Jefferies Financial : Letters to Shareholders 2021

Jefferies begins our 60th year of business, and while a lot has changed, much has remained the same. In particular, the philosophy our firm was built on 60 years ago:

There is no limit	It's amazing how lucky	Clients First,
to what one can	one gets when you	Always.
achieve.	consistently out-hustle
	the competition.

January 12, 2022

Dear Fellow Shareholders,

What a year! Once again, Jefferies delivered record results in Investment Banking and Capital Markets and Asset Management. Our performance and momentum are the direct result of the persistent hard work and dedication of our 4,508 Jefferies Group employee-partners around the globe, decades of investment to create strong breadth and depth of capabilities across our integrated Investment Banking and Capital Markets platforms, our unique partnership culture and a complex yet supportive operating environment. We have never wavered in prioritizing the needs and interests of our clients.

These factors have driven Jefferies to an important position of scale within our industry, and a meaningful and sustainable step change in our market position and brand. We believe our momentum is excellent and, while there will be inevitable bumps in the road, our growth prospects are terrific.

We achieved these results despite a two-year backdrop of a global pandemic, geopolitical turbulence, a fractious society, violence in too many quarters, and more environmental and natural disasters than ever. We believe that one of our obligations at Jefferies is to support our clients, employees and the world at large in responding to and rising above and beyond all these challenges and travails. We strive to do this every minute of every day by standing firm in our views, affirmatively leading Jefferies to reflect and represent the world in which we live, and contributing time and money from our firm and from our own pockets to make a difference in people's lives and our collective well-being into the future. In 2021, Jefferies made more than $16 million in charitable donations to nearly 400 different worthy causes identified by us, by our employee-partners and by our clients. There is much more to do and we will strive to lead by example, with the overriding goal to assure that everyone who touches Jefferies is respected, treated honestly and fairly, and is exceptionally proud to be associated with our firm.

2021 BOTTOM LINE

$1.7 billion

Net Income

118%

Up from the prior year

$6.13

Per diluted share

24.5%

Return on Adjusted

Tangible Equity

Celebrating 60 years of putting our clients first, always.

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SCALE AND MOMENTUM

$7.1 billion

Record combined net revenues for Investment Banking and Capital Markets and

Asset Management

OUR ENHANCED MARKET POSITION

Our competitors are primarily big commercial bank holding companies with trillion-dollar balance sheets. They often lead with their balance sheets and regularly leverage their lending capacity to drive their market positions in the businesses in which they compete with us. Jefferies competes first and foremost based upon our ability to deliver distinct industry, market and strategic insights that help our clients achieve their most important goals. Our culture prioritizes clients and fosters teamwork and collaboration that make available our entire firmwide resources for the benefit of our clients. This is

3rd Best Overall Combined Research and Sales in Asia; 1st Best International Brokerage in both Japan and India

3rd in U.S. for positive momentum with Clients in U.S. Core Credit

1st in Global Convertible

Sales and Trading Quality;

1st Overall Internationally

and Top 3 in the U.S.

5th in overall market share and 1st in overall service quality in U.S. Emerging Markets

CAPITAL RETURNED

$490 million

in capital returned to shareholders

INCLUDING

37%

Increase from the prior year

$4.4 billion

further enhanced by our continuity of team, a long-term mentality when it comes to the advice we deliver, and an extreme sense of urgency and focus. We are different, and our clients are telling us through the business they entrust to us that they greatly value our partnership. This confidence and partnership inspire us every day to do ever better and more. We believe our "special sauce" will allow us to continue our strong historical growth and further enhance our market position in the future.

Some highlights of our progress in 2021 include:

THE ENGINE DRIVING OUR MOMENTUM

Our results and momentum derive from our incredible and increasingly global team of employee-partners. Jefferies' strategy is based substantially on human capital, with the right amount of supporting financial capital commensurate with market need and opportunity. We are committed to recruiting and growing great talent at all levels. We are thrilled that we enter fiscal 2022 with 278

$267 million

in share repurchases

(8.5 million shares at an average of $31.25 per share)

19%

Record Investment Banking net revenues

84%

Up from the prior year

INCLUDING

$1.9 billion

We rank 8th globally and 7th in the U.S. across all Investment Banking products

7th globally in Equity Underwriting - our revenue increased 73% over the prior year;

6th in EMEA and 7th in the U.S. in Equity Underwriting

6th globally in M&A;

5th in the U.S. for M&A and

3rd in U.S. for sponsor- backed M&A

1st in U.S. in LBO loans

Managing Directors in Investment Banking, a 24% increase from one year prior. This increase was driven equally by internal promotion of talented people we nurtured and trained, and external recruiting of experienced professionals who chose to join Jefferies. Our overall Jefferies Group headcount grew by 15% in 2021, enabling us to keep up with the demands from our clients and to support further growth. We have been investing for many years now in enhanced efforts to train, support, develop and grow our human capital, and we see further opportunity in this regard ahead.

Key to continuing to capitalize on our opportunity are our efforts to make Jefferies a more diverse environment that thrives on the differences among our employee-partners. We and our Board have

Increase in tangible book value, from $27.38 (beginning of fiscal 2021) to $32.45 (November 30, 2021), on a fully diluted per share basis, even after the return of $490 million shareholders in 2021

$3.9 billion

Record Mergers, Acquisitions and Other Advisory net revenues, and

$1.6 billion

Record Equity Underwriting net revenue

Largest Mid and Small-Cap research breadth globally, ranking 1st in stocks covered and 5th overall across all market caps

8th globally in Equities Cash Trading

Global Research ranked 8th or better in each of Americas, Europe and Asia Pacific

4th in the U.S. in Equity Electronic Trading

a shared goal: To use the same tenacity and resources that has enabled our growth over the years to also drive our diversity efforts.

Jefferies' strategy is based substantially on human capital, with the right amount of supporting financial capital commensurate with market opportunity.

in total capital returned to shareholders in the last four years including 127 million shares repurchased at an average of $21.55 per share (representing

51% of total tangible book value at 1/1/18)

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...our most impactful programs were initiated by our employee-partners who created our eight employee resource groups that promote, support and advance the interests of our women, members of our LGBTQ+ community, employees of Asian heritage, Black employees, Latino/as, next generation, neurodiverse team members and our employee-partners who served in the

Jefferies has a flat structure and an entrepreneurial culture that empowers our employee-partners to find innovative new ways to serve our clients, protect our foundation and improve our firm.

Those same resourceful employee-partners, urged on by our Board and our own belief in the power of diversity, are leading the way in broadening and strengthening our firm. So even as we personally have prioritized the development of extensive recruiting, training, measurement and reporting for Diversity, Equity and Inclusion, our most impactful programs were initiated by our employee-partners who created our eight employee resource groups that promote, support and advance the interests of our women, members of our LGBTQ+ community, employees of Asian heritage, Black employees, Latinos/as, next generation, neurodiverse team members and our employee-partners who served in the armed forces. We are far from declaring victory in this important area as there is much more work to do, but it is this entrepreneurial attitude and employee-driven mindset that gives us the greatest comfort about the future and what Jefferies will look like long-term.

2021 IN PERSPECTIVE

(OR IT'S GREAT TO BE IN YOUR 60TH YEAR!)

2022 marks Jefferies Group's 60th anniversary. Jefferies Group began in 1962 with $30,000 in capital and a narrow focus as an institutional equities trading firm. Rich joined Jefferies Group in 1990 and was

JEFFERIES GROUP REVENUES AND EARNINGS SINCE 2000 AND HISTORICAL PERSPECTIVE

Net Revenues & Net Earnings							Predecessor		Successor
($ millions)
$8,000	Revenues	Other							.3%				.5%
	Capital Markets									17	$7,044
		Asset Management										Earnings
										Net
									12	/
	Net	Investment Banking
$6,000								.4%
						Net	19					$5,197
						Earnings
					2000):
								Net
				(Since		/
				4%
				CAGR		.
					13
$4,000					Revenue
				Net									$3,113
				1990):
											$2,395
			(Since					$2,177
			CAGR
$2,000					$1,205
			$617
$0	1990	1995	2000		2005				2010			2015			2019 2020 2021

($ millions)	1990	1995	2000	2005	2010	2015	2020	2021
Net Earnings	$7	$29	$55	$157	$240	$183	$879	$1,619

(Thank you clients and employee-partners for our amazing growth)

armed forces.

selected to be CEO in 2000. Brian joined in 2001. For the past 20+ years, we have been working with our partners to transform Jefferies Group into a durable and growing, integrated and global full-service Investment Banking and Capital Markets firm. We married our extreme sense of urgency in serving our clients and leading our team, with great patience and perseverance born of a belief in the long-term opportunity available to Jefferies.

We are proud of our progress:

$ millions		2000	2021	Growth	CAGR
Investment Banking Net	$	91	$ 4,423	47.7x	20.3%
Revenues
Jefferies Group Net	$	617	$ 7,044	10.4x	12.3%
Revenues
Net Earnings attributable	$	55	$ 1,619	28.4x	17.5%
to Jefferies Group
Jefferies Group Period-End		1,014	4,508	3.4x	7.4%
Number of Employees

OUR STRATEGY IS CLEAR:

Continue to Grow Our Business Through Relentless Client Focus, Continued Investment in Our People and Firm, and Return Excess Capital to Shareholders

We believe Jefferies' future growth will be fueled by the continued buildout of our Investment Banking effort, enhancing our Capital Markets businesses, and further developing our Leucadia Asset Management alternative asset management platform. As in the past, we will continue to invest aggressively and prudently in our core businesses. We will continue winding down our legacy Merchant Banking portfolio prudently and patiently, and are confident that, as we have proven in the past, there is value to be realized in excess of tangible book value. We have a sense of urgency to accomplish this, but we will continue to do our best to be smart about it.

Under this strategy, financial capital is not a defining pillar of our platform, but rather a supporting element we judiciously deploy and protect. We expect that our free cash flow will continue to exceed our internal need for further capital. Our business has meaningful operating leverage as demonstrated in 2021 when Jefferies Group's net revenues were up

126% compared to 2019, while resulting net earnings increased 565%.

126%

Increase of Jefferies Group's net revenues compared to 2019

565%

Increase of Jefferies Group's net earnings compared to 2019

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Quarterly dividend now

$0.30

Per share

140%

Increase from two years ago

Moreover, we have leveraged the financial and human resources supporting our growth through several key partnerships: with MassMutual in Jefferies Finance; with Berkshire Hathaway in Berkadia, and most recently, with our Strategic Alliance with Sumitomo Mitsui Financial Group ("SMFG").

In light of our performance and prospects, as well as our limited need for incremental equity capital, our Board of Directors has increased our quarterly dividend to $0.30 per share, a 140% increase from two years ago. We will continue also to return capital to shareholders via share buybacks, as well as, if financial conditions and circumstances permit, in-kind distributions or special cash dividends as we continue to wind down the legacy merchant banking portfolio.

...the competitive landscape continues to evolve in ways that favor our exceptional market position

OUR OPPORTUNITY IS LARGE

We are fortunate and grateful that our clients value our insights and passion, and increasingly turn to Jefferies with more of their business. As the previous table shows, our Investment Banking business has grown exponentially since 2000, when our market share was about 0.1%. In 2021, our $4.4 billion in Investment Banking net revenues still represents only about 4% of a market estimated to be in excess of $100 billion for Advisory, Equity Underwriting and Leverage Finance services.

We are confident we can further grow our market position, as there are many sub-sectors and regions where we can expand our presence, and adjacent services that we can provide to our existing client base. At the same time, the competitive landscape continues to evolve in ways that favor our exceptional market position, as well as our culture of patience, persistence, focus, partnership, merit, common sense and decency. The bottom line is that we have plenty of opportunity ahead, Jefferies has the potential to be much larger, and the thought of building further excites and motivates every one of us at Jefferies.

INVESTMENT BANKING

Investment Banking delivered record revenue in 2021, up 84% from 2020, compared to the overall market being up 58%. In 2021, we announced or completed 102 M&A transactions greater than $1 billion in size, and our average transaction size increased 27% to $1.21 billion.

In addition to our 29 recently promoted Managing Directors, in the last twelve months, we hired 34 Managing Directors and made substantial progress with key initiatives:

• We significantly expanded our existing effort focused on financial institutions, hiring 11 Managing Directors, primarily covering insurance/re-insurance,depositories and wealth/asset management;
• We built out our Equity Underwriting business with dedicated coverage of sponsors, additional specialists in TMT and Energy, and the initiation of a Strategic Equity Transactions group;
• We established a Private Capital Advisory effort, with seven Managing Directors focused on both LP and GP opportunities; and
• We also expanded outside the U.S. with senior hires in France, Spain, Central and Eastern Europe, Australia and Hong Kong.

Looking ahead, we expect our Investment Banking results and market share to continue to benefit from our constantly expanded industry sector and global footprint as well as our momentum in growing with our clients which results in as many more and usually larger assignments.

JEFFERIES FINANCE

Jefferies Finance ("JFIN"), our lending joint venture with MassMutual, posted record adjusted pre-tax income of $271 million in 2021, a 32% increase compared to a previous benchmark set in 2018. The business benefitted from the very active private equity-backed M&A environment, which led to record-setting underwriting volumes and corresponding fees. We expect these trends to continue into 2022 as the demand for floating rate leveraged loan paper remains very strong. Our Strategic Alliance with SMFG should enable Jefferies and JFIN to complete more and larger transactions.

A substantial opportunity exists for JFIN in 2022 to grow its direct lending and CLO management operations. JFIN will continue to transform its direct lending business model to a third-party fund management structure, offering investors customized solutions and access to flow from our Investment Banking clients. JFIN has made good progress in this effort and manages several third-party vehicles, with the expected first close of our second co-mingled fund in early 2022. To broaden our reach with investors, JFIN has hired a team

of marketers to raise additional third-party capital, complementing its close working relationship with the Leucadia Asset Management marketing team.

Looking ahead, we expect our Investment Banking results and market share to continue to benefit from our constantly expanded industry sector and global footprint as well as our momentum in growing with our clients which results in as many more and usually larger assignments.

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The momentum of our Equities franchise continued in 2021, with record results for the third consecutive year. Net revenues of $1.3 billion reflected a significant increase over the prior year. Since 2016, this business has more than doubled, with a 17% CAGR and meaningful growth across each region and product.

BERKADIA

Berkadia, our commercial real estate finance and investment sales 50/50 joint venture with Berkshire Hathaway, generated $292 million of pre-tax income and $238 million of cash earnings for the year ended November 30, 2021. Significant increases in debt and investment sales volume contributed to these strong results. Total debt originations were $38.0 billion, up 46% from the prior year. Debt origination volumes with Freddie Mac, Fannie Mae and HUD were $22.0 billion, up 6% from the prior year. Third-party funded originations were $15.2 billion, up 198% from the prior year. Investment sales volumes were $21.3 billion, up 199% from the prior year. Debt origination and additional third-party loan servicing arrangements increased our loan servicing portfolio to $326.4 billion by year-end, yet another record. Berkadia continued to invest in and develop

its mortgage banking and investment sales networks. Its growing servicing portfolio and improved sales network combine to position Berkadia for continued success in 2022 and beyond.

SMFG STRATEGIC ALLIANCE

In July 2021, we entered a Strategic Alliance with SMFG to collaborate on future corporate and investment banking business opportunities. These initiatives are expected to strengthen the existing businesses of both firms and enhance each firm's ability to support its clients' needs. Jefferies and SMFG will, among other things:

• Coordinate efforts in the U.S. leveraged finance business to expand and scale existing offerings (we have already collaborated and closed several deals together);
• Create a global strategic framework to seek cross-border M&A opportunities involving Japanese companies; and
• Jointly pursue investment banking, capital markets and financing opportunities by leveraging both companies' respective strengths, initially in the U.S. healthcare sector.

SMFG also is providing financing to expand JFIN's and Jefferies' leveraged finance origination and underwriting efforts, in the form of a $1.65 billion revolving credit facility and a $250 million subordinated loan to JFIN. Separately, SMFG is providing a $350 million unsecured revolving credit facility to Jefferies Group.

To further solidify our relationship, SMFG has acquired in the open market over 4% of Jefferies shares, reflecting an approximately $400 million equity investment.

We view the Strategic Alliance as the beginning of a long-term relationship with SMFG and look forward to many years of partnering on many aspects of our respective businesses.

EQUITIES

The momentum of our Equities franchise continued in 2021, with record results for the third consecutive year. Net revenues of $1.3 billion reflected a significant increase over the prior year. Since 2016, this business has more than doubled, with a 17% CAGR and meaningful growth across each region and product. Our success in 2021 was driven by strong client activity and trading performance, with record results in our Global Cash, Electronic Trading, Derivative and Securities Finance businesses.

We have successfully executed on our multi-year globalization strategy, with approximately 40% of our net revenue now derived from our international franchises in Europe and across the Asia Pacific region. We are increasing our Equities market share through intense client focus, unique advisory, differentiated distribution, cutting-edge execution solutions and the knock-on effect of the momentum across the overall Jefferies platform. We continue to see opportunities for significant growth across all regions and products and are expanding our footprint into the Middle East and North Africa in early 2022.

Our Research effort continued to develop in both breadth and quality, with stronger results across all major market surveys. We published more than 37,000 research reports in 2021, which is a 70% increase over our publishing pace in 2016. Finally,

we are very pleased with our recently established robust ESG research offering. Within a complex and highly relevant space, our ESG thought leadership is differentiated and meaningfully supports our investor and corporate client base.

We are increasing our Equities market share through intense client focus, unique advisory, differentiated distribution, cutting-edge execution solutions and the knock-on effect of the momentum across the overall Jefferies platform.

$1.3 billion

Equities net revenues in 2021

~40%

of our Equities net revenue now derived from our international franchises in Europe and across

the Asia Pacific region

37,000+

Research reports published in 2021

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