Moody's Investors Service changed its outlook Tuesday for Jefferies Group Inc. to "negative."

The ratings agency cited concerns over the limited earnings mix at the Los Angeles investment bank and the likelihood that earnings could fall as the securities market cools.

Moody's said Jefferies' investment banking revenues could suffer during adverse market conditions. "Its equity and high-yield underwriting activities, strategically focused on small to midsize companies in a select few industries, are particularly vulnerable to erosion due to stiff competition and Jefferies' moderate scope and limited client base," Moody's said.

Jefferies reported $178.8 million in revenues for the second quarter, 4% less than a year earlier. Revenues from commissions rose 27%, to $91 million, but corporate finance revenues fell 37%, to $41.7 million. Equity capital totals $286 million.

The company plans to spin off its Investment Technology Group Inc. subsidiary after gaining federal approval. The group has been "a substantial and growing source of stable earnings for Jefferies," Moody's said.

A Jefferies spokesman said, "We've been in business for 30 years, and we know how to ride the ups and downs of markets."

Moody's said Jefferies' financial fundamentals remain "satisfactory" and its capacity to service debt is unimpaired.

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