitesse Energy Finance and JETX Energy, is impacted by uncertainties specific to the oil and gas industry which we cannot control and may adversely affect our results of operations or financial condition. At November 30, 2020, we had an approximately $526.6 million investment in Vitesse Energy Finance and JETX Energy. The oil and gas industry, by its nature, involves a high degree of risk. The value of these investments may be impacted by changes in the prices of oil, gas and natural gas liquids, which are affected by local, regional and global events or conditions that affect supply and demand and which have a history of significant price volatility. These investments are also exposed to changes in regulations affecting the industry, which could increase our cost of compliance, increase taxes or reduce or delay business opportunities. In addition, there are numerous uncertainties inherent in the estimation of future oil and gas production and future income streams associated with production. As a result, actual results could materially differ from those we currently anticipate and our ability to profitably grow these investments could be adversely affected.
Our investment in real estate may not prove to be successful and may adversely affect our results of operations or financial condition. At November 30, 2020, we had an approximately $531.6 million investment in real estate businesses, including HomeFed. Many factors, most of which are outside of our control, can affect HomeFed's business, including the state of the housing market in general and other factors that directly or indirectly affect the results of operations, including the sales and profitability of HomeFed, and consequently may adversely affect our results of operations or financial condition.
Our investment in Linkem may not prove to be successful and may adversely affect our results of operations or financial condition. At November 30, 2020, we had an approximately $199.0 million investment in Linkem. Many factors, most of which are outside of our control, can affect Linkem's business, including the state of the Italian economy and capital markets in general, competition in the Italian telecommunications markets and other factors that directly and indirectly affect the results of operations, including the sales and profitability of Linkem, and consequently may adversely affect our results of operations or financial condition.
Our investment in FXCM may not prove to be successful and may adversely affect our results of operations or financial condition. At November 30, 2020, we had an approximately $133.4 million investment in FXCM. Many factors, most of which are outside of our control, can affect FXCM's business, including the state of international market and economic conditions which impact trading volume and currency volatility, changes in regulatory requirements and other factors that directly or indirectly affect the results of operations, including the sales and profitability of FXCM, and consequently may adversely affect our results of operations or financial condition.
Our investment in Idaho Timber may not prove to be successful and may adversely affect our results of operations or financial condition. At November 30, 2020, we had an approximately $85.6 million investment in Idaho Timber. Many factors, most of which are outside of our control, can affect Idaho Timber's business, including demand for its products, prices and availability of raw materials and other factors that directly and indirectly affect the results of operations, including the sales and profitability of Idaho Timber, and consequently may adversely affect our results of operations or financial condition.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments.
Not applicable.

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ITEM 2. PROPERTIES
Item 2. Properties.
Our global executive offices and principal administrative offices are located at 520 Madison Avenue, New York, New York under an operating lease arrangement.
Jefferies Group maintains offices in over 30 cities throughout the world including its global headquarters in New York City, its European headquarters in London and its Asia Pacific headquarters in Hong Kong. In addition, Jefferies Group maintains backup data center facilities with redundant technologies for each of its three main data center hubs in Jersey City, London and Hong Kong. Jefferies Group leases all of its office space, or contract via service arrangement, which management believes is adequate for its business.
HomeFed is the developer of various real estate properties and has an aggregate book value of approximately $446.8 million at November 30, 2020.
Our businesses lease other manufacturing, warehousing, office and headquarters facilities. The facilities vary in size and have leases expiring at various times, subject, in certain instances, to renewal options. See Note 13 to our consolidated financial statements.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings.
The information required by this Item 3 is incorporated by reference from the "Contingencies" section in Note 22 in the Notes to consolidated financial statements in Item 8 of Part II of this report, which is incorporated herein by reference.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures.
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common shares are traded on the NYSE under the symbol JEF. As of January 21, 2021, there were approximately 1,513 record holders of the common shares.
We paid quarterly cash dividends of $0.15 per share for each quarter of 2020. We paid quarterly cash dividends of $0.125 per share for each quarter of 2019, as well as $1.50 in a special distribution (we distributed all of our 7,514,477 Spectrum Brands Holdings, Inc. ("Spectrum Brands") shares through a special pro rata dividend effective on October 11, 2019 to our stockholders of record as of the close of business on September 30, 2019). We paid quarterly cash dividends of $0.125 per share for each of the last two quarters of 2018 and $0.10 per share for each of the first two quarters of 2018. On January 4, 2021, our Board of Directors increased our quarterly dividend by 33% to $0.20 per share. The payment of dividends in the future is subject to the discretion of our Board of Directors and will depend upon general business conditions, legal and contractual restrictions on the payment of dividends and other factors that our Board of Directors may deem to be relevant.
At November 30, 2019, we had approximately $203.6 million available for future share repurchases, based on the closing price of Jefferies common shares on November 30, 2019. In January 2020, the Board of Directors approved an additional $250.0 million share repurchase authorization. In March 2020, having completed the repurchase of shares under the previous authorization, the Board of Directors approved an additional share repurchase authorization of $100 million. In June 2020, the Board of Directors increased the share repurchase authorization by $176.7 million to $250.0 million. In September 2020, the Board of Directors increased the share repurchase authorization by $128.0 million to $250.0 million. During the twelve months ended November 30, 2020, we purchased a total of 42,134,910 of our common shares for $812.7 million, or an average price of $19.29 per share. At November 30, 2020, we had approximately $57.2 million available for future repurchases. In January 2021, the Board of Directors increased the share repurchase authorization to $250.0 million, including the $57.2 million.
Separately, during the twelve months ended November 30, 2020, we repurchased an aggregate of 127,941 shares in connection with our share compensation plans which allow participants to surrender shares to satisfy certain tax liabilities arising from the vesting of restricted shares and the distribution of restricted share units. The total number of shares purchased does not include unvested shares forfeited back to us pursuant to the terms of our share compensation plans.
There were no unregistered sales of equity securities during the period covered by this report.
The following table presents information on our purchases of our common shares during the three months ended November 30, 2020 (dollars in thousands, except per share amounts):
(a) Total
Number of
Shares
Purchased (1) (b) Average
Price Paid
per Share (c) Total Number of Shares Purchased as
Part of Publicly
Announced Plans
or Programs (2) (d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)
September 1, 2020 to September 30, 2020 - $ - - $ 121,987
October 1, 2020 to October 31, 2020 6,075,000 $ 19.52 6,075,000 $ 131,392
November 1, 2020 to November 30, 2020 3,432,707 $ 21.79 3,400,000 $ 57,242
Total 9,507,707 9,475,000
(1)Includes an aggregate 32,707 shares repurchased other than as part of our publicly announced Board authorized repurchase program. We repurchased these securities in connection with our share compensation plans which allow participants to use shares to satisfy certain tax liabilities arising from the vesting of restricted shares and the distribution of restricted share units. The total number of shares purchased does not include unvested shares forfeited back to us pursuant to the terms of our share compensation plans.
(2)In September 2020, the Board of Directors increased the share repurchase authorization by $128.0 million to $250.0 million. At November 30, 2020, $57.2 million remains available for future purchases. In January 2021, the Board of Directors increased the share repurchase authorization to $250.0 million, including the $57.2 million.
Stockholder Return Performance Graph
Set forth below is a graph comparing the cumulative total stockholder return on our common shares against the cumulative total return of the Standard & Poor's 500 Stock Index and the Standard & Poor's 500 Financials Index for the period commencing December 31, 2015 to November 30, 2020. Index data was furnished by S&P Global Market Intelligence. The graph assumes that $100 was invested on December 31, 2015 in each of our common stock, the S&P 500 Index and the S&P 500 Financials Index and that all dividends were reinvested.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. Selected Financial Data.
The following selected financial data have been summarized from our consolidated financial statements. They should be read in conjunction with our consolidated financial statements and Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations of this report.
Twelve Months Ended
November 30, 2020 Twelve Months Ended
November 30, 2019 Eleven Months Ended
November 30, 2018 Twelve Months Ended
December 31, 2017 Twelve Months Ended
December 31, 2016
(In thousands, except per share amounts)
Selected Statements of Operations Data (a)
Net revenues $ 6,010,874 $ 3,892,976 $ 3,764,034 $ 4,077,445 $ 3,035,374
Total expenses 4,868,308 3,617,363 3,524,957 3,396,042 3,202,564
Income (loss) related to associated companies (75,483) 202,995 57,023 (74,901) 154,598
Income (loss) from continuing operations before income taxes
1,067,083 478,608 296,100 606,502 (12,592)
Income tax provision (benefit) 298,673 (483,955) 19,008 642,286 25,773
Income (loss) from continuing operations 768,410 962,563 277,092 (35,784) (38,365)
Income from discontinued operations, including gain on disposal, net of taxes - - 773,984 288,631 232,686
Net (income) loss attributable to the redeemable noncontrolling interests
1,558 286 (37,263) (84,576) (65,746)
Net income attributable to Jefferies Financial Group common shareholders $ 769,605 $ 959,593 $ 1,022,318 $ 167,351 $ 125,938
Per share:
Basic earnings (loss) per common share attributable to Jefferies Financial Group common shareholders:
Income (loss) from continuing operations $ 2.68 $ 3.07 $ 0.82 $ (0.10) $ (0.10)
Income from discontinued operations, including gain on disposal - - 2.11 0.55 0.44
Net income $ 2.68 $ 3.07 $ 2.93 $ 0.45 $ 0.34
Diluted earnings (loss) per common share attributable to Jefferies Financial Group common shareholders:
Income (loss) from continuing operations $ 2.65 $ 3.03 $ 0.81 $ (0.10) $ (0.10)
Income from discontinued operations, including gain on disposal - - 2.09 0.55 0.44
Net income $ 2.65 $ 3.03 $ 2.90 $ 0.45 $ 0.34
(a)Prior to the fourth quarter of 2018, because our fiscal year end was December 31, we reflected Jefferies Group in our consolidated financial statements utilizing a one month lag. In connection with our change in fiscal year end to November 30, we eliminated the one month lag utilized to reflect Jefferies Group results beginning with the fourth quarter of 2018. Therefore, our results for the eleven months ended November 30, 2018, include twelve month results for Jefferies Group and eleven months for the remainder of our results.
At November 30, At December 31,
2020 2019 2018 2017 2016
(In thousands, except per share amounts)
Selected Statements of Financial Condition Data
Total assets $ 53,118,352 $ 49,460,234 $ 47,131,095 $ 47,169,108 $ 45,071,307
Long-term debt 8,352,039 8,337,061 7,617,563 7,885,783 7,380,443
Mezzanine equity 149,676 151,605 144,779 551,593 461,809
Shareholders' equity 9,403,893 9,579,705 10,060,866 10,105,957 10,128,100
Book value per common share $ 37.65 $ 32.85 $ 32.72 $ 28.37 $ 28.18
Cash dividends per common share $ 0.60 $ 0.50 $ 0.45 $ 0.325 $ 0.25
Total dividends per common share $ 0.60 $ 2.00 $ 0.45 $ 0.325 $ 0.25

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The purpose of this section is to discuss and analyze our consolidated financial condition, liquidity and capital resources and results of operations for the twelve months ended November 30, 2020 and 2019. For a discussion of our results of operations and liquidity and capital resources for the eleven months ended November 30, 2018, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended November 30, 2019, which was filed with the SEC on January 29, 2020, and Exhibit 99.1, Part II, Item 7 of our Form 8-K, which was filed with the SEC on June 3, 2020.
This analysis should be read in conjunction with the consolidated financial statements and related footnote disclosures contained in this report and the following "Cautionary Statement for Forward-Looking Information."
Cautionary Statement for Forward-Looking Information
Statements included in this report may contain forward-looking statements. Such statements may relate, but are not limited, to projections of revenues, income or loss, development expenditures, plans for growth and future operations, competition and regulation, as well as assumptions relating to the foregoing. Such forward-looking statements are made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted or quantified. When used in this report, the words "will," "could," "estimates," "expects," "anticipates," "believes," "plans," "intends" and variations of such words and similar expressions are intended to identify forward-looking statements that involve risks and uncertainties. Future events and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements.
Factors that could cause actual results to differ materially from any results projected, forecasted, estimated or budgeted or may materially and adversely affect our actual results include, but are not limited to, those set forth in Item 1A. Risk Factors and elsewhere in this report and in our other public filings with the SEC.
Undue reliance should not be placed on these forward-looking statements, which are applicable only as of the date hereof. Except as may be required by law, we undertake no obligation to revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this report or to reflect the occurrence of unanticipated events.
Results of Operations
We are engaged in investment banking and capital markets, asset management and direct investing. Jefferies Group, our largest subsidiary, is now the largest independent full-service global investment banking firm headquartered in the U.S. During the first quarter of 2020, we changed our internal structure with regard to our operating segments. Previously, our segments consisted of (1) Investment Banking, Capital Markets and Asset Management, which included all of the financial results of Jefferies Group; (2) Merchant Banking; and (3) Corporate. In the first quarter of 2020, we appointed co-Presidents of Asset Management and created a separate fourth operating segment that consists of the asset management activity previously included in our Investment Banking, Capital Markets and Asset Management segment, together with asset management activity previously
included in our Merchant Banking segment. Our segments consist of: (1) Investment Banking and Capital Markets; (2) Asset Management; (3) Merchant Banking; and (4) Corporate.
In the fourth quarter of 2018, we changed our fiscal year end from a calendar year basis to a fiscal year ending on November 30. Our 2018 fiscal year consists of the eleven month transition period beginning January 1, 2018 through November 30, 2018. Jefferies Group has a November 30 year end. Prior to the fourth quarter of 2018, because our fiscal year end was December 31, we reflected Jefferies Group in our consolidated financial statements utilizing a one month lag. In connection with our change in fiscal year end to November 30, we eliminated the one month lag utilized to reflect Jefferies Group results beginning with the fourth quarter of 2018. Therefore, our results for the eleven months ended November 30, 2018, include twelve month results for Jefferies Group and eleven months for the remainder of our results.
The following tables present a summary of our financial results.
A summary of results of operations for the twelve months ended November 30, 2020 is as follows (in thousands):
Investment Banking and Capital Markets Asset Management Merchant Banking Corporate Parent Company Interest Consolidation Adjustments Total
Net revenues
$ 4,989,138 $ 235,255 $ 764,460 $ 13,258 $ - $ 8,763 $ 6,010,874
Expenses:
Compensation and
benefits
2,735,080 89,527 77,072 39,184 - - 2,940,863
Cost of sales 241,083 (1) 25,509 (1) 338,588 - - - 605,180
Interest - - 31,425 (2) - 53,445 - 84,870
Depreciation and amortization
82,334 5,247 67,362 3,496 - - 158,439
Selling, general and other expenses
810,753 46,045 199,128 26,197 - (3,167) 1,078,956
Total expenses
3,869,250 166,328 713,575 68,877 53,445 (3,167) 4,868,308
Income (loss) from continuing operations before income taxes and loss related to associated companies
1,119,888 68,927 50,885 (55,619) (53,445) 11,930 1,142,566
Loss related to associated companies - - (75,483) - - - (75,483)
Income (loss) from continuing operations before income taxes
$ 1,119,888 $ 68,927 $ (24,598) $ (55,619) $ (53,445) $ 11,930 1,067,083
Income tax provision from continuing operations
298,673
Net income $ 768,410
(1) Includes Floor brokerage and clearing fees.
(2) Interest expense within Merchant Banking of $31.4 million for the twelve months ended November 30, 2020 primarily includes $26.7 million for Foursight Capital and $4.7 million for Vitesse Energy Finance.
A summary of results of operations for the twelve months ended November 30, 2019 is as follows (in thousands):
Investment Banking and Capital Markets Asset Management Merchant Banking Corporate Parent Company Interest Consolidation Adjustments Total
Net revenues
$ 3,035,988 $ 84,894 $ 735,213 $ 32,833 $ - $ 4,048 $ 3,892,976
Expenses:
Compensation and
benefits
1,641,814 63,305 61,767 58,005 - - 1,824,891
Cost of sales 202,425 (1) 20,715 (1) 319,641 - - - 542,781
Interest - - 34,129 (2) - 53,048 - 87,177
Depreciation and amortization
77,549 2,042 69,805 3,475 - - 152,871
Selling, general and other expenses
767,150 40,432 162,832 39,820 - (591) 1,009,643
Total expenses
2,688,938 126,494 648,174 101,300 53,048 (591) 3,617,363
Income (loss) from continuing operations before income taxes and income related to associated companies
347,050 (41,600) 87,039 (68,467) (53,048) 4,639 275,613
Income related to associated companies - 474 202,453 - - 68 202,995
Income (loss) from continuing operations before income taxes
$ 347,050 $ (41,126) $ 289,492 $ (68,467) $ (53,048) $ 4,707 478,608
Income tax benefit from continuing operations
(483,955)
Net income $ 962,563
(1) Includes Floor brokerage and clearing fees.
(2) Interest expense within Merchant Banking of $34.1 million for the twelve months ended November 30, 2019 primarily includes $29.0 million for Foursight Capital and $4.8 million for Vitesse Energy Finance.
A summary of results of operations for the eleven months ended November 30, 2018 is as follows (in thousands):
Investment Banking and Capital Markets Asset Management Merchant Banking Corporate Parent Company Interest Consolidation Adjustments Total
Net revenues
$ 3,184,426 $ (14,280) $ 577,278 $ 22,300 $ - $ (5,690) $ 3,764,034
Expenses:
Compensation and
benefits
1,715,915 47,363 50,155 50,222 - (873) 1,862,782
Cost of sales 178,841 (1) 5,369 (1) 307,071 - - - 491,281
Interest - 8,992 26,167 (2) - 54,090 - 89,249
Depreciation and amortization
67,467 1,324 48,357 3,169 - - 120,317
Selling, general and other expenses
757,290 57,394 112,587 35,049 - (992) 961,328
Total expenses
2,719,513 120,442 544,337 88,440 54,090 (1,865) 3,524,957
Income (loss) from continuing operations before income taxes and income related to associated companies
464,913 (134,722) 32,941 (66,140) (54,090) (3,825) 239,077
Income related to associated companies - 993 56,030 - - - 57,023
Income (loss) from continuing operations before income taxes
$ 464,913 $ (133,729) $ 88,971 $ (66,140) $ (54,090) $ (3,825) 296,100
Income tax provision from continuing operations
19,008
Income from discontinued operations, net of income tax provision
130,063
Gain on disposal of discontinued operations, net of income tax provision
643,921
Net income $ 1,051,076
(1) Includes Floor brokerage and clearing fees.
(2) Interest expense within Merchant Banking of $26.2 million for the eleven months ended November 30, 2018 primarily includes $20.6 million for Foursight Capital and $3.3 million for Vitesse Energy Finance.
The composition of our financial results has varied over time and we expect will continue to evolve. Our strategy is designed to transform Jefferies into a pure financial services firm and, as such, we are focused on the development of our Investment Banking and Capital Markets, and Asset Management segments, while we continue to realize the value of or otherwise transform our investments in Merchant Banking. The following factors and events should be considered in evaluating our financial results as they impact comparisons:
During March 2020, the global COVID-19 pandemic and initial actions taken in response wreaked havoc on the global economy and all financial markets, and adversely affected our businesses. Subsequently, with various government actions and more clarity from the U.S. Federal Reserve Bank on future interest rate policy, the equity markets have experienced a strong rebound and a supportive trading environment for investors has emerged along with renewed activity in the equity and debt new issue capital markets. Jefferies Group has experienced strong market volumes and increased client activity across its capital markets business with considerably improved performance, and mergers and acquisition activity was significant in the latter part of the year. We continue to monitor the impact of the pandemic on the operations and value of our investments. Our leadership is continuously monitoring circumstances around COVID-19, as well as economic and capital market conditions, and providing frequent communications to both our clients and our employees.
Our 2020 financial results from continuing operations were impacted by:
•Record pre-tax income of $1,177.5 million from Jefferies Group reflecting record total net revenues of $5,197.5 million, including:
◦Record Investment Banking net revenues of $2,398.2 million, including record advisory net revenues of $1,053.5 million, record equity underwriting net revenues of $902.0 million and debt underwriting net revenues of $546.0 million;
◦Record combined Capital Markets net revenues of $2,469.7 million, including record equities net revenues of $1,128.9 million and record fixed income net revenues of $1,340.8 million; and
◦Record Asset Management revenues (before allocated net interest) of $256.8 million.
•Pre-tax loss of $24.6 million related to our Merchant Banking businesses reflecting:
◦Record performance from Idaho Timber and a positive contribution from Vitesse Energy Finance;
◦A gain of $61.5 million from effective short-term hedges against mark-to-market and fair value decreases in some of our other investments within Merchant Banking;
◦A $44.2 million non-cash charge to write down the value of our investment in WeWork in the first half of 2020;
◦Non-cash charges of $73.9 million related to write-downs of real estate investments at HomeFed; and
◦Non-cash charge of $13.2 million to write down Vitesse Energy Finance's oil and gas assets in the Denver-Julesburg Basin ("DJ Basin") and $34.6 million to write down the value of our investment in JETX Energy to reflect the decline in oil prices.
Our 2019 financial results from continuing operations were impacted by:
•A nonrecurring tax benefit of $544.6 million related to the closing of our available for sale portfolio, which triggered the realization of lodged tax benefits from earlier years;
•The special dividend of our interest in Spectrum Brands of $451.1 million, removing the investment from our Merchant Banking portfolio going forward;
•A $205.0 million pre-tax gain on the sale of our remaining 31% interest in National Beef;
•A $72.1 million pre-tax gain on the revaluation of our 70% interest in HomeFed to fair value in connection with the acquisition of the remaining common stock of HomeFed; and
•A reduction during 2019 to the estimated fair value of WeWork of $182.3 million.
Our 2018 financial results from continuing operations were impacted by:
•A $418.8 million mark-to-market decrease in the value of our investment in Spectrum Brands/HRG Group, Inc. ("HRG");
•A $221.7 million pre-tax gain on the sale of our Garcadia interests;
•A $70.9 million increase in the estimated fair value of WeWork;
•A $62.1 million impairment loss related to our investment in FXCM; and
•A $47.9 million impairment loss related to our investment in Golden Queen Mining Company, LLC ("Golden Queen").
Investment Banking and Capital Markets, and Asset Management
Our Investment Banking and Capital Markets segment and Asset Management segment primarily consist of our investment in Jefferies Group. Jefferies Group was acquired on March 1, 2013. Jefferies Group financial data is presented in each year based on the twelve months ended November 30.
Investment Banking and Capital Markets
A summary of results of operations for our Investment Banking and Capital Markets segment is as follows (in thousands):
2020 2019 2018
Net revenues $ 4,989,138 $ 3,035,988 $ 3,184,426
Expenses:
Compensation and benefits 2,735,080 1,641,814 1,715,915
Floor brokerage and clearing fees 241,083 202,425 178,841
Depreciation and amortization 82,334 77,549 67,467
Selling, general and other expenses 810,753 767,150 757,290
Total expenses
3,869,250 2,688,938 2,719,513
Income from continuing operations before income taxes $ 1,119,888 $ 347,050 $ 464,913
Our Investment Banking and Capital Markets segment comprises many business units, with many interactions and much integration among them. Business activities include the sales, trading, origination and advisory effort for various equity, fixed income, commodities, foreign exchange and advisory services. Our Investment Banking and Capital Markets segment business, by its nature, does not produce predictable or necessarily recurring revenues or earnings. Our results in any given period can be materially affected by conditions in global financial markets, economic conditions generally, and our own activities and positions.
Revenues by Source
Net revenues presented for our Investment Banking and Capital Markets segment include allocations of interest income and interest expense as we assess the profitability of these businesses inclusive of the net interest revenue or expense associated with the respective activities, including the net interest cost of allocated long-term debt, which is a function of the mix of each business's associated assets and liabilities and the related funding costs.
The following provides a summary of net revenues by source (in thousands):
2020 2019 2018
Advisory
$ 1,053,500 $ 767,421 $ 820,042
Equity underwriting
902,016 361,972 454,555
Debt underwriting
545,978 407,336 635,606
Total underwriting 1,447,994 769,308 1,090,161
Other investment banking
(103,330) (14,617) 3,638
Total investment banking
2,398,164 1,522,112 1,913,841
Equities
1,128,910 773,979 665,557
Fixed income
1,340,792 681,362 559,712
Total capital markets 2,469,702 1,455,341 1,225,269
Other
121,272 58,535 45,316
Total Investment Banking and Capital Markets (1) (2)
$ 4,989,138 $ 3,035,988 $ 3,184,426
(1)Includes net interest revenues of $12.3 million, $74.0 million and $8.5 million for 2020, 2019 and 2018, respectively.
(2)Allocated net interest is not separately disaggregated in presenting our Investment Banking and Capital Markets reportable segment within Net Revenues by Source. This presentation is aligned to our Investment Banking and Capital Markets internal performance measurement.
Investment Banking Revenues
Investment banking is comprised of revenues from:
• advisory services with respect to mergers and acquisitions and restructurings and recapitalizations;
• underwriting services, which include underwriting and placement services related to corporate debt, municipal bonds, mortgage-backed and asset-backed securities and equity and equity-linked securities and loan syndication;
• our 50% share of net earnings from Jefferies Group's corporate lending joint venture, Jefferies Finance; and
• securities and loans received or acquired in connection with our investment banking activities.
The following table sets forth our investment banking activities (dollars in billions):
Deals Completed Aggregate Value
2020 2019 2018 2020 2019 2018
Advisory transactions 228 195 195 $ 217.5 $ 241.6 $ 193.9
Public and private debt financings 639 779 969 $ 255.8 $ 190.7 $ 270.1
Public and private equity and convertible offerings 286 166 193 $ 103.5 $ 45.3 $ 43.3
Investment banking revenues were a record $2,398.2 million for 2020, 57.6% higher than 2019. This reflects record performance in mergers and acquisitions, record results in equity underwriting and solid performance in debt underwriting, while the results for 2019 were impacted by the significant industry-wide decline in equity and leverage finance activity across the U.S. and Europe during the year.
Our 2020 advisory revenues were a record $1,053.5 million, up $286.1 million, or 37.3% higher than 2019, reflecting a meaningful acceleration of activity in the second half of 2020. Our underwriting revenues for 2020 were $1,448.0 million, an increase of $678.7 million, or 88.2%, from 2019, due to record results in equity underwriting and solid performance in debt underwriting, as clients took advantage of both a strong rebound in equity valuations, and in loan and bond prices to raise capital after the initial market disruption from COVID-19 subsided. From equity and debt underwriting activities, we generated $902.0 million and $546.0 million in revenues, respectively, for 2020, compared with $362.0 million and $407.3 million in revenues, respectively, for 2019.
Other investment banking revenues were a loss of $103.3 million for 2020, compared with a loss of $14.6 million for 2019. The results for 2020 include a net loss of $37.5 million from our share of the net earnings of the Jefferies Finance joint venture, reflecting unrealized losses related to the write down of commitments and loans held-for-sale, as well as reserves recorded on the loan portfolio during the current year period, primarily due to the impact of COVID-19 on the markets and the economy. This compares with net revenues of $22.3 million during 2019, inclusive of $12.5 million in costs from refinancing its debt. The results in both years also include the amortization of costs and allocated interest expense related to our investment in the Jefferies Finance business. In addition, Other investment banking results for 2020 include unrealized write-downs of private equity investments received or acquired in connection with our investment banking activities.
Equities Net Revenues
Equities are comprised of net revenues from:
•services provided to our clients from which we earn commissions or spread revenue by executing, settling and clearing transactions for clients;
•advisory services offered to clients;
•financing, securities lending and other prime brokerage services offered to clients; and
•wealth management services.
In May 2020, Greenwich Associates named Jefferies Group as the top firm in helping clients navigate the markets as COVID-19 significantly impacted equity markets in mid-March, causing volatility and increased trading volumes. These results were based on a survey they had conducted of more than 75 buy-side institutions evaluating brokers' performances in providing clients with liquidity, hedging solutions, market color and insights.
Total equities net revenues were a record $1,128.9 million for 2020, an increase of 45.9%, over the $774.0 million for 2019. Our strong performance was a result of the continued expansion of our business both from a product and geographic perspective, increased market volumes and the continued momentum of our client franchise. We increased our market share globally, as we were well-positioned to respond to our clients' dynamic needs during the year.
Our overall results included record net revenues across each region, including the Americas, Europe, and Asia Pacific. Each of our regional businesses is continuing to benefit from our overall global expansion and network. We believe we provided consistent and exceptional advisory and execution capabilities to our clients globally throughout this unprecedented period.
On a product basis, our overall results included record net revenues in our global cash equities businesses and across most of our global electronic trading businesses, as well as our domestic and international convertibles businesses. Our electronic trading and convertibles franchises continued to maintain several market-leading positions, while our cash equities franchise continued to improve its market share and competitive positioning. In November 2020, Greenwich Associates ranked our international convertibles business as #1 in Europe and Asia, excluding Japan, with significant market share and continued momentum.
The record results in our global cash equities businesses were driven by increased client activity, market volumes and improved trading. While global market trading volumes and higher volatility drove an increase in commissions, our results in Asia Pacific were also driven by our expansion and investment in the region in 2019 and 2020 across advisory and execution capabilities. The record results in our global convertibles business was driven by strong primary and secondary trading activity and higher volatility, and also the expansion of the business in London we undertook in late 2018. Our global electronic trading business achieved record results, which were driven by increased global market volumes, volatility, and the continued strength of the global platform. Our exchange traded funds business had higher results driven by increased trading revenues and the better market environment.
Fixed Income Net Revenues
Fixed income is comprised of net revenues from:
•executing transactions for clients and making markets in securitized products, investment grade, high-yield, emerging markets, municipal and sovereign securities and bank loans, as well as foreign exchange execution on behalf of clients;
•interest rate derivatives and credit derivatives; and
•financing services offered to clients.
Fixed income net revenues totaled a record $1,340.8 million for 2020, an increase of 96.8% compared with net revenues of $681.4 million for 2019, a result of strong client activity both in primary and secondary markets across products and regions, as well as periods of elevated market volatility. Our overall results included record net revenues regionally in each of the Americas, Europe and Asia, as the business successfully managed through the markets' high volumes and levels of uncertainty during the year.
Our global rates businesses generated record net revenues for 2020, driven by higher volatility and wider bid-offer spreads, particularly during the second quarter. Our results for 2020 also benefited from low interest rates and a favorable market environment, compared to 2019 when economic challenges and uncertainties, such as Brexit, limited client activity and trading opportunities.
Record results in our leveraged credit, European and Asian credit and investment grade corporates businesses resulted from robust revenues across regions and products due to increased client activity and higher levels of volatility during 2020. Similarly, record revenues from our global emerging markets business benefited from more favorable market conditions driving strong investor demand, as well as an increase in new issuance.
Revenues in our U.S. securitized markets group were higher due to an increase in demand for new issuance in the securitization markets and as the relative higher yields on securitized products drove investor demand in the second half of 2020.
The record results were partially offset by lower revenues in our municipal securities business, which was impacted by a significant sell-off in the second quarter of 2020 before stabilizing and recovering over the second half of 2020.
Other
Other is comprised of revenues from:
• Berkadia and other investments (other than Jefferies Finance, which is included in Other investment banking);
• principal investments in private equity and hedge funds managed by third-parties or related parties and that are not part of our asset management platform; and
• investments held as part of employee benefit plans, including deferred compensation plans (for which we incur an equal and offsetting amount of compensation expenses).
Net revenues from our other business category totaled $121.3 million for 2020, an increase of $62.8 million compared with $58.5 million for 2019.
Results for 2020 include net revenues of $68.9 million due to our share of the net income of Berkadia compared with net revenues $88.2 million in 2019. The lower net revenues for 2020 are due to the impairment of mortgage servicing rights as a result of lower interest rates and a decline in loan originations due to the impact of COVID-19 in the second quarter of 2020, with increased volumes and improved valuations returning in the latter part of the year.
The results for 2020 also include gains of $61.5 million from hedges that were bought and sold in the first quarter as we took a negative view of the market due to the onset of the COVID-19 pandemic.
Compensation and Benefits
Compensation and benefits expense consists of salaries, benefits, commissions, annual cash compensation awards and share-based awards to employees. Cash awards are recorded during the year of the award unless there are future service period requirements. Those with future service requirements are amortized into compensation expense over the required service period. Share-based awards to employees and senior executive awards are also amortized over their respective vesting periods.
Compensation and benefits expense increased to $2,735.1 million in 2020 from $1,641.8 million in 2019. The following table provides a summary of compensation and benefits expense (dollars in thousands):
2020 2019
Compensation expense without future service requirements $ 2,242,701 $ 1,302,350
Amortization of share-based and cash-based awards 312,761 339,464
Amendment of certain service provisions 179,618 -
Total Compensation and benefits expense $ 2,735,080 $ 1,641,814
Compensation and benefits expense as a percentage of Net revenues 54.8 % 54.1 %
Compensation and benefits expense as a percentage of Net revenues, excluding the impact of the amendment of certain service provisions 51.2 % 54.1 %
A significant portion of compensation expense remains variable. Compensation and benefits expense increased in line with the significant increase in net revenues. During the fourth quarter of 2020, Jefferies Group amended the service requirement provisions of certain cash-based awards that had been granted during previous years. Compensation expense of $179.6 million was recorded to reflect the acceleration of amortization that resulted from these amendments.
Non-Compensation Expenses
Non-compensation expenses include floor brokerage and clearing fees, underwriting costs, technology and communications expense, occupancy and equipment rental expense, business development, professional services, bad debt provision, impairment charges, depreciation and amortization expense and other costs. All of these expenses, other than floor brokerage and clearing fees and depreciation and amortization expense, are included in Selling, general and other expenses in the Consolidated Statements of Operations.
Non-compensation expenses were $1,134.2 million for 2020, an increase of $87.1 million, or 8.3%, compared with $1,047.1 million for 2019. Non-compensation expenses as a percentage of Net revenues were 22.7% and 34.5% for 2020 and 2019, respectively, demonstrating the operating leverage inherent in our business.
The increase in non-compensation expenses was primarily due to higher Floor brokerage and clearing fees due to record net revenues in equities and fixed income resulting from an increase in trading volumes. The increase was also due to higher underwriting costs, primarily due to record investment banking net revenues resulting from an increase in the number of transactions and higher technology and communication expenses, primarily related to costs associated with the development of various trading systems, increased market data and higher connectivity usage due to the expansion of certain businesses in Asia. Non-compensation expense also increased due to higher other expenses, which included our charitable donations of $8.6 million, in memory of Peg Broadbent, Jefferies Group's longstanding, esteemed CFO who tragically died from complications of COVID-19 in March. Additionally, other expenses also included $34.0 million attributed to our donation made to various charities in support of the Australian wildfire relief effort, costs associated with the early retirement of Jefferies Group's 6.875% senior notes in November 2020 and costs related to provisions for receivable losses. The increase in non-compensation expenses was partially offset by significantly lower business development expenses as business travel and hosted events were curtailed due to COVID-19.
Asset Management
Our asset management business is a diversified alternative asset management platform offering institutional clients an innovative range of investment strategies through us and our affiliated asset managers. We provide certain of our affiliated asset managers access to fully integrated global operational infrastructure and support. This may include strategy and product development, daily operations and finance-related activities, compliance, legal and human resources support, as well as all aspects of business development.
Collectively, we and our affiliated asset managers have net asset values or net asset value equivalent assets under management of approximately $26.8 billion as of November 30, 2020 and $20.7 billion as of November 30, 2019. Net asset values or net asset value equivalent assets under management are comprised of the fair value of the net assets of a fund, the net capital invested in a separately managed account, par value of collateralized loan obligations or notional account value. These include the following:
•$12.6 billion (2020) and $7.2 billion (2019) - This includes the assets under management raised by affiliated asset managers with whom we have an ongoing profit or revenue sharing arrangement. In some instances, due to the timing of payments and crystallization of profits or revenue, the majority of revenue related to these relationships will be realized at their calendar year-end (during our first fiscal quarter).
•$10.8 billion (2020) and $9.5 billion (2019) - Asset management activities within Jefferies Finance, our 50/50 joint venture with Massachusetts Mutual Life Insurance Company, which represent the aggregate par value of collateralized loan obligations managed by Jefferies Finance, including those consolidated by Jefferies Finance. Because management evaluates segment performance based on the inclusion of our share of the net earnings of our Jefferies Finance joint venture in our Investment Banking and Capital Markets segment, those activities are excluded from our Asset Management segment results.
•$2.6 billion (2020) and $2.8 billion (2019) - Net asset values of investments made by us in funds or separately managed accounts. At times, we will incubate strategies using our own capital during the institutional build-out phase before opening investments to outside capital. This net asset value includes our seed capital of $1.5 billion (2020) and $1.3 billion (2019) in addition to amounts financed of $1.1 billion (2020) and $1.5 billion (2019), invested in funds and separately managed accounts that are managed by us and our affiliated asset managers.
•$0.8 billion (2020) and $1.2 billion (2019) - This includes third-party investments actively managed by wholly-owned divisions.
A summary of results of operations for our Asset Management segment is as follows (in thousands):
2020 2019 2018
Net revenues $ 235,255 $ 84,894 $ (14,280)
Expenses:
Compensation and benefits 89,527 63,305 47,363
Floor brokerage and clearing fees 25,509 20,715 5,369
Interest - - 8,992
Depreciation and amortization 5,247 2,042 1,324
Selling, general and other expenses 46,045 40,432 57,394
Total expenses 166,328 126,494 120,442
Income (loss) from continuing operations before income taxes and income related to associated companies 68,927 (41,600) (134,722)
Income related to associated companies - 474 993
Income (loss) from continuing operations before income taxes $ 68,927 $ (41,126) $ (133,729)
Revenues
Asset management net revenues include the following:
• Total asset management fees: management and performance fees from funds and accounts managed by us;
• Revenue from arrangements with strategic affiliates: revenues from affiliated asset managers in which we hold interests that entitle us to portions of their revenues and/or profits, as well as earnings on our ownership interests in our affiliated asset managers; and
• Investment return: this includes investment income from capital invested in and managed by us and our affiliated asset managers.
The key components of asset management revenues are the level of assets under management and the performance return, for the most part on an absolute basis and, in certain cases, relative to a benchmark or hurdle, of us and our affiliated asset managers. These components can be affected by financial markets, profits and losses in the applicable investment portfolios and client capital activity. Further, asset management fees vary with the nature of investment management services. The terms under which clients may terminate our investment management authority, and the requisite notice period for such termination, varies depending on the nature of the investment vehicle and the liquidity of the portfolio assets. Performance fees are generally recognized once a year, typically in December, when they become fixed and determinable and are not probable of being significantly reversed. As a result, the benefit of performance fees attributable to performance during the latter eleven months of each of our fiscal years is actually realized and recorded only in the first quarter of our next fiscal year.
The following summarizes the results of our Asset Management businesses revenues by asset class (in thousands):
2020 2019 2018
Asset management fees:
Equities $ 6,158 $ 4,390 $ 3,446
Multi-asset 8,544 18,798 24,698
Total asset management fees
14,702 23,188 28,144
Revenue from arrangements with strategic affiliates (1) 11,837 1,807 6,099
Total asset management fees and revenues
26,539 24,995 34,243
Investment return (2) (3) 257,200 100,447 (9,288)
Allocated net interest (2) (4) (48,484) (40,548) (39,235)
Total Asset Management revenues $ 235,255 $ 84,894 $ (14,280)
(1)The amounts include our share of fees received by affiliated asset management companies with which we have revenue and profit share arrangements, as well as earnings on our ownership interest in affiliated asset managers.
(2)Net revenues attributed to the Investment return in our Asset Management segment have been disaggregated to separately present Investment return and Allocated net interest (see footnote 4 below). This disaggregation is intended to increase transparency and to make clearer actual Investment return. We believe that aggregating Investment return and Allocated net interest would obscure the Investment return by including an amount that is unique to our credit spreads, debt maturity profile, capital structure, liquidity risks and allocation methods.
(3)Includes net interest expense of $24.5 million, $8.9 million and $8.4 million for 2020, 2019 and 2018, respectively.
(4)Allocated net interest represents the allocation of long-term debt interest expense to our Asset Management reportable segment, net of interest income on Cash and cash equivalents and other sources of liquidity. For discussion of sources of liquidity, refer to the "Liquidity and Capital Resources" section herein.
Asset management net revenues for 2020 were a record $235.3 million, compared with $84.9 million for 2019, primarily as a result of higher investment returns. Since 2019, we made capital investments in several new separately managed accounts and funds. Total asset management revenues for 2020 are also reflective of a 6.2% increase in total asset management fees and revenues, primarily attributed to higher revenues from our share of fees received by affiliated asset management companies with which we have revenue and profit share arrangements, partially offset by a decline in asset management fees.
Expenses
The increase in expenses in 2020 as compared with 2019 primarily reflects the expansion of the Asset Management business, additional costs from the wind down of one of our asset management businesses and the dedication of resources previously included in Corporate.
Assets under Management
The tables below include only third-party assets under management by us, excluding those of our affiliated asset managers.
Assets under management by predominant asset class were as follows (in millions):
November 30, 2020 November 30, 2019
Assets under management (1)
Equities $ 481 $ 228
Multi-asset (2) 293 988
Total $ 774 $ 1,216
(1) Assets under management include third-party net assets actively managed by us, including hedge funds and certain managed accounts. We may consolidate certain funds and for such consolidated funds, assets under management include the pro-rata portion of third- party net assets in consolidated funds based on the percentage ownership of third-party investors in the consolidated fund. The above amounts do not include assets under management at non-consolidated strategic affiliates or investments.
(2) During 2020, certain of the assets under management in this asset class were liquidated and the funds were returned to the third-party investors due to the wind down of our quantPORT asset management platform.
Changes in assets under management during the year were as follows (in millions):
Year Ended November 30,
2020 2019
Balance, beginning of period $ 1,216 $ 2,527
Net cash flow out (319) (1,383)
Net market appreciation (depreciation)
(123) 72
Balance, end of period $ 774 $ 1,216
The change in assets under management in our wholly-owned managers during 2020 is primarily due to the liquidation and redemptions from certain funds related to the wind down of our quantPORT asset management platform and market depreciation, partially offset by increased investments by third-parties in certain funds and managed accounts. The change in assets under management during 2019 is primarily due to redemptions from certain funds and separately managed accounts and dissolution of a fund, partially offset by new subscriptions and investments from third-parties and market appreciation.
Our definition of assets under management is not based on any definition contained in any of our investment management agreements and differs from the manner in which "Regulatory Assets Under Management" is reported to the SEC on Form ADV.
Asset Management Investments
Our asset management business makes seed and additional strategic investments directly in alternative asset management separately managed accounts and co-mingled funds where we act as the asset manager or in affiliated asset managers where we have strategic relationships and participate in the earnings or profits of the affiliated manager. Our asset management investments generated an investment return of $257.2 million and $100.4 million for 2020 and 2019, respectively. The following table reflects amounts invested by asset manager (in thousands):
November 30, 2020 November 30, 2019
Jefferies Financial Group Inc., as manager:
Fund investments (1)
$ 258,893 $ 240,804
Separately managed accounts (2)
352,084 489,617
Total
610,977 730,421
Strategic affiliates, as manager:
Fund investments (3) 650,585 306,554
Separately managed accounts (2)
323,943 266,484
Investments in asset managers
162,268 114,161
Total
1,136,796 687,199
Total asset management investments $ 1,747,773 $ 1,417,620
(1) Due to the level or nature of an investment in a fund, we may consolidate that fund, and accordingly, the assets and liabilities of the fund are included in the representative line items in the consolidated financial statements. At November 30, 2020 and 2019, $0.1 million and $22.6 million, respectively, represents net investments in funds that have been consolidated in our financial statements.
(2) Where we have investments in a separately managed account, the assets and liabilities of such account are presented in the Consolidated Statements of Financial Condition within each respective line item.
(3) The increase in 2020 was primarily due to an investment in a new fund.
Merchant Banking
The composition of our Merchant Banking portfolio has been impacted by a number of transactions during recent years. The following chart reflects the significant components of our portfolio each year:
Twelve Months Ended November 30, 2020 Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018
Consolidated Businesses Oil and Gas Oil and Gas Oil and Gas
HomeFed HomeFed beginning July 1 -
Idaho Timber Idaho Timber Idaho Timber
- - National Beef prior to June 5
Associated Companies Linkem Linkem Linkem
FXCM Equity Investment FXCM Equity Investment FXCM Equity Investment
Golden Queen Golden Queen Golden Queen
- National Beef sold November 29 National Beef beginning June 5
- HomeFed prior to July 1 HomeFed
- - Garcadia sold August 17
- - Berkadia prior to transfer to Jefferies Group October 1
Other Investments FXCM Term Loan FXCM Term Loan FXCM Term Loan
WeWork
WeWork
WeWork
- Spectrum Brands prior to October 11 distribution Spectrum Brands/HRG
A summary of results for Merchant Banking is as follows (in thousands):
Twelve Months Ended November 30, 2020 Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018
Net revenues $ 764,460 $ 735,213 $ 577,278
Expenses:
Compensation and benefits 77,072 61,767 50,155
Cost of sales 338,588 319,641 307,071
Interest 31,425 34,129 26,167
Depreciation and amortization 67,362 69,805 48,357
Selling, general and other expenses 199,128 162,832 112,587
Total expenses 713,575 648,174 544,337
Income from continuing operations before income taxes and income (loss) related to associated companies 50,885 87,039 32,941
Income (loss) related to associated companies (75,483) 202,453 56,030
Income (loss) from continuing operations before income taxes $ (24,598) $ 289,492 $ 88,971
In the fourth quarter of 2018, we transferred our 50% membership interest in Berkadia into Jefferies Group. Income from continuing operations before income taxes related to the net assets transferred was $78.7 million for the eleven months ended November 30, 2018.
The increase in Net revenues in 2020 as compared to 2019 is primarily due to an increase in revenues at Idaho Timber and an increase in realized and unrealized gains on financial instruments, partially offset by the 2019 pre-tax gains on the sale of our remaining 31% interest in National Beef and on the revaluation of our 70% interest in HomeFed to fair value in connection with the acquisition of the remaining common stock of HomeFed. The increase in Compensation and benefits expense in 2020 as
compared to 2019 is primarily due to an increase at Idaho Timber and the full year acquisition impact of HomeFed. The increase in Cost of sales in 2020 as compared to 2019 primarily reflects the increased sales at Idaho Timber. The increase in Selling, general and other expenses in in 2020 as compared to 2019 primarily reflects increased non-cash charges in 2020 to JETX Energy's and Vitesse Energy Finance's oil and gas assets and write-downs to some of our real estate investments at HomeFed, partially offset by lease abandonment charges at JETX Energy in 2019.
A summary of results for Merchant Banking by significant business and investment is as follows (in thousands):
Revenues Expenses Income (Loss) from Associated Companies Total Pre-Tax Income (Loss)
For the twelve months ended November 30, 2020
Oil and gas
$ 141,973 $ 178,679 $ - $ (36,706)
Idaho Timber
421,497 341,796 - 79,701
Real estate
47,160 66,043 (46,050) (64,933)
FXCM 335 - 3,604 3,939
Other
153,495 127,057 (33,037) (6,599)
Total $ 764,460 $ 713,575 $ (75,483) $ (24,598)
For the twelve months ended November 30, 2019
Oil and gas
$ 150,224 $ 170,680 $ - $ (20,456)
Idaho Timber
324,786 306,832 - 17,954
Real estate
37,405 39,940 7,549 5,014
FXCM (8,139) - (8,212) (16,351)
National Beef - - 232,042 232,042
Spectrum Brands
89,497 - - 89,497
Other
141,440 130,722 (28,926) (18,208)
Total $ 735,213 $ 648,174 $ 202,453 $ 289,492
For the eleven months ended November 30, 2018
Oil and gas
$ 169,667 $ 116,017 $ - $ 53,650
Idaho Timber
357,513 321,851 - 35,662
Real estate
350 977 6,956 6,329
FXCM 18,616 - (83,174) (64,558)
National Beef - - 110,049 110,049
Spectrum Brands/HRG (412,493) - - (412,493)
Berkadia - - 80,092 80,092
Other
443,625 105,492 (57,893) 280,240
Total $ 577,278 $ 544,337 $ 56,030 $ 88,971
Oil and Gas
Oil and gas results for 2020 were lower than 2019 primarily due to curtailed production, lower oil prices and impairment charges recorded during the first half of the year. Oil and gas net revenues totaled $142.0 million during 2020 and $150.2 million during 2019, and primarily consist of three components:
•Production revenues (include the impact of realized gains and losses related to oil hedges) were $156.8 million in 2020 and $176.9 million in 2019. The decrease in production revenues related both to lower oil prices on current volume and decisions made to pause production on a portion of operating wells due to expectation of higher future prices. Production revenues included realized gains on oil hedges of $52.7 million in 2020 and $1.5 million in 2019.
•Net unrealized losses related to oil hedge derivatives were $7.0 million in 2020 and $6.5 million in 2019. As discussed further in Note 4 to the consolidated financial statements, Vitesse Energy Finance uses swaps and call and put options to reduce exposure to future oil price fluctuations. For 2020, approximately 108% of oil production was hedged at a
weighted average price of approximately $60/barrel. For 2021, approximately 50% of expected oil production is hedged at a weighted average price of approximately $54/barrel.
•Mark-to-market losses related to a financial instrument owned held at fair value were $7.8 million during 2020 and $20.2 million during 2019.
Total expenses for Oil and gas were $178.7 million during 2020 as compared to $170.7 million in 2019. Although some of Vitesse Energy Finance's operating expenses were lower due to reduced production, this was offset by non-cash charges in 2020 to JETX Energy's oil and gas assets of $34.6 million and to Vitesse Energy Finance's oil and gas assets in the DJ Basin of $13.2 million. 2019 also included lease abandonment charges of $15.1 million and non-cash charges to JETX Energy's oil and gas assets of $10.9 million at JETX Energy.
Idaho Timber
High demand for wood for home improvement and construction led to favorable pricing and record results for Idaho Timber in 2020. Net revenues increased during 2020 as compared to 2019, primarily due to an increase in average selling price of 29%.
The increase in total expenses for Idaho Timber during 2020 as compared to 2019 primarily reflects increased cost of sales and increased compensation expense.
Real Estate
The increase in real estate revenues and real estate expenses during 2020 as compared to 2019, primarily relates to the July 1, 2019 acquisition of the remaining 30% of HomeFed we did not previously own. From July 1, 2019, the results of HomeFed are reflected on a consolidated basis.
Income (loss) related to real estate associated companies for 2020, includes a non-cash charge of $55.6 million to fully write off the value of HomeFed's RedSky JZ Fulton Investors ("RedSky JZ Fulton Mall") joint venture investment due to the softening of the Brooklyn real estate market and a non-cash charge of $6.9 million to fully write off HomeFed's interest in the Brooklyn Renaissance Plaza hotel related to the significant impact of COVID-19.
FXCM
Net revenues from our FXCM term loan include gains (losses) of $0.3 million and $(8.1) million during 2020 and 2019, respectively.
National Beef and Spectrum Brands
Income from associated companies in 2019, reflects our share of National Beef's results prior to our sale in November 2019.
Spectrum Brands net revenues reflect changes in the value of our investment. We classified Spectrum Brands as a financial instrument owned, at fair value for which the fair value option was elected and we reflected mark-to-market adjustments in Principal transactions revenues. We distributed all of our Spectrum Brands shares through a special pro rata dividend effective on October 11, 2019. We recorded a $451.1 million dividend payable as of the September 16, 2019 declaration date, which was equal to the fair value of Spectrum Brands shares at that time.
Other
Other revenues for 2019 include a $205.0 million pre-tax gain on the sale of our remaining 31% interest in National Beef and a $72.1 million pre-tax gain on the revaluation of our 70% interest in HomeFed to fair value in connection with the acquisition of the remaining common stock of HomeFed.
Other revenues also reflect realized and unrealized gains (losses) on financial instruments owned, which are held at fair value, of $54.7 million and $(279.3) million during 2020 and 2019, respectively. The gains (losses) on financial instruments owned include unrealized losses on WeWork of $43.0 million and $182.3 million during 2020 and 2019, respectively. The gains (losses) on financial instruments owned for 2020, also include a gain of $61.5 million from effective short-term hedges against mark-to-market and fair value decreases in our portfolio investments.
Corporate
A summary of results of operations for Corporate is as follows (in thousands):
Twelve Months Ended November 30, 2020 Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018
Net revenues $ 13,258 $ 32,833 $ 22,300
Expenses:
Compensation and benefits 39,184 58,005 50,222
Depreciation and amortization 3,496 3,475 3,169
Selling, general and other expenses 26,197 39,820 35,049
Total expenses
68,877 101,300 88,440
Loss from continuing operations before income taxes
$ (55,619) $ (68,467) $ (66,140)
Net revenues primarily include realized and unrealized securities gains and interest income for investments held at the holding company. Total expenses include share-based compensation expense of $13.7 million and $22.9 million for 2020 and 2019, respectively.
Parent Company Interest
Parent company interest totaled $53.4 million and $53.0 million for 2020 and 2019, respectively. In connection with the acquisition of HomeFed in 2019, we began capitalizing interest. Capitalized interest was allocated among all of HomeFed's projects that are currently under development. Parent company interest capitalized during 2020 and 2019 was $5.7 million and $6.0 million, respectively.
Income Taxes
Our provision for income taxes was $298.7 million for 2020, representing an effective tax rate of 28.0%.
For 2019, our benefit for income taxes from continuing operations was $484.0 million. As discussed in the Notes to Consolidated Financial Statements, during the second quarter of 2019, we completed the sale of our available for sale portfolio. In connection therewith, we recognized a tax benefit of $544.6 million during 2019. Unrealized gains and losses on available for sale securities, and their associated tax impacts, are recorded directly to equity as part of the Accumulated other comprehensive income (loss) balance. Following the portfolio approach, when unrealized gains and losses and their associated tax impacts are recorded at a then current tax rate, and then realized later at a different tax rate, the difference between the tax impact initially recorded in Accumulated other comprehensive income (loss) and the tax impact removed from Accumulated other comprehensive income (loss) upon realization remains in Accumulated other comprehensive income (loss) until the disposal of the portfolio and is referred to as a "lodged tax effect." Large changes in the fair value of our available for sale securities, primarily during 2008 through 2010, combined with fluctuations in our tax rate during those periods, generated a lodged tax benefit of $544.6 million. As a result of steps to improve our Corporate investment management efforts, we sold the remaining portion of our available for sale portfolio in the second quarter of 2019, which resulted in the realization of the $544.6 million tax benefit. While this realization did not impact total equity, it resulted in a tax benefit reflected in the Consolidated Statement of Operations of $544.6 million and, as a result, Retained earnings increased and Accumulated other comprehensive income (loss) decreased by corresponding amounts.
For further information on income taxes, see Note 19 to our consolidated financial statements.
Discontinued Operations
On June 5, 2018, we sold 48% of National Beef to Marfrig for $907.7 million in cash, reducing our then ownership in National Beef to 31%. We accounted for our remaining interest under the equity method of accounting. The 2018 sale of National Beef met the GAAP criteria to be classified as a discontinued operation as the sale represented a strategic shift in our operations and financial results. As such, we classified the results of National Beef prior to June 5, 2018 as a discontinued operation and it is reported in Income from discontinued operations, net of income tax provision in the Consolidated Statements of Operations. In addition, we recognized a pre-tax gain as a result of the 2018 transaction of $873.5 million ($643.9 million after-tax) for the eleven months ended November 30, 2018, which has been recognized as Gain on disposal of discontinued operations, net of income tax provision in the Consolidated Statement of Operations.
A summary of the results of discontinued operations for National Beef for the period from January 1, 2018 through June 4, 2018 as included in discontinued operations for the eleven months ended November 30, 2018 is as follows (in thousands):
Revenues:
Beef processing services $ 3,137,611
Interest income 131
Other 4,329
Total revenues
3,142,071
Expenses:
Compensation and benefits 17,414
Cost of sales 2,884,983
Interest expense 4,316
Depreciation and amortization 43,959
Selling, general and other expenses 14,291
Total expenses
2,964,963
Income from discontinued operations before income taxes
177,108
Income tax provision 47,045
Income from discontinued operations, net of income tax provision
$ 130,063
National Beef's profitability is dependent, in large part, on the spread between its cost for live cattle, the primary raw material for its business, and the value received from selling boxed beef and other products, coupled with its overall volume. National Beef operates in a large and liquid commodity market and it does not have much influence over the price it pays for cattle or the selling price it receives for the products it produces. National Beef's profitability typically fluctuates seasonally, with relatively higher margins in the spring and summer months and during times of ample cattle availability. Throughout 2018, demand for beef and cattle supply remained strong, supporting favorable margin conditions.
For further information, see Note 26 to our consolidated financial statements.
Selected Statement of Financial Condition Data
The tables below reconcile the balance sheet for each of our segments to our consolidated balance sheet (in thousands):
November 30, 2020
Investment Banking and Capital Markets Asset Management Merchant Banking Corporate Consolidation Adjustments Total
Assets
Cash and cash equivalents $ 7,102,004 $ 10,109 $ 212,668 $ 1,730,367 $ - $ 9,055,148
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations
604,321 - - - - 604,321
Financial instruments owned, at fair value 15,249,686 2,534,860 340,031 - - 18,124,577
Loans to and investments in associated companies
995,730 148,005 542,828 - - 1,686,563
Securities borrowed 6,934,762 - - - - 6,934,762
Securities purchased under agreements to resell
5,096,769 - - - - 5,096,769
Securities received as collateral, at fair
value 7,517 - - - - 7,517
Receivables 5,470,104 378,037 762,382 52 (1,808) 6,608,767
Property, equipment and leasehold improvements, net
847,108 8,121 30,670 11,305 - 897,204
Intangible assets, net and goodwill
1,721,277 143,310 48,880 - - 1,913,467
Other assets 805,848 8,617 1,235,605 436,975 (297,788) 2,189,257
Total assets 44,835,126 3,231,059 3,173,064 2,178,699 (299,596) 53,118,352
Liabilities
Long-term debt (1) (2) 6,218,797 676,883 463,648 992,711 - 8,352,039
Other liabilities 32,752,740 1,758,373 727,088 239,507 (299,596) 35,178,112
Total liabilities 38,971,537 2,435,256 1,190,736 1,232,218 (299,596) 43,530,151
Redeemable noncontrolling interests
- - 24,676 - - 24,676
Mandatorily redeemable convertible preferred shares
- - - 125,000 - 125,000
Noncontrolling interests 712 16,677 17,243 - - 34,632
Total Jefferies Financial Group Inc. shareholders' equity $ 5,862,877 $ 779,126 $ 1,940,409 $ 821,481 $ - $ 9,403,893
(1) Jefferies Group long-term debt of $6.9 billion at November 30, 2020 is allocated to Investment Banking and Capital Markets, and Asset Management segments based on an internal management view only and may not be reflective of what long-term debt would be on a stand-alone segment basis.
(2) Long-term debt within Merchant Banking of $463.6 million at November 30, 2020, primarily includes $236.8 million for real estate businesses, $97.9 million for Vitesse Energy Finance and $129.0 million for Foursight Capital. At November 30, 2020, Vitesse Energy Finance had $98.5 million drawn out of the maximum $120.0 million borrowing base on its credit facility and Foursight Capital had $129.3 million drawn out of the maximum $175.0 million credit commitment on its credit facilities. See Note 12 in our consolidated financial statements for additional information.
November 30, 2019
Investment Banking and Capital Markets Asset Management Merchant Banking Corporate Consolidation Adjustments Total
Assets
Cash and cash equivalents $ 5,561,281 $ 25,255 $ 111,552 $ 1,980,733 $ - $ 7,678,821
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations
796,797 - - - - 796,797
Financial instruments owned, at fair value 13,735,641 2,681,034 363,237 115,829 - 16,895,741
Loans to and investments in associated companies
944,509 83,258 625,190 - - 1,652,957
Securities borrowed 7,624,642 - - - - 7,624,642
Securities purchased under agreements to resell
4,299,598 - - - - 4,299,598
Securities received as collateral, at fair
value 9,500 - - - - 9,500
Receivables 4,560,760 369,410 813,675 261 - 5,744,106
Property, equipment and leasehold improvements, net
350,071 796 20,632 13,530 - 385,029
Intangible assets, net and goodwill
1,726,736 143,616 52,582 - - 1,922,934
Other assets 913,688 10,347 1,298,803 321,766 (94,495) 2,450,109
Total assets 40,523,223 3,313,716 3,285,671 2,432,119 (94,495) 49,460,234
Liabilities
Long-term debt (1) (2) 6,289,015 714,343 342,325 991,378 - 8,337,061
Other liabilities 28,658,041 1,761,674 754,560 290,104 (94,495) 31,369,884
Total liabilities 34,947,056 2,476,017 1,096,885 1,281,482 (94,495) 39,706,945
Redeemable noncontrolling interests
- - 26,605 - - 26,605
Mandatorily redeemable convertible preferred shares
- - - 125,000 - 125,000
Noncontrolling interests 4,275 - 17,704 - - 21,979
Total Jefferies Financial Group Inc. shareholders' equity $ 5,571,892 $ 837,699 $ 2,144,477 $ 1,025,637 $ - $ 9,579,705
(1) Jefferies Group long-term debt of $7.0 billion at November 30, 2019 is allocated to Investment Banking and Capital Markets, and Asset Management segments based on an internal management view only and may not be reflective of what long-term debt would be on a stand-alone segment basis.
(2) Long-term debt within Merchant Banking of $342.3 million at November 30, 2019, primarily includes $140.7 million for real estate businesses, $103.1 million for Vitesse Energy Finance and $98.3 million for Foursight Capital. At November 30, 2019, Vitesse Energy Finance had $104.0 million drawn out of the maximum $170.0 million borrowing base on its credit facility and Foursight Capital had $98.7 million drawn out of the maximum $175.0 million credit commitment on its credit facilities. See Note 12 in our consolidated financial statements for additional information.
The table below presents our capital by significant business and investment (in thousands):
November 30, 2020 November 30, 2019
Jefferies Group
$ 6,407,954 $ 6,181,683
Assets held on behalf of Asset Management (excluding Jefferies Group) 234,049 227,908
Merchant Banking:
Oil and gas
526,642 585,493
Real estate 531,553 645,328
Linkem 198,991 194,847
FXCM
133,375 129,343
Idaho Timber 85,595 77,914
WeWork 10,833 53,798
Investments in public companies 192,363 178,593
Other 261,057 279,161
Total Merchant Banking
1,940,409 2,144,477
Corporate liquidity and other assets, net of Corporate liabilities including long-term debt
821,481 1,025,637
Total Capital $ 9,403,893 $ 9,579,705
Liquidity and Capital Resources
Parent Company Liquidity
Our strategy focuses on strengthening and expanding our core businesses of Investment Banking and Capital Markets and Asset Management, while continuing to simplify our structure and return capital to our shareholders. We are simplifying our structure through a managed transformation of Merchant Banking, which to date has included divestitures, special distributions to shareholders of assets, as well as transfers of financial assets out of our Merchant Banking portfolio and into Jefferies Group. We anticipate additional transactions as our transformation is completed. Some of these transactions have generated significant excess liquidity; some of these transactions have also reduced the future receipt of periodic distributions from subsidiaries to the parent company.
Parent company liquidity, which includes cash and investments that are easily convertible into cash within a relatively short period of time total $1,884.7 million at November 30, 2020, and are primarily comprised of cash, prime and government money market funds and other publicly traded securities. These are classified in our Consolidated Statement of Financial Condition as cash and cash equivalents and financial instruments owned, at fair value. At November 30, 2020, $1,551.7 million of this amount is invested in U.S. government money funds that invest at least 99.5% of its total assets in cash, securities issued by the U.S. government and U.S. government-sponsored entities and repurchase agreements that are fully collateralized by cash or government securities.
During the twelve months ended November 30, 2020, our parent company received cash distributions of $733.5 million from our subsidiary businesses, including $581.7 million from Jefferies Group. We also received $303.4 million from divestitures and repayments of advances.
Our recurring cash requirements, including the payment of interest on our parent company debt, dividends and corporate cash overhead expenses, aggregate approximately $309.7 million on an annual basis. Dividends paid during the twelve months ended November 30, 2020 of $160.9 million include quarterly dividends of $0.15 per share. On January 4, 2021, our Board of Directors increased our quarterly dividend by 33% to $0.20 per share. The payment of dividends is subject to the discretion of our Board of Directors and depends upon general business conditions, legal and contractual restrictions on the payment of dividends and other factors that our Board of Directors may deem to be relevant.
For many years, we benefited from federal net operating loss carryovers ("NOLs") which substantially offset our federal cash tax requirements. As a result of full utilization of our federal NOLs and other tax attributes, we expect to incur federal cash tax liabilities in 2021.
Our primary long-term parent company cash requirement is our $1.0 billion principal outstanding as of November 30, 2020 under our long-term debt, of which $750.0 million is due in 2023 and $250.0 million in 2043. As we generate excess liquidity, we evaluate the best use of the proceeds, which may include reductions to existing debt, share repurchases, special dividends, investments in our businesses, or any of a number of other options available to us.
Shares Outstanding
At November 30, 2019, we had approximately $203.6 million available for future share repurchases, based on the closing price of Jefferies common shares on November 30, 2019. In January 2020, the Board of Directors approved an additional $250.0 million share repurchase authorization. In March 2020, having completed the repurchase of shares under the previous authorization, the Board of Directors approved an additional share repurchase authorization of $100 million. In June 2020, the Board of Directors increased the share repurchase authorization by $176.7 million to $250.0 million. In September 2020, the Board of Directors increased the share repurchase authorization by $128.0 million to $250.0 million. During the twelve months ended November 30, 2020, we purchased a total of 42,134,910 of our common shares for $812.7 million, or an average price per share of $19.29. At November 30, 2020, we have approximately $57.2 million available for future repurchases. In January 2021, the Board of Directors increased the share repurchase authorization to $250.0 million, including the $57.2 million.
At November 30, 2020, we had outstanding 249,750,542 common shares and 23,868,000 share-based awards that do not require the holder to pay any exercise price (potentially an aggregate of 273,618,542 outstanding common shares if all awards become outstanding common shares). The 23,868,000 share-based awards include the target number of shares under the senior executive award plan, which is more fully discussed in Note 15.
Concentration and Liquidity Targets
From time to time in the past, we have accessed public and private credit markets and raised capital in underwritten bond financings. The funds raised have been used by us for general corporate purposes, including for our existing businesses and new investment opportunities. In addition, the ratings of Jefferies are a factor considered by rating agencies that rate the debt of our subsidiary companies, including Jefferies Group, whose access to external financing is important to its day to day operations. Ratings issued by bond rating agencies, subject to change at any time, are as follows:
Rating Outlook
Moody's Investors Service (1) Baa3 Stable
Standard and Poor's (2) BBB Stable
Fitch Ratings BBB Stable
(1) On April 15, 2020, Moody's Investors Service affirmed our rating of Baa3 and rating outlook of stable.
(2) On October 29, 2020, Standard and Poor's affirmed our rating of BBB and revised our rating outlook from negative to stable.
We target specific concentration and liquidity principles, although there is no legal requirement to do so.
Concentration Target: As a diversification measure, we limit cash investments such that our single largest investment does not exceed 20% of equity excluding Jefferies Group, and that our next largest investment does not exceed 10% of equity excluding Jefferies Group, in each case measured at the time the investment was made. On this basis, Linkem is our largest investment excluding Jefferies Group and Vitesse Energy Finance is our next largest investment excluding Jefferies Group. There were no investments made during the year that approached 10% of equity excluding Jefferies Group.
Liquidity Target: We hold a parent company liquidity reserve calculated as a minimum of twenty-four months of holding company expenses (excluding non-cash components), parent company interest, and dividends. Maturities of parent company debt within the upcoming year are also included in the target; however, our next maturity is during 2023 so there is no current inclusion.
November 30, 2020
Liquidity reserve (in thousands):
Minimum reserve under liquidity target $ 619,400
Actual liquidity $ 1,884,650
Consolidated Statements of Cash Flows
As discussed above, we have historically relied on our available liquidity to meet short-term and long-term needs, and to make acquisitions of new businesses and investments. Except as otherwise disclosed herein, our operating businesses do not generally require significant funds to support their operating activities. The mix of our operating businesses and investments can change frequently as a result of acquisitions or divestitures, the timing of which is impossible to predict but which often have a significant impact on the Consolidated Statements of Cash Flows in any one period. Further, the timing and amounts of distributions from investments in associated companies may be outside our control. As a result, reported cash flows from operating, investing and financing activities do not generally follow any particular pattern or trend, and reported results in the most recent period should not be expected to recur in any subsequent period.
The following table provides a summary of our cash flows (in thousands):
Twelve Months Ended November 30, 2020 Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018
Cash, cash equivalents and restricted cash at beginning of period $ 8,480,435 $ 6,012,662 $ 5,774,505
Net cash provided by (used for) operating activities 2,075,948 (827,837) 691,103
Net cash provided by (used for) investing activities (186,192) 1,707,095 142,443
Net cash provided by (used for) financing activities (723,525) 1,589,578 (575,843)
Effect of foreign exchange rate changes on cash, cash equivalents
and restricted cash
18,306 (1,063) (19,546)
Cash, cash equivalents and restricted cash at end of period $ 9,664,972 $ 8,480,435 $ 6,012,662
During the twelve months ended November 30, 2020, net cash provided by operating activities primarily relates to funds provided by Jefferies Group of $1,870.9 million. Net losses related to property and equipment, and other assets includes the non-cash charge of $61.0 million to write down the value of certain of our assets during the twelve months ended November 30, 2020.
During the twelve months ended November 30, 2019, net cash used for operating activities primarily relates to funds used by Jefferies Group of $1,187.1 million. We also received distributions of $318.2 million from National Beef in 2019. Net gains related to real estate, property and equipment, and other assets for 2019 include the non-cash pre-tax gain of $72.1 million recognized in connection with the acquisition of the remaining interest of HomeFed.
During the twelve months ended November 30, 2020, net cash used for investing activities principally reflects $1,690.6 million of loans to and investments in associated companies and $813.9 million for advances on notes, loans and other receivables, partially offset by $1,556.0 million of capital distributions and loan repayments from associated companies and $686.1 million of collections on notes, loans and other receivables.
During the twelve months ended November 30, 2019, net cash provided by investing activities includes proceeds from sale of associated companies, primarily related to our sale of our investment in National Beef. Additionally, cash provided by investing activities for 2019 includes proceeds from maturities of investments of $531.1 million and proceeds from sales of investments of $913.2 million. Jefferies Group used funds of $124.4 million for investing activities in 2019.
During the twelve months ended November 30, 2020, net cash used for financing activities primarily relates to funds used to repurchase common shares for treasury of $816.9 million and funds used to pay dividends of $160.9 million. This was partially offset by funds provided by Jefferies Group of $215.5 million, including funds provided by the issuance of debt of $2,789.5 million and proceeds from other secured financings of $305.9 million, partially offset by funds used for the repayment of debt of $2,863.0 million.
During the twelve months ended November 30, 2019, net cash provided by financing activities primarily relates to funds provided by Jefferies Group of $2,167.4 million. This includes funds provided by the issuance of debt of $2,972.1 million and proceeds from other secured financings of $1,586.3 million, partially offset by funds used for the repayments of debt of $2,421.6 million. Net cash provided by financing activities for 2019 also includes funds used to repurchase common shares for treasury of $509.9 million and funds used to pay dividends of $149.6 million.
The following below provides information about our contractual obligations at November 30, 2020.
Expected Maturity Date
Contractual Obligations Total 2021 2022 2023
and
2024 2025
and
2026 After 2026
(In millions)
Long-term debt $ 8,234.9 $ 350.4 $ 69.8 $ 2,340.9 $ 117.8 $ 5,356.0
Estimated interest payments on debt
3,611.4 359.4 345.5 548.4 490.6 1,867.5
Operating leases 686.9 72.4 77.0 130.6 122.5 284.4
Other 694.4 326.0 175.3 123.4 46.5 23.2
Total contractual obligations $ 13,227.6 $ 1,108.2 $ 667.6 $ 3,143.3 $ 777.4 $ 7,531.1
Amounts related to our U.S. pension obligations ($46.4 million) are not included in the above table as the timing of payments is uncertain; however, we do expect to make $8.0 million of contributions to these plans in 2021. For further information, see Note 17 in our consolidated financial statements. In addition, the above amounts do not include liabilities for unrecognized tax benefits as the timing of payments, if any, is uncertain. Such amounts aggregated $401.4 million at November 30, 2020; for more information, see Note 19 in our consolidated financial statements.
Our U.S. pension obligations relate to frozen defined benefit pension plans, principally the defined benefit plan of WilTel Communications Group, LLC ("WilTel"), our former telecommunications subsidiary. When we sold WilTel in 2005, its defined benefit pension plan was not transferred in connection with the sale. At November 30, 2020, we had recorded a liability of $38.0 million in our Consolidated Statement of Financial Condition for WilTel's unfunded defined benefit pension plan obligation. This amount represents the difference between the present value of amounts owed to former employees of WilTel (referred to as the projected benefit obligation) and the market value of plan assets set aside in segregated trust accounts. Since the benefits in this plan have been frozen, future changes to the unfunded benefit obligation are expected to principally result from benefit payments, changes in the market value of plan assets, differences between actuarial assumptions and actual experience and interest rates.
Calculations of pension expense and projected benefit obligations are prepared by actuaries based on assumptions provided by management. These assumptions are reviewed on an annual basis, including assumptions about discount rates, interest credit rates and expected long-term rates of return on plan assets. The timing of expected future benefit payments was used in conjunction with the Citigroup Pension Discount Curve to develop a discount rate for the WilTel plan that is representative of the high quality corporate bond market. Holding all other assumptions constant, a 0.25% change in the discount rate would affect pension expense in 2021 by $0.1 million and the benefit obligation by $6.4 million, of which $4.7 million relates to the WilTel plan.
The deferred losses in accumulated other comprehensive income (loss) have not yet been recognized as components of net periodic pension cost in the Consolidated Statements of Operations ($57.3 million at November 30, 2020). These deferred amounts primarily result from differences between the actual and assumed return on plan assets and changes in actuarial assumptions, including changes in discount rates and changes in interest credit rates. They are amortized to expense if they exceed 10% of the greater of the projected benefit obligation or the market value of plan assets as of the beginning of the year. The estimated net loss that will be amortized from accumulated other comprehensive income (loss) into pension expense in 2021 is $3.6 million.
The assumed long-term rates of return on plan assets are based on the investment objectives of the plans, which are more fully discussed in Note 17 in our consolidated financial statements.
Jefferies Group Liquidity
General
The Chief Financial Officer and Global Treasurer of Jefferies Group are responsible for developing and implementing liquidity, funding and capital management strategies for Jefferies Group. These policies are determined by the nature and needs of day to day business operations, business opportunities, regulatory obligations and liquidity requirements.
The actual levels of capital, total assets and financial leverage are a function of a number of factors, including asset composition, business initiatives and opportunities, regulatory requirements and cost and availability of both long-term and short-term funding. Jefferies Group has historically maintained a balance sheet consisting of a large portion of total assets in cash and liquid marketable securities, arising principally from traditional securities brokerage and trading activity. The liquid nature of these assets provides flexibility in financing and managing our business.
Jefferies Group maintains modest leverage to support its investment grade ratings. The growth of its balance sheet is supported by its equity and we have quantitative metrics in place to monitor leverage and double leverage. Jefferies Group capital plan is robust, in order to sustain its operating model through stressed conditions. We maintain adequate financial resources to support business activities in both normal and stressed market conditions, including a buffer in excess of regulatory, or other internal or external, requirements. Jefferies Group's access to funding and liquidity is stable and efficient to ensure that there is sufficient liquidity to meet its financial obligations in normal and stressed market conditions.
A business unit level balance sheet and cash capital analysis are prepared and reviewed with senior management on a weekly basis. As a part of this balance sheet review process, capital is allocated to all assets and gross balance sheet limits are adjusted, as necessary. This process ensures that the allocation of capital and costs of capital are incorporated into business decisions. The goals of this process are to protect the firm's platform, enable the businesses to remain competitive, maintain the ability to manage capital proactively and hold businesses accountable for both balance sheet and capital usage.
We actively monitor and evaluate our financial condition and the composition of assets and liabilities. The overall securities inventory is continually monitored, including the inventory turnover rate, which confirms the liquidity of overall assets. Substantially all of Jefferies Group's financial instruments are valued on a daily basis and we monitor and employ balance sheet limits for its various businesses.
At November 30, 2020, our Consolidated Statement of Financial Condition includes Jefferies Group's Level 3 financial instruments owned, at fair value that are approximately 2% of total financial instruments owned, at fair value.
Securities financing assets and liabilities include financing for financial instruments trading activity, matched book transactions and mortgage finance transactions. Matched book transactions accommodate customers, as well as obtain securities for the settlement and financing of inventory positions.
The following table presents period end balance, average balance and maximum balance at any month end within the periods presented for Securities purchased under agreements to resell and Securities sold under agreements to repurchase (in millions):
2020 2019
Securities purchased under agreements to resell:
Period end $ 5,097 $ 4,300
Month end average 8,040 7,762
Maximum month end 12,061 11,589
Securities sold under agreements to repurchase:
Period end $ 8,316 $ 7,505
Month end average 13,501 14,686
Maximum month end 18,979 19,654
Fluctuations in the balance of repurchase agreements from period to period and intraperiod are dependent on business activity in those periods. Additionally, the fluctuations in the balances of securities purchased under agreements to resell are influenced in any given period by our clients' balances and our clients' desires to execute collateralized financing arrangements via the repurchase market or via other financing products. Average balances and period end balances will fluctuate based on market and liquidity conditions and we consider the fluctuations intraperiod to be typical for the repurchase market.
Liquidity Management
The key objectives of Jefferies Group's liquidity management framework are to support the successful execution of its business strategies while ensuring sufficient liquidity through the business cycle and during periods of financial distress. The liquidity management policies are designed to mitigate the potential risk that adequate financing may not be accessible to service financial obligations without material franchise or business impact.
The principal elements of Jefferies Group's liquidity management framework are the Contingency Funding Plan, the Cash Capital Policy and the assessment of Modeled Liquidity Outflow.
Contingency Funding Plan. Jefferies Group's Contingency Funding Plan is based on a model of a potential liquidity contraction over a one year time period. This incorporates potential cash outflows during a liquidity stress event, including, but not limited to, the following:
•Repayment of all unsecured debt maturing within one year and no incremental unsecured debt issuance;
•Maturity rolloff of outstanding letters of credit with no further issuance and replacement with cash collateral;
•Higher margin requirements than currently exist on assets on securities financing activity, including repurchase agreements;
•Liquidity outflows related to possible credit downgrade;
•Lower availability of secured funding;
•Client cash withdrawals;
•The anticipated funding of outstanding investment and loan commitments; and
•Certain accrued expenses and other liabilities and fixed costs.
Cash Capital Policy. A cash capital model is maintained that measures long-term funding sources against requirements. Sources of cash capital include equity and the noncurrent portion of long-term borrowings. Uses of cash capital include the following:
•Illiquid assets such as equipment, goodwill, net intangible assets, exchange memberships, deferred tax assets and certain investments;
•A portion of securities inventory that is not expected to be financed on a secured basis in a credit stressed environment (i.e., margin requirements); and
•Drawdowns of unfunded commitments.
To ensure that inventory does not need to be liquidated in the event of a funding crisis, we seek to maintain surplus cash capital, which is reflected in the leverage ratios Jefferies Group maintains. Jefferies Group's total long-term capital of $13.0 billion at November 30, 2020 exceeded its cash capital requirements.
Modeled Liquidity Outflow. Jefferies Group's businesses are diverse, and liquidity needs are determined by many factors, including market movements, collateral requirements and client commitments, all of which can change dramatically in a difficult funding environment. During a liquidity crisis, credit-sensitive funding, including unsecured debt and some types of secured financing agreements, may be unavailable, and the terms (e.g., interest rates, collateral provisions and tenor) or availability of other types of secured financing may change. As a result of Jefferies Group's policy to ensure it has sufficient funds to cover estimates of what may be needed in a liquidity crisis, Jefferies Group holds more cash and unencumbered securities and has greater long-term debt balances than the businesses would otherwise require. As part of this estimation process, we calculate a Modeled Liquidity Outflow that could be experienced in a liquidity crisis. Modeled Liquidity Outflow is based on a scenario that includes both a market-wide stress and firm-specific stress.
Based on the sources and uses of liquidity calculated under the Modeled Liquidity Outflow scenarios, we determine, based on a calculated surplus or deficit, additional long-term funding that may be needed versus funding through the repurchase financing market and consider any adjustments that may be necessary to Jefferies Group's inventory balances and cash holdings. At November 30, 2020, Jefferies Group had sufficient excess liquidity to meet all contingent cash outflows detailed in the Modeled Liquidity Outflow. We regularly refine our model to reflect changes in market or economic conditions and the firm's business mix.
Sources of Liquidity
Within Jefferies Group, the following are financial instruments that are cash and cash equivalents or are deemed by management to be generally readily convertible into cash, marginable or accessible for liquidity purposes within a relatively short period of time, as reflected in the Consolidated Statements of Financial Condition (in thousands):
November 30, 2020 Average Balance
Fourth Quarter 2020 (1) November 30, 2019
Cash and cash equivalents:
Cash in banks $ 1,979,058 $ 2,777,480 $ 983,816
Money market investments (2) 5,132,871 4,044,718 4,584,087
Total cash and cash equivalents 7,111,929 6,822,198 5,567,903
Other sources of liquidity:
Debt securities owned and securities purchased under agreements to
resell (3)
1,180,410 1,074,927 972,624
Other (4) 312,511 306,911 377,296
Total other sources 1,492,921 1,381,838 1,349,920
Total cash and cash equivalents and other liquidity sources $ 8,604,850 $ 8,204,036 $ 6,917,823
(1)Average balances are calculated based on weekly balances.
(2)At November 30, 2020 and 2019, $5,118.0 million and $4,496.7 million, respectively, was invested in U.S. government money funds that invest at least 99.5% of its total assets in cash, securities issued by the U.S. government and U.S. government-sponsored entities, and repurchase agreements that are fully collateralized by cash or government securities. The remaining $14.9 million and $87.4 million at November 30, 2020 and 2019, respectively, are invested in AAA rated prime money funds. The average balance of U.S. government money funds for the quarter ended November 30, 2020 was $4,030.2 million.
(3)Consists of high quality sovereign government securities and reverse repurchase agreements collateralized by U.S. government securities and other high quality sovereign government securities; deposits with a central bank within the EEA, Canada, Australia, Japan, Switzerland or the U.S.; and securities issued by a designated multilateral development bank and reverse repurchase agreements with underlying collateral comprised of these securities.
(4)Other includes unencumbered inventory representing an estimate of the amount of additional secured financing that could be reasonably expected to be obtained from financial instruments owned that are currently not pledged after considering reasonable financing haircuts.
In addition to the cash balances and liquidity pool presented above, the majority of financial instruments (both long and short) in our trading accounts are actively traded and readily marketable. At November 30, 2020, repurchase financing can be readily obtained for approximately 71.0% of Jefferies Group's inventory at haircuts of 10% or less, which reflects the liquidity of the inventory. In addition, as a matter of our policy, all of these assets have internal capital assessed, which is in addition to the funding haircuts provided in the securities finance markets. Additionally, certain of Jefferies Group's financial instruments owned primarily consisting of bank loans, consumer loans and investments are predominantly funded by Jefferies Group's long-term capital. Under Jefferies Group's cash capital policy, capital allocation levels are modeled that are more stringent than the haircuts used in the market for secured funding; and surplus capital is maintained at these more stringent levels. We continually assess the liquidity of Jefferies Group's inventory based on the level at which Jefferies Group could obtain financing in the marketplace for a given asset. Assets are considered to be liquid if financing can be obtained in the repurchase market or the securities lending market at collateral haircut levels of 10% or less.
The following summarizes Jefferies Group's financial instruments owned by asset class that are considered to be of a liquid nature and the amount of such assets that have not been pledged as collateral as reflected in the Consolidated Statements of Financial Condition (in thousands):
November 30, 2020 November 30, 2019
Liquid Financial
Instruments Unencumbered
Liquid Financial
Instruments (2) Liquid Financial
Instruments Unencumbered
Liquid Financial
Instruments (2)
Corporate equity securities $ 2,191,536 $ 238,129 $ 2,403,589 $ 256,624
Corporate debt securities 2,298,591 50,217 1,893,605 29,412
U.S. Government, agency and municipal securities 3,336,361 110,586 2,894,264 151,414
Other sovereign obligations 2,518,928 1,101,272 2,633,636 969,800
Agency mortgage-backed securities (1) 1,652,743 - 1,757,077 -
Loans and other receivables 564,112 - 655,120 -
Total $ 12,562,271 $ 1,500,204 $ 12,237,291 $ 1,407,250
(1)Consists solely of agency mortgage-backed securities issued by Freddie Mac, Fannie Mae and Ginnie Mae. These securities include pass-through securities, securities backed by adjustable rate mortgages, collateralized mortgage obligations, commercial mortgage-backed securities and interest- and principal-only securities.
(2)Unencumbered liquid balances represent assets that can be sold or used as collateral for a loan, but have not been.
In addition to being able to be readily financed at modest haircut levels, it is estimated that each of the individual securities within each asset class above could be sold into the market and converted into cash within three business days under normal market conditions, assuming that the entire portfolio of a given asset class was not simultaneously liquidated. There are no restrictions on the unencumbered liquid securities, nor have they been pledged as collateral.
Sources of Funding and Capital Resources
Jefferies Group's assets are funded by equity capital, senior debt, securities loaned, securities sold under agreements to repurchase, customer free credit balances, bank loans and other payables.
Secured Financing
Readily available secured funding is used to finance Jefferies Group's inventory of financial instruments. Jefferies Group's ability to support increases in total assets is largely a function of the ability to obtain short and intermediate-term secured funding, primarily through securities financing transactions. Repurchase or reverse repurchase agreements (collectively "repos"), respectively, are used to finance a portion of long inventory and cover some of short inventory by pledging and borrowing securities. At November 30, 2020, approximately 60.1% of Jefferies Group's cash and noncash repurchase financing activities used collateral that was considered eligible collateral by central clearing corporations. During the year ended November 30, 2020, an average of approximately 87.7% of Jefferies Group's cash and noncash repurchase financing activities used collateral that was considered eligible collateral by central clearing corporations. Central clearing corporations are situated between participating members who borrow cash and lend securities (or vice versa); accordingly, repo participants contract with the central clearing corporation and not one another individually. Therefore, counterparty credit risk is borne by the central clearing corporation which mitigates the risk through initial margin demands and variation margin calls from repo participants. The comparatively large proportion of Jefferies Group's total repo activity that is eligible for central clearing reflects the high quality and liquid composition of the inventory Jefferies Group carries in its trading books. For those asset classes not eligible for central clearing house financing, Jefferies Group seeks to execute its bi-lateral financings on an extended term basis and the tenor of Jefferies Group's repurchase and reverse repurchase agreements generally exceeds the expected holding period of the assets Jefferies Group is financing. The weighted average maturity of cash and noncash repurchase agreements for non-clearing corporation eligible funded inventory is approximately five months at November 30, 2020.
Jefferies Group's ability to finance its inventory via central clearinghouses and bi-lateral arrangements is augmented by Jefferies Group's ability to draw bank loans on an uncommitted basis under its various banking arrangements. At November 30, 2020, short-term borrowings, which must be repaid within one year or less and include bank loans and overdrafts, borrowings under revolving credit facilities, floating rate puttable notes and equity-linked notes, totaled $764.7 million. Interest under the bank
lines is generally at a spread over the federal funds rate. Letters of credit are used in the normal course of business mostly to satisfy various collateral requirements in favor of exchanges in lieu of depositing cash or securities. Average daily short-term borrowings outstanding for Jefferies Group were $656.3 million and $555.4 million for 2020 and 2019, respectively.
Jefferies Group's short-term borrowings include facilities that contain certain covenants that, among other things, require it to maintain a specified level of tangible net worth and impose certain restrictions on the future indebtedness of certain of its subsidiaries that are borrowers. At November 30, 2020, Jefferies Group was in compliance with all covenants under these facilities. Jefferies Group's facilities included within short-term borrowings at November 30, 2020 were as follows (in thousands):
Bank of New York Mellon Master Loan Agreement (1) $ 300,000
JPMorgan Chase Bank, N.A. Credit Facility (2) 246,000
Royal Bank of Canada Credit Facility (3) 200,000
Bank of New York Mellon Credit Facility (4) -
Total $ 746,000
(1) Interest is generally based at spreads over the Federal Funds Rate as defined in this master loan agreement.
(2) Interest is based on an annual alternative base rate or an adjusted LIBOR, as defined in this credit facility agreement.
(3) Interest is based on a rate per annum equal to LIBOR plus an applicable margin of 2.05%.
(4) During 2020, Jefferies LLC entered into a revolving credit facility with the Bank of New York Mellon for a committed amount of $100.0 million, maturing on September 13, 2021. Interest is based on a rate per annum equal to the Federal Funds Rate plus 2%. At November 30, 2020, there were no borrowings outstanding under this agreement.
Jefferies Group's short-term borrowings at November 30, 2020 also include floating rate puttable notes of $6.8 million, equity-linked notes of $5.1 million and other bank loans of $6.8 million.
In addition, the Bank of New York Mellon has agreed to make revolving intraday credit advances ("Jefferies Group Intraday Credit Facility") for an aggregate committed amount of $150.0 million. The Jefferies Group Intraday Credit Facility is structured so that advances are generally repaid before the end of each business day. However, if an advance is not repaid by the end of any business day, the advance is converted to an overnight loan. Intraday loans accrue interest at a rate of 0.12%. Interest is charged based on the number of minutes in a day the advance is outstanding. Overnight loans are charged interest at the base rate plus 3% on a daily basis. The base rate is the higher of the federal funds rate plus 0.50% or the prime rate in effect at that time. The Intraday Credit Facility contains financial covenants, which include a minimum regulatory net capital requirement for Jefferies Group's U.S. broker-dealer, Jefferies LLC. At November 30, 2020, Jefferies Group was in compliance with all debt covenants under the Jefferies Group Intraday Credit Facility.
In addition to the above financing arrangements, Jefferies Group issues notes backed by eligible collateral under a master repurchase agreement, which provides an additional financing source for its inventory ("repurchase agreement financing program"). The notes issued under the program are presented within Other secured financings in the Consolidated Statements of Financial Condition. At November 30, 2020, the outstanding notes were $2.7 billion, bear interest at a spread over LIBOR and mature from December 2020 to August 2022.
Long-Term Debt
Jefferies Group's long-term debt reflected in the Consolidated Statement of Financial Condition at November 30, 2020 is $6.9 billion. Jefferies Group's long-term debt, excluding its revolving credit facility and the secured bank loan, has a weighted average maturity of approximately 10.8 years.
During the twelve months ended November 30, 2020, Jefferies Group's 2.375% Euro Medium Term Notes matured and were repaid, and its 6.875% Senior Notes due 2021 were retired early. Additionally, during the twelve months ended November 30, 2020, Jefferies Group issued structured notes with a total principal amount of approximately $325.5 million, net of retirements, an additional $150.0 million principal amount of 5.125% Senior Notes due 2023 and $500.0 million principal amount of 2.75% Senior Notes due 2032. At November 30, 2020, all of Jefferies Group's structured notes contain various interest rate payment terms and are accounted for at fair value, with changes in fair value resulting from a change in the instrument specific credit risk presented in Accumulated other comprehensive income (loss) and changes in fair value resulting from non-credit components recognized in Principal transactions revenue. The fair value of all of Jefferies Group's structured notes at November 30, 2020 was $1,712.2 million
Jefferies Group has a Revolving Credit Facility ("Jefferies Group Revolving Credit Facility") with a group of commercial banks for an aggregate principal amount of $190.0 million. At November 30, 2020, borrowings under the Jefferies Group Revolving Credit Facility amounted to $189.7 million. Interest is based on an annual alternative base rate or an adjusted LIBOR, as defined in the Jefferies Group Revolving Credit Facility agreement. The Jefferies Group Revolving Credit Facility contains certain covenants that, among other things, requires Jefferies Group LLC to maintain specified level of tangible net worth and liquidity amounts, and imposes certain restrictions on future indebtedness of and requires specified levels of regulated capital for certain of its subsidiaries. Throughout the year and at November 30, 2020, no instances of noncompliance with the Jefferies Group Revolving Credit Facility covenants occurred and we expect to remain in compliance given our current liquidity and anticipated funding requirements given our business plan and profitability expectations.
One of Jefferies Group's subsidiaries has a Loan and Security Agreement with a bank for a term loan with a principal amount of $50.0 million ("Jefferies Group Secured Bank Loan"). This Jefferies Group Secured Bank Loan matures on September 27, 2021 and is collateralized by certain trading securities. Interest on the Jefferies Group Secured Bank Loan is 1.25% plus LIBOR. The agreement contains certain covenants that, among other things, restrict lien or encumbrance upon any of the pledged collateral. At November 30, 2020, we were in compliance with all covenants under the Jefferies Group Loan and Security Agreement.
Jefferies Group's long-term debt ratings are as follows:
Rating Outlook
Moody's Investors Service (1) Baa3 Stable
Standard and Poor's (2) BBB Stable
Fitch Ratings BBB Stable
(1) On April 15, 2020, Moody's Investors Service affirmed Jefferies Group's rating of Baa3 and rating outlook of stable.
(2) On October 29, 2020, Standard and Poor's affirmed Jefferies Group's rating of BBB and revised its rating outlook from negative to stable.
Jefferies Group's access to external financing to finance its day to day operations, as well as the cost of that financing, is dependent upon various factors, including its debt ratings. Jefferies Group's current debt ratings are dependent upon many factors, including industry dynamics, operating and economic environment, operating results, operating margins, earnings trend and volatility, balance sheet composition, liquidity and liquidity management, capital structure, overall risk management, business diversification and market share and competitive position in the markets in which it operates. Deterioration in any of these factors could impact Jefferies Group's credit ratings. While certain aspects of a credit rating downgrade are quantifiable pursuant to contractual provisions, the impact on business and trading results in future periods is inherently uncertain and depends on a number of factors, including the magnitude of the downgrade, the behavior of individual clients and future mitigating action taken by us.
In connection with certain over-the-counter derivative contract arrangements and certain other trading arrangements, we may be required to provide additional collateral to counterparties, exchanges and clearing organizations in the event of a credit rating downgrade. At November 30, 2020, the amount of additional collateral that could be called by counterparties, exchanges and clearing organizations under the terms of such agreements in the event of a downgrade of Jefferies Group's long-term credit rating below investment grade was $102.9 million. For certain foreign clearing organizations, credit rating is only one of several factors employed in determining collateral that could be called. The above represents management's best estimate for additional collateral to be called in the event of a credit rating downgrade. The impact of additional collateral requirements is considered in Jefferies Group's Contingency Funding Plan and calculation of Modeled Liquidity Outflow, as described above.
Ratings issued by credit rating agencies are subject to change at any time.
Net Capital
Jefferies Group operates a broker-dealer, Jefferies LLC, registered with the SEC and member firms of FINRA. Jefferies LLC is subject to the SEC Uniform Net Capital Rule ("Rule 15c3-1"), which requires the maintenance of minimum net capital and has elected to calculate minimum capital requirements using the alternative method permitted by Rule 15c3-1 in calculating net capital. Jefferies LLC, as a dually-registered U.S. broker-dealer and FCM, is also subject to Rule 1.17 of the CFTC, which sets forth minimum financial requirements. The minimum net capital requirement in determining excess net capital for a dually-registered U.S. broker-dealer and FCM is equal to the greater of the requirement under Rule 15c3-1 or CFTC Rule 1.17. Jefferies LLC's net capital and excess net capital at November 30, 2020 were $2,161.3 million and $2,060.5 million, respectively. FINRA is the designated examining authority for Jefferies LLC and the NFA is the designated self-regulatory organization for Jefferies LLC as an FCM.
Certain other U.S. and non-U.S. subsidiaries of Jefferies Group are subject to capital adequacy requirements as prescribed by the regulatory authorities in their respective jurisdictions, including Jefferies International Limited which is subject to the regulatory supervision and requirements of the Financial Conduct Authority in the U.K. The Dodd-Frank Act was signed into law on July 21, 2010. The Dodd-Frank Act contains provisions that require the registration of all swap dealers, major swap participants, security-based swap dealers, and/or major security-based swap participants. The CFTC has finalized rules establishing capital requirements and financial reporting requirements for CFTC registered swap dealers not subject to regulation by a banking regulator. We expect that these provisions will result in modifications to the regulatory capital requirements of some of Jefferies Group's entities, and will result in some of Jefferies Group's other entities becoming subject to regulatory capital requirements for the first time, including Jefferies Financial Services, Inc., which registered as a swap dealer with the CFTC during January 2013 and Jefferies Financial Products LLC, which registered during August 2014. Jefferies Group may also be required in the future to register one or more additional subsidiaries as security-based swap dealers with the SEC. Compliance with these rules is required by October 6, 2021.
The regulatory capital requirements referred to above may restrict Jefferies Group's ability to withdraw capital from its regulated subsidiaries.
Some of our other consolidated subsidiaries also have credit agreements which may restrict the payment of cash dividends, or the ability to make loans or advances to the parent company.
Other Developments
The U.K. left the EU on January 31, 2020 and the current transition period ended on December 31, 2020. On January 1, 2021, Jefferies Group's U.K. broker dealer, Jefferies International Limited, is no longer able to provide services to European clients under the passport regime. Jefferies Group has taken steps to ensure its ability to provide services to its European clients without interruption by establishing a wholly-owned subsidiary in Germany ("Jefferies GmbH"), which is authorized and regulated in Germany by the Federal Financial Services Authority ("BaFin"). European clients have been migrated to Jefferies GmbH to conduct business across all of Jefferies Group's European investment banking, fixed income and equity platforms. During 2020, Jefferies Group's European branches in Amsterdam, Madrid, Milan, Paris and Stockholm were migrated and Jefferies Group increased its local employees, equity capital and established clearing relationships.
Central banks and regulators around the world have convened working groups to find, and implement the transition to, suitable replacements for IBORs. Jefferies Group has an active transition program that focuses on an orderly transition from IBORs to alternative reference rates, including internal operational readiness and risk management. Jefferies Group is identifying, assessing and monitoring risk associated with the expected discontinuation of IBORs, which includes taking steps to update operational processes and models and evaluation legacy contracts for any changes that may be required.
Off-Balance Sheet Arrangements
At November 30, 2020, our commitments and guarantees, substantially all of which related to Jefferies Group, are as follows:
Expected Maturity Date
Commitments and Guarantees Total 2021 2022 2023
and
2024 2025
and
2026 After 2026
(In millions)
Equity commitments $ 465.5 $ 365.5 $ 53.4 $ 25.3 $ 14.5 $ 6.8
Loan commitments 286.8 249.5 10.0 25.0 2.3 -
Underwriting commitments
243.3 243.3 - - - -
Forward starting reverse repos
6,048.0 6,048.0 - - - -
Forward starting repos
3,488.7 3,488.7 - - - -
Other unfunded commitments 186.8 156.6 25.0 5.2 - -
Derivative contracts (1):
Non-credit related 21,246.5 12,607.6 2,475.8 5,760.8 390.4 11.9
Credit related 6.4 - - 6.4 - -
Standby letters of credit 22.0 14.6 5.8 1.1 - 0.5
Total commitments and guarantees $ 31,994.0 $ 23,173.8 $ 2,570.0 $ 5,823.8 $ 407.2 $ 19.2
(1) Certain of our derivative contracts meet the definition of a guarantee and are therefore included in the above table. For additional information on commitments, see Note 22 in our consolidated financial statements.
We have agreed to reimburse Berkshire Hathaway for up to one-half of any losses incurred under a $1.5 billion surety policy securing outstanding commercial paper issued by an affiliate of Berkadia. As of November 30, 2020, the aggregate amount of commercial paper outstanding was $1.47 billion. This commitment is not included in the table above as the timing of payments, if any, is uncertain.
In the normal course of business, we engage in other off-balance sheet arrangements, including derivative contracts. Neither derivatives' notional amounts nor underlying instrument values are reflected as assets or liabilities in the Consolidated Statements of Financial Condition. Rather, the fair values of derivative contracts are reported in the Consolidated Statements of Financial Condition as Financial instruments owned, at fair value or Financial instruments sold, not yet purchased, at fair value as applicable. Derivative contracts are reflected net of cash paid or received pursuant to credit support agreements and are reported on a net by counterparty basis when a legal right of offset exists under an enforceable master netting agreement. For additional information about our accounting policies and our derivative activities see Notes 2, 4 and 5 in our consolidated financial statements.
We are routinely involved with variable interest entities ("VIEs") in the normal course of business. At November 30, 2020, we did not have any commitments to purchase assets from our VIEs. For additional information regarding VIEs, see Notes 7 and 8 in our consolidated financial statements.
Critical Accounting Estimates
The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could significantly differ from those estimates. We believe that the following discussion addresses our most critical accounting estimates, which are those that are important to the presentation of our financial condition and results of operations and require our most difficult, subjective and complex judgments.
Fair Value of Financial Instruments - Financial instruments owned, at fair value and Financial instruments sold, not yet purchased, at fair value are recorded at fair value, either as required by accounting pronouncements or through the fair value option election. Gains and losses on Financial instruments owned, at fair value and Financial instruments sold, not yet purchased, at fair value are recognized in the Consolidated Statements of Operations in Principal transactions. Fair value is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price).
In determining fair value, we maximize the use of observable inputs and minimize the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. Unobservable inputs reflect our assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. We apply a hierarchy to categorize our fair value measurements broken down into three levels based on the transparency of inputs as follows:
Level 1: Quoted prices are available in active markets for identical assets or liabilities as of the reported date. Valuation adjustments and block discounts are not applied to Level 1 instruments.
Level 2: Pricing inputs other than quoted prices in active markets, which are either directly or indirectly observable at the reported date. The nature of these financial instruments includes cash instruments for which quoted prices are available but traded less frequently, derivative instruments for which fair values have been derived using model inputs that are directly observable in the market, or can be derived principally from or corroborated by observable market data, and instruments that are fair valued using other financial instruments, the parameters of which can be directly observed.
Level 3: Instruments that have little to no pricing observability as of the reported date. These financial instruments are measured using management's best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.
Fair value is a market based measure; therefore, when market observable inputs are not available, our judgment is applied to reflect those judgments that a market participant would use in valuing the same asset or liability. The availability of observable inputs can vary for different products. We use prices and inputs that are current as of the measurement date even in periods of market disruption or illiquidity. The valuation of financial instruments classified in Level 3 of the fair value hierarchy involves the greatest amount of management judgment.
Jefferies Group's Independent Price Verification Group, independent of its trading function, plays an important role in determining that financial instruments are appropriately valued and that fair value measurements are reliable. This is particularly important where prices or valuations that require inputs are less observable. In the event that observable inputs are not available, the control processes are designed to assure that the valuation approach utilized is appropriate and consistently applied and that the assumptions are reasonable. Where a pricing model is used to determine fair value, these control processes include reviews of the pricing model's theoretical soundness and appropriateness by risk management personnel with relevant expertise who are independent from the trading desks. In addition, recently executed comparable transactions and other observable market data are considered for purposes of validating assumptions underlying the model.
For further information on the fair value definition, Level 1, Level 2, Level 3 and related valuation techniques, see Notes 2 and 4 in our consolidated financial statements.
Income Taxes - We record a valuation allowance to reduce our net deferred tax asset to the amount that is more likely than not to be realized. We are required to consider all available evidence, both positive and negative, and to weigh the evidence when determining whether a valuation allowance is required and the amount of such valuation allowance. Generally, greater weight is required to be placed on objectively verifiable evidence when making this assessment, in particular on recent historical operating results.
We also record reserves for unrecognized tax benefits based on our assessment of the probability of successfully sustaining tax filing positions. Management exercises significant judgment when assessing the probability of successfully sustaining tax filing positions, and in determining whether a contingent tax liability should be recorded and if so, estimating the amount. If our tax filing positions are successfully challenged, payments could be required that are in excess of reserved amounts or we may be required to reduce the carrying amount of our net deferred tax asset, either of which could be significant to our Consolidated Statements of Financial Condition or results of operations.
Impairment of Long-Lived Assets - We evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate, in management's judgment, that the carrying value of such assets may not be recoverable. When testing for impairment, we group our long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities (or asset group). The determination of whether an asset group is recoverable is based on management's estimate of undiscounted future cash flows directly attributable to the asset group as compared to its carrying value. If the carrying amount of the asset group is greater than the undiscounted cash flows, an impairment loss would be recognized for the amount by which the carrying amount of the asset group exceeds its estimated fair value.
Due to a decline in oil and gas prices during the second quarter of 2020, Vitesse Energy Finance performed impairment analyses on its proven oil and gas properties in the DJ Basin of Wyoming and Colorado and the Bakken Shale oil field in North Dakota. Vitesse Energy Finance first determined the estimated undiscounted cash flows based on the reserves and costs utilized in its reserve report and then updated those cash flows based on strip pricing as of May 31, 2020. The expected undiscounted future net cash flows were then compared to the end of quarter net carrying value of the oil and gas properties. No impairment of the Bakken Shale oil field assets was necessary as the undiscounted future net cash flows significantly exceeded the carrying value of these assets. As undiscounted future net cash flows were lower than the carrying value of the DJ Basin properties, Vitesse Energy Finance then determined the estimated fair value of the proven properties. To measure the estimated fair value of its proven properties, Vitesse Energy Finance used unobservable Level 3 inputs, including a 10.0% discount rate and estimated future cash flows from its reserve report. The estimated fair value of Vitesse Energy Finance's proven oil and gas properties in the DJ Basin totaled $26.8 million, which was $13.2 million lower than the carrying value as of the end of the second quarter of 2020. As a result, an impairment charge of $13.2 million was recorded in Selling, general and other expenses during 2020.
Due to a decline in oil and gas prices during the first quarter of 2020, JETX Energy performed an impairment analysis for its oil and gas properties in the East Eagle Ford. JETX Energy first determined the estimated undiscounted cash flows based on the reserves and costs utilized in its reserve report and then updated those cash flows based on strip pricing as of February 29, 2020. The expected undiscounted future net cash flows were then compared to the end of quarter net carrying value of the proven properties. As the undiscounted future net cash flows were lower than the carrying value, JETX Energy then determined the estimated fair value of the proven properties. To measure the estimated fair value of its proven properties, JETX Energy used unobservable Level 3 inputs, including a 10.0% discount rate and estimated future cash flows from its reserve report. The estimated fair value of JETX Energy's proven oil and gas properties in the East Eagle Ford totaled $9.6 million, which was $33.0 million lower than the carrying value as of the end of first quarter of 2020. As a result, an impairment charge of $33.0 million was recorded in Selling, general and other expenses during 2020.
Impairment of Equity Method Investments - We evaluate equity method investments for impairment when operating losses or other factors may indicate a decrease in value which is other than temporary. We consider a variety of factors including economic conditions nationally and in their geographic areas of operation, adverse changes in the industry in which they operate, declines in business prospects, deterioration in earnings, increasing costs of operations and other relevant factors specific to the investee. Whenever we believe conditions or events indicate that one of these investments might be significantly impaired, we obtain from such investee updated cash flow projections. We use this information and, together with discussions with the investee's management and comparable public company analysis, evaluate if the book value of its investment exceeds its fair value, and if so and the situation is deemed other than temporary, record an impairment charge.
As described further in Note 9, in the third quarter of 2018 we engaged an independent valuation firm to assist management in estimating the fair value of our equity investment in Golden Queen. Our estimate of fair value was based on a discounted cash flow analysis and is categorized within Level 3 of the fair value hierarchy. The discounted cash flow valuation model used inputs including management's projections of future Golden Queen cash flows and a discount rate of 12%. The estimated fair value of our equity investment in Golden Queen was $62.3 million, which was $47.9 million lower than our prior carrying value at the end of the second quarter 2018. As a result, an impairment charge of $47.9 million was recorded in Income (loss) related to associated companies in the third quarter of 2018.
During the fourth quarter of 2018, we recorded an impairment charge of $62.1 million related to the equity component of our investment in FXCM, which was based on updated expectations that had been impacted by the then revised regulations of the European Securities Market Authority and dampened operating results. Based on the updated projections, we evaluated in the fourth quarter of 2018 whether our equity method investment was fully recoverable. We engaged an independent valuation firm to assist management in estimating the fair value of FXCM. Our estimate of fair value was based on a discounted cash flow analysis. The result of our analysis indicated that the estimated fair value of our equity interest in FXCM was lower than our carrying value by $62.1 million. We concluded that based on the decline in projections and the adverse effects of the European regulations, that the decline in fair value of our equity interest was other than temporary. As a result, we impaired our equity investment in FXCM in the fourth quarter of 2018 by $62.1 million.
HomeFed has a 49% membership interest in the RedSky JZ Fulton Mall joint venture, which owns a property in Brooklyn, New York. The property consists of 14 separate tax lots, divided into two development sites which may be redeveloped with buildings consisting of up to 540,000 square feet of floor area development rights. During the first quarter of 2020, difficulties were encountered with attempts to refinance debt within the investment. We viewed this, combined with a softening of the Brooklyn, New York real estate market during the quarter, as a triggering event and evaluated HomeFed's equity method investment in RedSky JZ Fulton Mall to determine if there was an impairment. In connection with this evaluation, we obtained an appraisal which reflected a reduction in the value of the investment in comparison to an earlier appraisal obtained shortly before the beginning of the quarter. The appraisal was based off of Level 3 inputs consisting of prices of comparable properties and the appraisal indicated that the value of the property was worth less than the debt outstanding. HomeFed recorded an impairment charge of $55.6 million within Income (loss) related to associated companies during 2020, which represented all of its carrying value in the joint venture.
Goodwill - We allocate the acquisition cost of consolidated businesses to the specific tangible and intangible assets acquired and liabilities assumed based upon their fair values. Significant judgments and estimates are often made by management to determine these values, and may include the use of appraisals, consideration of market quotes for similar transactions, use of discounted cash flow techniques or consideration of other information we believe to be relevant. Any excess acquisition cost over the fair values of the net assets acquired is recorded as goodwill, which is not amortized to expense. Substantially all of our goodwill was recognized in connection with the Jefferies Group acquisition.
At least annually, and more frequently if warranted, we assess whether goodwill has been impaired at the reporting unit level. In testing for goodwill impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, we conclude that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is not necessary. If we conclude otherwise, we are required to perform the two-step quantitative impairment test. In the first step, the fair value of each reporting unit is compared with its carrying value, including goodwill and allocated intangible assets. If the fair value is in excess of the carrying value, the goodwill for the reporting unit is considered not to be impaired. If the fair value is less than the carrying value then a second step is performed in order to measure the amount of the impairment loss, if any, which is based on comparing the implied fair value of the reporting unit's goodwill to the carrying value. We adopted Accounting Standards Update No. 2017-04 on December 1, 2020, which simplifies goodwill impairment testing by eliminating the second step of the impairment test noted above. If the total carrying value of a reporting unit exceeds the fair value, an impairment charge would be recorded to goodwill for the difference between the carrying value and the fair value.
The fair values are based on valuation techniques that we believe market participants would use, although the valuation process requires significant judgment and often involves the use of significant estimates and assumptions. The methodologies we utilize in estimating fair value include price-to-earnings and price-to-book multiples of comparable public companies and/or projected cash flows. In addition, as the fair values determined under a market approach represent a noncontrolling interest, we applied a control premium to arrive at the estimated fair value of our reporting units on a controlling basis. The estimates and assumptions used in determining fair value could have a significant effect on whether or not an impairment charge is recorded and the magnitude of such a charge. Adverse market or economic events could result in impairment charges in future periods.
An independent valuation specialist was engaged to assist with the valuation process relating to the Investment Banking and Capital Markets, and Asset Management segments for our annual goodwill impairment test as of August 1, 2020. The results of our annual goodwill impairment test for both the Investment Banking and Capital Markets segment and the Asset Management segment did not indicate any goodwill impairment.
Intangible Assets - Intangible assets deemed to have finite lives are generally amortized on a straight-line basis over their estimated useful lives, where the useful life is the period over which the asset is expected to contribute directly, or indirectly, to our future cash flows. Intangible assets are reviewed for impairment on an interim basis when certain events or circumstances
exist. If future undiscounted cash flows are estimated to be less than the carrying amounts of the asset groups used to generate those cash flows in subsequent reporting periods, particularly for those with large investments in amortizable intangible assets, impairment charges would have to be recorded.
An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when certain events or circumstances exist indicating an assessment for impairment is necessary. Impairment exists when the carrying amount exceeds its fair value. Fair value is determined using valuation techniques consistent with what a market participant would use. All of our indefinite-lived intangible assets were recognized in connection with the 2013 Jefferies Group acquisition, which consists of exchange and clearing organization membership interests and registrations. Our annual impairment testing date was August 1, 2020. At August 1, 2020, we elected to perform a quantitative assessment of membership interests and registrations that have available quoted sales prices as well as certain other membership interests and registrations that have declined in utilization. Qualitative assessments were performed on the remainder of our indefinite-life intangible assets. In applying our quantitative assessment at August 1, 2020, we recognized immaterial impairment losses on certain exchange membership interests and registrations. With regard to our qualitative assessment of the remaining indefinite-life intangible assets, based on our assessment of market conditions, the utilization of the assets and the replacement costs associated with the assets, we concluded that it is not more likely than not that the intangible assets are impaired.
Contingencies - In the normal course of business, we have been named, from time to time, as a defendant in legal and regulatory proceedings. We are also involved, from time to time, in other exams, investigations and similar reviews (both formal and informal) by governmental and self-regulatory agencies regarding our businesses, certain of which may result in judgments, settlements, fines, penalties or other injunctions.
We recognize a liability for a contingency when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. If the reasonable estimate of a probable loss is a range, we accrue the most likely amount of such loss, and if such amount is not determinable, then we accrue the minimum in the range as the loss accrual. The determination of the outcome and loss estimates requires significant judgment on the part of management, can be highly subjective and is subject to significant change with the passage of time as more information becomes available. Estimating the ultimate impact of litigation matters is inherently uncertain, in particular because the ultimate outcome will rest on events and decisions of others that may not be within our power to control. We do not believe that any of our current litigation will have a significant adverse effect on our consolidated financial position, results of operations or liquidity; however, if amounts paid at the resolution of litigation are in excess of recorded reserve amounts, the excess could be significant in relation to results of operations for that period. For further information, see Note 22 in our consolidated financial statements.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The following includes "forward-looking statements" that involve risk and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. The discussion of risk is presented separately for Jefferies Group and the balance of our company. Exclusive of Jefferies Group, our market risk arises principally from equity price risk.
Excluding Jefferies Group, Financial instruments owned, at fair value include corporate equity securities with an aggregate fair value of $281.1 million at November 30, 2020. Assuming a decline of 10% in market prices, the value of these investments could decrease by approximately $28.1 million.
Jefferies Group
Overview
Risk is an inherent part of our business and activities. The extent to which we properly and effectively identify, assess, monitor and manage each of the various types of risk involved in our activities is critical to our financial soundness, viability and profitability. Accordingly, we have a comprehensive risk management approach, with a formal governance structure and processes to identify, assess, monitor and manage risk. Principal risks involved in our business activities include market, credit, liquidity and capital, operational, legal and compliance, new business and reputational risk.
Risk management is a multifaceted process that requires communication, judgment and knowledge of financial products and markets. Our risk management process encompasses the active involvement of executive and senior management, and also many departments independent of the revenue-producing business units, including Jefferies Group's Risk Management, Operations, Compliance, Legal and Finance Departments. Our risk management policies, procedures and methodologies are flexible in nature and are subject to ongoing review and modification.
In achieving our strategic business objectives, our risk appetite incorporates keeping our clients' interests at the top of our priority list and ensuring we are in compliance with applicable laws, rules and regulations, as well as adhering to the highest ethical standards. We undertake prudent and conservative risk-taking that protects the capital base and franchise, utilizing risk limits and tolerances that avoid outsized risk-taking. We maintain a diversified business mix and avoid significant concentrations to any sector, product, geography, or activity and set quantitative concentration limits to manage this risk. We consider contagion, second order effects and correlation in our risk assessment process and actively seek out value opportunities of all sizes. We manage the risk of opportunities larger than our approved risk levels through risk sharing and risk distribution, sell-down and hedging as appropriate. We have a limited appetite for illiquid assets and complex derivative financial instruments. We maintain the asset quality of our balance sheet through conducting trading activity in liquid markets and generally ensure high turnover of our inventory. We subject less liquid positions and derivative financial instruments to oversight and use a wide variety of specific metrics, limits, and constraints to manage these risks. We protect our reputation and franchise, as well as our standing within the market. We operate a federated approach to risk management with risk oversight responsibilities assigned to those areas of the business that have the appropriate knowledge.
For discussion of liquidity and capital risk management, refer to the "Liquidity and Capital Resources" section herein.
Risk Considerations
We apply a comprehensive framework of limits on a variety of key metrics to constrain the risk profile of our business activities. The size of the limits reflects our risk tolerance for a certain activity under normal business conditions. Key metrics included in our risk management framework include inventory position and exposure limits on a gross and net basis, scenario analysis and stress tests, Value-at-Risk ("VaR"), sensitivities, exposure concentrations, aged inventory, amount of Level 3 assets, counterparty exposure, leverage and cash capital.
Market Risk
Market risk is defined as the risk of loss due to fluctuations in the market value of financial assets and liabilities attributable to changes in market variables.
Our market risk principally arises from interest rate risk, from exposure to changes in the yield curve, the volatility of interest rates, and credit spreads, and from equity price risks from exposure to changes in prices and volatilities of individual equities, equity baskets and equity indices. In addition, commodity price risk results from exposure to the changes in prices and
volatilities of individual commodities, commodity baskets and commodity indices, and foreign exchange risk results from changes in foreign currency rates.
Market risk is present in our market-making, proprietary trading, underwriting, specialist and investing activities and is principally managed by diversifying exposures, controlling position sizes, and establishing economic hedges in related securities or derivatives. Due to imperfections in correlations, gains and losses can occur even for positions that are economically hedged. Position limits in trading and inventory accounts are established and monitored on an ongoing basis. Each day, consolidated position and exposure reports are prepared and distributed to various levels of management, which enable management to monitor inventory levels and the results of its trading businesses.
Trader Mandates
Trading is principally managed through front office trader mandates, where each trader is provided a specific mandate in line with our product registry. Mandates set out the activities, currencies, countries and products that the desk is permitted to trade in and set the limits applicable to the desk. Traders are responsible for knowing their trading limits and trading in a manner consistent with their mandate. Trader mandates are reviewed annually and as part of the new business proposal process.
Value-at-Risk
VaR is a statistical estimate of the potential loss from adverse market movements over a specified time horizon within a specified probability (confidence level). It provides a common risk measure across financial instruments, markets and asset classes. We estimate VaR using a model that simulates revenue and loss distributions on Jefferies Group's trading portfolios by applying historical market changes to the current portfolio. We calculate a one day VaR using a one year look-back period measured at a 95% confidence level.
As with all measures of VaR, the estimate has inherent limitations due to the assumption that historical changes in market conditions are representative of the future. Furthermore, the VaR model measures the risk of a current static position over a one day horizon and might not capture the market risk over a longer time horizon where moves may be more extreme. Previous changes in market risk factors may not generate accurate predictions of future market movements. While we believe the assumptions and inputs in our risk model are reasonable, we could incur losses greater than the reported VaR. Consequently, this VaR estimate is only one of a number of tools we use in our daily risk management activities.
Average daily VaR increased to $10.51 million for 2020 from $8.79 million for 2019. The increase in average VaR and the average interest rate VaR component was primarily due to the increase in market volatility observed throughout 2020.
The following table illustrates each separate component of VaR for each component of market risk by interest rate, equity, currency and commodity products, as well as for Jefferies Group's overall trading positions using the past 365 days of historical data (in millions):
Daily VaR (1)
Value-at-Risk in Trading Portfolios
Risk Categories VaR at November 30, 2020
Daily VaR for 2020 VaR at November 30, 2019
Daily VaR for 2019
Average High Low Average High Low
Interest Rates $ 7.66 $ 7.90 $ 12.50 $ 3.93 $ 4.81 $ 4.47 $ 6.22 $ 2.58
Equity Prices 12.54 8.01 14.91 3.68 5.07 7.94 13.17 4.75
Currency Rates 0.16 0.21 2.17 0.03 0.32 0.25 1.41 0.06
Commodity Prices 0.44 0.70 1.56 0.24 0.64 0.89 2.43 0.40
Diversification Effect (2) (2.04) (6.31) N/A N/A (6.14) (4.76) N/A N/A
Firmwide $ 18.76 $ 10.51 $ 22.78 $ 5.02 $ 4.70 $ 8.79 $ 14.83 $ 4.70
(1)For the VaR numbers reported above, a one day time horizon, with a one year look-back period, and a 95% confidence level were used.
(2)The diversification effect is not applicable for the maximum and minimum VaR values as Jefferies Group's firmwide VaR and VaR values for the four risk categories might have occurred on different days during the year.
The aggregated VaR presented here is less than the sum of the individual components (i.e., interest rate risk, foreign exchange rate risk, equity risk and commodity price risk) due to the benefit of diversification among the four risk categories. Diversification benefit equals the difference between aggregated VaR and the sum of VaRs for the four risk categories and arises because the market risk categories are not perfectly correlated.
Jefferies Group performs daily back-testing of its VaR model comparing realized revenue and loss with the previous day's VaR. Backtesting results are included in the quarterly business review pack for its Board. The primary method used to test the efficacy of the VaR model is to compare actual daily net revenue for those positions included in the VaR calculation with the daily VaR estimate. This evaluation is performed at various levels of the trading portfolio, from the overall level down to specific business lines. For the VaR model, trading related revenue is defined as principal transactions revenues, trading related commissions, revenue from securitization activities and net interest income.
For a 95% confidence one day VaR model (i.e., no intra-day trading), assuming current changes in market value are consistent with the historical changes used in the calculation, net trading losses would not be expected to exceed the VaR estimates more than twelve times on an annual basis (i.e., once in every 20 days). During 2020, results of the evaluation at the aggregate level demonstrated eleven day when the net trading loss exceeded the 95% one day VaR.
The chart below reflects our daily VaR over the last four quarters, with the increase in August 2020 and the fourth quarter of 2020 due to market volatility observed throughout 2020 and as certain businesses took advantage of positive market momentum in August and November 2020.
Daily Net Trading Revenue
There were 26 days with trading losses out of a total of 252 trading days in 2020. The histogram below presents the distribution of our actual daily net trading revenue for substantially all of Jefferies Group's trading activities for 2020 (in millions).
Other Risk Measures
Certain positions within financial instruments are not included in the VaR model because VaR is not the most appropriate measure of risk. Accordingly, Jefferies Group's Risk Management has additional procedures in place to assure that the level of potential loss that would arise from market movements are within acceptable levels. Such procedures include performing stress tests, monitoring concentration risk and tracking price target/stop loss levels. The table below presents the potential reduction in net income associated with a 10% stress of the fair value of the positions that are not included in the VaR model at November 30, 2020 (in thousands):
10% Sensitivity
Investment in funds (1) $ 95,598
Private investments 16,655
Corporate debt securities in default 7,979
Trade claims 3,808
(1) Includes investments in hedge funds, fund of funds and private equity funds. For additional information on these investments, see Note 4 in our consolidated financial statements.
VaR also excludes the impact of changes in Jefferies Group's own credit spreads on its structured notes for which the fair value option was elected. The estimated credit spread risk sensitivity for each one basis point widening in Jefferies Group's own credit spreads on financial liabilities for which the fair value option was elected was an increase in value of approximately $1.2 million at November 30, 2020, which is included in Accumulated other comprehensive income (loss).
Stress Tests and Scenario Analysis
Stress tests are used to analyze the potential impact of specific events or extreme market moves on the current portfolio both firm-wide and within business segments. Stress testing is an important part of our risk management approach because it allows us to quantify our exposure to tail risks, highlight potential loss concentrations, undertake risk/reward analysis, set risk controls and overall assess and mitigate its risk.
We employ a range of stress scenarios, which comprise both historical market price and rate changes and hypothetical market environments, and generally involve simultaneous changes of many risk factors. Indicative market changes in our scenarios include, but are not limited to, a large widening of credit spreads, a substantial decline in equities markets, significant moves in selected emerging markets, large moves in interest rates and changes in the shape of the yield curve.
Unlike VaR, which measures potential losses within a given confidence interval, stress scenarios do not have an associated implied probability. Rather, stress testing is used to estimate the potential loss from market moves that tend to be larger than those embedded in the VaR calculation. Stress testing complements VaR to cover for potential limitations of VaR such as the breakdown in correlations, non-linear risks, tail risk and extreme events and capturing market moves beyond the confidence levels assumed in the VaR calculations.
Stress testing is performed and reported at least weekly as part of our risk management process and on an ad hoc basis in response to market events or concerns. Current stress tests provide estimated revenue and loss of the current portfolio through a range of both historical and hypothetical events. The stress scenarios are reviewed and assessed at least annually so that they remain relevant and up to date with market developments. Additional hypothetical scenarios are also conducted on a sub-portfolio basis to assess the impact of any relevant idiosyncratic stress events as needed.
Counterparty Credit Risk
Credit risk is the risk of loss due to adverse changes in a counterparty's credit worthiness or its ability or willingness to meet its financial obligations in accordance with the terms and conditions of a financial contract. We are exposed to credit risk as a trading counterparty to other broker-dealers and customers, as a direct lender and through extending loan commitments, as a holder of securities and as a member of exchanges and clearing organizations. Credit exposure exists across a wide-range of products, including cash and cash equivalents, loans, securities finance transactions and over-the-counter derivative contracts. The main sources of our credit risk are:
•Loans and lending arising in connection with our investment banking and capital markets activities, which reflects our exposure at risk on a default event with no recovery of loans. Current exposure represents loans that have been drawn by the borrower and lending commitments that are outstanding. In addition, credit exposures on forward settling traded loans are included within our loans and lending exposures for consistency with the balance sheet categorization of these items. Loans and lending also arise in connection with our portion of Jefferies Group's Secured Revolving Credit Facility that is with Jefferies Group and Massachusetts Mutual Life Insurance Company, to be funded equally, to support loan underwritings by Jefferies Finance. See Note 9 for additional information on this facility. In addition, Jefferies Group has loans outstanding to certain of its officers and employees (none of whom are executive officers or directors). See Note 25 for additional information on these employee loans.
•Securities and margin financing transactions, which reflect our credit exposure arising from reverse repurchase agreements, repurchase agreements and securities lending agreements to the extent the fair value of the underlying collateral differs from the contractual agreement amount and from margin provided to customers.
•Over-the-counter derivatives, which are reported net by counterparty when a legal right of setoff exists under an enforceable master netting agreement. Over-the-counter derivative exposure is based on a contract at fair value, net of cash collateral received or posted under credit support agreements. In addition, credit exposures on forward settling trades are included within our derivative credit exposures.
•Cash and cash equivalents, which include both interest-bearing and non-interest-bearing deposits at banks.
Credit is extended to counterparties in a controlled manner and in order to generate acceptable returns, whether such credit is granted directly or is incidental to a transaction. All extensions of credit are monitored and managed as a whole to limit exposure to loss related to credit risk. Credit risk is managed according to the Credit Risk Policy, which sets out the process for identifying counterparty credit risk, establishing counterparty limits, and managing and monitoring credit limits. The policy includes our approach for:
•Client on-boarding and approving counterparty credit limits;
•Negotiating, approving and monitoring credit terms in legal and master documentation;
•Determining the analytical standards and risk parameters for ongoing management and monitoring credit risk books;
•Actively managing daily exposure, exceptions and breaches; and
•Monitoring daily margin call activity and counterparty performance.
Counterparty credit exposure limits are granted within our credit ratings framework, as detailed in the Credit Risk Policy. Jefferies Group's Credit Risk Department assesses counterparty credit risk and sets credit limits at the counterparty master
agreement level. Limits must be approved by appropriate credit officers and initiated in our credit and trading systems before trading commences. All credit exposures are reviewed against approved limits on a daily basis.
Jefferies Group's Secured Revolving Credit Facility, which supports loan underwritings by Jefferies Finance, is governed under separate policies other than the Credit Risk Policy and is approved by Jefferies Group's Board of Directors. The loans outstanding to certain of Jefferies Group's officers and employees are extended pursuant to a review by its most senior management.
Current counterparty credit exposures are summarized in the tables below and provided by credit quality, region and industry. Credit exposures presented take netting and collateral into consideration by counterparty and master agreement. Collateral taken into consideration includes both collateral received as cash as well as collateral received in the form of securities or other arrangements. Current exposure is the loss that would be incurred on a particular set of positions in the event of default by the counterparty, assuming no recovery. Current exposure equals the fair value of the positions less collateral. Issuer risk is the credit risk arising from inventory positions (for example, corporate debt securities and secondary bank loans). Issuer risk is included in our country risk exposure tables below.
The amounts in the tables below are for amounts included in the Consolidated Statements of Financial Condition at November 30, 2020 and 2019 (in millions).
Counterparty Credit Exposure by Credit Rating
Loans and Lending Securities and
Margin Finance OTC Derivatives Total Cash and Cash
Equivalents Total with Cash and
Cash Equivalents
At At At At At At
November 30, 2020 November 30, 2019 November 30, 2020 November 30, 2019 November 30, 2020 November 30, 2019 November 30, 2020 November 30, 2019 November 30, 2020 November 30, 2019 November 30, 2020 November 30, 2019
AAA Range $ - $ - $ 1.1 $ 1.5 $ 0.1 $ - $ 1.2 $ 1.5 $ 5,132.9 $ 4,584.1 $ 5,134.1 $ 4,585.6
AA Range 45.2 45.2 111.7 43.0 9.8 3.7 166.7 91.9 7.8 5.3 174.5 97.2
A Range 0.2 1.1 542.2 531.9 147.2 152.4 689.6 685.4 1,967.9 976.3 2,657.5 1,661.7
BBB Range 250.5 250.2 110.2 140.9 18.1 48.3 378.8 439.4 2.2 1.6 381.0 441.0
BB or Lower 50.0 15.0 8.3 6.6 201.6 154.1 259.9 175.7 0.1 - 260.0 175.7
Unrated 142.0 94.2 - - 0.2 6.8 142.2 101.0 1.0 0.6 143.2 101.6
Total $ 487.9 $ 405.7 $ 773.5 $ 723.9 $ 377.0 $ 365.3 $ 1,638.4 $ 1,494.9 $ 7,111.9 $ 5,567.9 $ 8,750.3 $ 7,062.8
Counterparty Credit Exposure by Region
Loans and Lending Securities and
Margin Finance OTC Derivatives Total Cash and Cash
Equivalents Total with Cash and
Cash Equivalents
At At At At At At
November 30, 2020 November 30, 2019 November 30, 2020 November 30, 2019 November 30, 2020 November 30, 2019 November 30, 2020 November 30, 2019 November 30, 2020 November 30, 2019 November 30, 2020 November 30, 2019
Asia/Latin America/Other $ 15.0 $ 15.0 $ 72.6 $ 50.5 $ 6.9 $ 0.3 $ 94.5 $ 65.8 $ 248.4 $ 100.4 $ 342.9 $ 166.2
Europe 0.1 - 313.0 324.1 42.5 101.1 355.6 425.2 96.4 74.1 452.0 499.3
North America 472.8 390.7 387.9 349.3 327.6 263.9 1,188.3 1,003.9 6,767.1 5,393.4 7,955.4 6,397.3
Total $ 487.9 $ 405.7 $ 773.5 $ 723.9 $ 377.0 $ 365.3 $ 1,638.4 $ 1,494.9 $ 7,111.9 $ 5,567.9 $ 8,750.3 $ 7,062.8
Counterparty Credit Exposure by Industry
Loans and Lending Securities and
Margin Finance OTC Derivatives Total Cash and Cash
Equivalents Total with Cash and
Cash Equivalents
At At At At At At
November 30, 2020 November 30, 2019 November 30, 2020 November 30, 2019 November 30, 2020 November 30, 2019 November 30, 2020 November 30, 2019 November 30, 2020 November 30, 2019 November 30, 2020 November 30, 2019
Asset Managers $ 0.2 $ - $ - $ 1.7 $ - $ - $ 0.2 $ 1.7 $ 5,132.9 $ 4,584.1 $ 5,133.1 $ 4,585.8
Banks, Broker-dealers 250.7 250.7 558.6 526.7 178.8 206.8 988.1 984.2 1,979.0 983.8 2,967.1 1,968.0
Corporates 132.7 81.3 - - 183.9 154.4 316.6 235.7 - - 316.6 235.7
Other 104.3 73.7 214.9 195.5 14.3 4.1 333.5 273.3 - - 333.5 273.3
Total $ 487.9 $ 405.7 $ 773.5 $ 723.9 $ 377.0 $ 365.3 $ 1,638.4 $ 1,494.9 $ 7,111.9 $ 5,567.9 $ 8,750.3 $ 7,062.8
For additional information regarding credit exposure to over-the-counter derivative contracts, see Note 5 in the consolidated financial statements.
Country Risk Exposure
Country risk is the risk that events or developments that occur in the general environment of a country or countries due to economic, political, social, regulatory, legal or other factors, will affect the ability of obligors of the country to honor their obligations. We define the country of risk as the country of jurisdiction or domicile of the obligor, and monitors country risk resulting from both trading positions and counterparty exposure, which may not include the offsetting benefit of any financial instruments utilized to manage market risk.
The following tables reflect our top exposure to the sovereign governments, corporations and financial institutions in those non-U.S. countries in which we have a net long issuer and counterparty exposure, as reflected in the Consolidated Statements of Financial Condition at November 30, 2020 and 2019 (in millions):
November 30, 2020
Issuer Risk Counterparty Risk Issuer and Counterparty Risk
Fair Value of
Long Debt
Securities Fair Value of
Short Debt
Securities Net Derivative
Notional
Exposure Loans
and
Lending Securities
and Margin
Finance OTC
Derivatives Cash and
Cash Equivalents Excluding
Cash and Cash Equivalents Including
Cash and
Cash
Equivalents
Italy $ 1,929.5 $ (921.6) $ (618.9) $ - $ - $ 0.1 $ - $ 389.1 $ 389.1
United Kingdom 464.0 (235.8) (46.7) 0.1 67.4 5.2 64.8 254.2 319.0
France 357.3 (290.9) 48.3 - 140.8 24.3 - 279.8 279.8
Germany 470.7 (352.7) 40.2 - 63.1 11.3 26.7 232.6 259.3
Australia 32.7 (17.8) 173.9 - 24.9 - 12.8 213.7 226.5
Hong Kong 35.2 (11.8) 0.7 - 0.1 - 157.4 24.2 181.6
Canada 417.3 (326.8) 1.3 - 20.4 64.3 2.1 176.5 178.6
Austria 151.2 (73.6) - - - - - 77.6 77.6
India 50.9 (6.7) - - - - 24.3 44.2 68.5
Switzerland 104.0 (72.2) 2.9 - 31.6 1.3 0.4 67.6 68.0
Total $ 4,012.8 $ (2,309.9) $ (398.3) $ 0.1 $ 348.3 $ 106.5 $ 288.5 $ 1,759.5 $ 2,048.0
November 30, 2019
Issuer Risk Counterparty Risk Issuer and Counterparty Risk
Fair Value of
Long Debt
Securities Fair Value of
Short Debt
Securities Net Derivative
Notional
Exposure Loans
and
Lending Securities
and Margin
Finance OTC
Derivatives Cash and
Cash Equivalents Excluding
Cash and Cash Equivalents Including
Cash and
Cash Equivalents
Netherlands $ 946.0 $ (329.7) $ (100.1) $ - $ 42.6 $ 0.5 $ - $ 559.3 $ 559.3
United Kingdom 416.1 (199.9) (124.4) - 60.7 37.6 54.1 190.1 244.2
Italy 1,262.3 (1,192.4) 105.4 - - 0.4 - 175.7 175.7
France 423.4 (296.2) (93.1) - 94.2 40.9 - 169.2 169.2
Canada 380.4 (362.2) 7.4 - 0.3 81.2 1.9 107.1 109.0
Spain 249.2 (137.3) (25.7) - 3.3 - - 89.5 89.5
Japan 76.0 (171.6) 133.8 - 24.7 - 13.2 62.9 76.1
China 283.3 (236.9) 25.6 - - - - 72.0 72.0
Mexico 112.0 (68.3) 13.0 - - - - 56.7 56.7
Germany 238.2 (321.3) 19.3 - 88.3 14.4 13.6 38.9 52.5
Total $ 4,386.9 $ (3,315.8) $ (38.8) $ - $ 314.1 $ 175.0 $ 82.8 $ 1,521.4 $ 1,604.2
At November 30, 2020, we have no material exposure to countries where either sovereign or non-sovereign sectors pose potential default risk as the result of liquidity concerns.
Operational Risk
Operational risk refers to the risk of loss resulting from operations, including, but not limited to, improper or unauthorized execution and processing of transactions, deficiencies in our operating systems, business disruptions and inadequacies or breaches in internal control processes. Our businesses are highly dependent on our ability to process, on a daily basis, a large number of transactions across numerous and diverse markets in many currencies. In addition, the transactions we process have become increasingly complex. If our financial, accounting or other data processing systems do not operate properly or are disabled or if there are other shortcomings or failures in our internal processes, people or systems, we could suffer an impairment to our liquidity, financial loss, a disruption of our businesses, liability to clients, regulatory intervention or reputational damage.
These systems may fail to operate properly or become disabled as a result of events that are wholly or partially beyond our control, including a disruption of electrical or communications services or the inability to occupy one or more of our buildings. The inability of our systems to accommodate an increasing volume of transactions could also constrain our ability to expand our businesses.
We also face the risk of operational failure or termination of any of the clearing agents, exchanges, clearing houses or other financial intermediaries we use to facilitate our securities transactions. Any such failure or termination could adversely affect our ability to effect transactions and manage exposure to risk. In addition, despite the contingency plans we have in place, our ability to conduct business may be adversely impacted by a disruption in the infrastructure that supports our businesses and the communities in which they are located. This may include a disruption involving electrical, communications, transportation or other services used by us or third-parties with which we conduct business.
Our operations rely on the secure processing, storage and transmission of confidential and other information in our computer systems and networks. Although we take protective measures and endeavor to modify them as circumstances warrant, our computer systems, software and networks may be vulnerable to unauthorized access, computer viruses or other malicious code, and other events that could have a security impact. If one or more of such events occur, this potentially could jeopardize our or our clients' or counterparties' confidential and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our, our clients', our counterparties' or third-parties' operations. We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by us.
Our Operational Risk framework includes governance, collection of operational risk incidents, proactive operational risk management, and periodic review and analysis of business metrics to identify and recommend controls and process-related enhancements. Each revenue producing and support department is responsible for the management and reporting of operational risks and the implementation of the Operational Risk policy and processes within the department. Operational Risk policy, framework, infrastructure, methodology, processes, guidance and oversight of the operational risk processes are centralized and
consistent firm wide and also subject to regional operational risk governance.
Our leadership is continuously monitoring circumstances around COVID-19, as well as economic and capital market conditions, and providing frequent communications to both our clients and our employees. We have adopted enhanced cleaning practices across our offices, have restricted business travel, and have monitored the health and welfare of our employees and worked actively with many individuals diagnosed with COVID-19. We implemented our Business Continuity Planning plan and have largely moved to a remote working environment across all functions without any significant disruptions to our business or control processes. Additionally, we are working continuously with all of our critical vendors regarding their own pandemic responses to ensure there is minimal impact on our business operations.
Model Risk
Model risk refers to the risk of losses resulting from decisions that are based on the output of models, due to errors or weaknesses in the design and development, implementation, or improper use of models. We use quantitative models primarily to value certain financial assets and liabilities and to monitor and manage our risk. Model risk is a function of the model materiality, frequency of use, complexity and uncertainty around inputs and assumptions used in a given model. Robust model risk management is a core part of our risk management approach and is overseen through our risk governance structure and risk management controls.
Legal and Compliance Risk
Legal and compliance risk includes the risk of noncompliance with applicable legal and regulatory requirements. We are subject to extensive regulation in the different jurisdictions in which we conduct our business. We have various procedures addressing issues such as regulatory capital requirements, sales and trading practices, use of and safekeeping of customer funds, credit granting, collection activities, anti-money laundering and record keeping. These risks also reflect the potential impact that changes in local and international laws and tax statutes have on the economics and viability of current or future transactions. In an effort to mitigate these risks, we continuously review new and pending regulations and legislation and participate in various industry interest groups. We also maintain an anonymous hotline for employees or others to report suspected inappropriate actions by us or by our employees or agents.
New Business Risk
New business risk refers to the risks of entering into a new line of business or offering a new product. By entering a new line of
business or offering a new product, we may face risks that we are unaccustomed to dealing with and may increase the magnitude of the risks we currently face. The New Business Committee reviews proposals for new businesses and new products to determine if we are prepared to handle the additional or increased risks associated with entering into such activities.
Reputational Risk
We recognize that maintaining our reputation among clients, investors, regulators and the general public is an important aspect of minimizing legal and operational risks. Maintaining our reputation depends on a large number of factors, including the selection of our clients and the conduct of our business activities. We seek to maintain our reputation by screening potential clients and by conducting our business activities in accordance with high ethical standards. Our reputation and business activity can be affected by statements and actions of third-parties, even false or misleading statements by them. We actively monitor public comment concerning us and are vigilant in seeking to assure accurate information and perception prevails.
Other Risk
We are also subject to interest rate risk on our long-term fixed interest rate debt. Generally, the fair market value of debt securities with a fixed interest rate will increase as interest rates fall, and the fair market value will decrease as interest rates rise. The following table represents principal cash flows by expected maturity dates and the related weighted-average interest rate on those maturities for our consolidated long-term debt obligations. For the variable rate borrowings, the weighted-average interest rates are based on the rates in effect at the reporting date. Our market risk with respect to foreign currency exposure on our long-term debt is also shown below. For additional information, see Note 12 to our consolidated financial statements.
Expected Maturity Date
2021 2022 2023 2024 2025 Thereafter Total Fair Value
(Dollars in thousands)
Rate Sensitive Liabilities:
Fixed Interest Rate Borrowings $ 50,000 $ - $ 1,500,000 $ 142,000 $ 76,437 $ 4,439,067 $ 6,207,504 $ 7,168,270
Weighted-Average Interest Rate 1.40 % - % 5.13 % 0.25 % 1.08 % 4.84 %
Variable Interest Rate Borrowings $ 300,420 $ 65,051 $ 98,500 $ 3,000 $ 5,320 $ 275,555 $ 747,846 $ 760,023
Weighted-Average Interest Rate 1.95 % 1.92 % 3.40 % 1.72 % 1.79 % 7.23 %
Borrowings with Foreign Currency Exposure $ - $ 4,779 $ - $ 597,350 $ - $ 677,395 $ 1,279,524 $ 1,279,594
Weighted-Average Interest Rate - % 4.08 % - % 1.00 % - % 2.64 %

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data.
Financial Statements and supplementary data required by this Item 8 are set forth at the pages indicated in Item 15(a) below.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures.
Evaluation of disclosure controls and procedures
The Company's management evaluated, with the participation of the Company's principal executive and principal financial officers, the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of November 30, 2020. Based on their evaluation, the Company's principal executive and principal financial officers concluded that the Company's disclosure controls and procedures were effective as of November 30, 2020.
Changes in internal control over financial reporting
There has been no change in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the Company's fiscal quarter ended November 30, 2020, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
Management's Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) or 15d-15(f) promulgated under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
•Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of the assets of the Company;
•Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
•Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company's management assessed the effectiveness of the Company's internal control over financial reporting as of November 30, 2020. In making this assessment, the Company's management used the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013.
Based on our assessment and those criteria, management concluded that, as of November 30, 2020, the Company's internal control over financial reporting was effective.
The effectiveness of the Company's internal control over financial reporting as of November 30, 2020 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their attestation report, which appears herein in Item 8.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information.
None.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance.
Information with respect to this item will be contained in the Proxy Statement for the 2021 Annual Meeting of Shareholders, which is incorporated herein by reference.
We have a Code of Business Practices, which is applicable to all directors, officers and employees, and is available on our website. We intend to post amendments to or waivers from our Code of Business Practices on our website as required by applicable law.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation.
Information with respect to this item will be contained in the Proxy Statement for the 2021 Annual Meeting of Shareholders, which is incorporated herein by reference.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.
Information with respect to this item will be contained in the Proxy Statement for the 2021 Annual Meeting of Shareholders, which is incorporated herein by reference.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information with respect to this item will be contained in the Proxy Statement for the 2021 Annual Meeting of Shareholders, which is incorporated herein by reference.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accountant Fees and Services.
Information with respect to this item will be contained in the Proxy Statement for the 2021 Annual Meeting of Shareholders, which is incorporated herein by reference.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits and Financial Statement Schedules.
(a)(1) Financial Statements.
Reports of Independent Registered Public Accounting Firm
Financial Statements:
Consolidated Statements of Financial Condition at November 30, 2020 and 2019
Consolidated Statements of Operations for the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018
Consolidated Statements of Comprehensive Income (Loss) for the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018
Consolidated Statements of Cash Flows for the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018
Consolidated Statements of Changes in Equity for the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018
Notes to Consolidated Financial Statements
(2)Financial Statement Schedules.
Schedule I - Condensed Financial Information of Jefferies Financial Group Inc. (Parent Company Only) at November 30, 2020 and 2019 and for the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018.
(3)See Exhibit Index below for a complete list of Exhibits to this report.
(b) Exhibits.
All documents referenced below were filed pursuant to the Securities Exchange Act of 1934 by the Company, file number 1-5721, unless otherwise indicated.
(c) Financial Statement Schedules.
National Beef Packing Company, LLC financial statements as of December 28, 2019 and for the years ended December 28, 2019 and December 29, 2018