March 25 (Reuters) - Jefferies' profit jumped 22% in the first quarter, as resilient dealmaking and robust underwriting boosted investment banking, it said on Wednesday.

The investment bank also said it had $17 million in losses related to collapsed British lender Market Financial Solutions and bankrupt U.S. auto-parts supplier First Brands after adjusting for compensation and taxes, with exposure to First Brands now amounting to zero.

Wall Street executives are betting on a strong 2026 for mergers and acquisitions despite disruption from the ongoing conflict in the Middle East, as investments in artificial intelligence and a friendlier regulatory environment in the U.S. are expected to spur dealmaking.

More than $1 trillion worth of deals has been announced so far this year, 27% more than this time last year, according to data compiled by Dealogic.

Jefferies' investment banking net revenues in the quarter rose 45% to $1.02 billion from a year earlier, while total revenues climbed to $2.02 billion.

The firm, which served as a lead underwriter on several sizable initial public offerings in the first quarter, including those of York Space and Forgent, increased its share buyback authorization to $250 million.

The results kick off a closely watched earnings season for Wall Street's biggest banks, with the likes of JPMorgan Chase, Goldman Sachs and Morgan Stanley set to report over the next few weeks.

BUYOUT TALKS

Jefferies was in the spotlight on Tuesday after the Financial Times reported that Japan's Sumitomo Mitsui Financial Group was planning a potential takeover of the investment bank.

Other media reports rebuffed the news, saying Japan's second-largest lender was not engaged in acquisition talks and that the Wall Street investment bank was not interested in selling at this point.

SMFG, which already has a board seat at Jefferies, first picked up a stake in the company in 2021. In September, SMFG said it would invest a further 135 billion yen ($912.84 million), which will increase its stake to up to 20% from 14.5%.

The firms said at the time they would set up a joint venture in Japan to consolidate their wholesale Japanese equities businesses.

INVESTOR SCRUTINY

Jefferies has been under intense investor scrutiny over its exposure to Market Financial Solutions and losses related to First Brands. Its shares are down about 35% this year.

"Management is disappointed and takes full responsibility for the losses already recognized and that may be absorbed over time in respect of First Brands, all of which are manageable," the company said in a statement on Wednesday.

Jefferies reported a net income of about $156 million, or 70 cents per share, compared with $128 million, or 57 cents per share, a year ago.