Embattled midsize investment bank Jefferies (JEF) revealed on Tuesday a narrower-than-expected 23% drop-off in fiscal fourth-quarter profits as well as a stronger, less debt-laden balance sheet.

In the wake of the collapse of MF Global this fall, Wall Street has set its sights on Jefferies and its exposure to the risky sovereign debt of eurozone nations such as Italy. Led by CEO Richard Handler, New York-based Jefferies has fought back aggressively against rumors and negative analyst reports that have hammered its stock, which has plunged 55% so far this year. 

Buoyed by the better-than-expected results and efforts to strengthen its balance sheet, shares of Jefferies rallied more than 5% out of the gate on Tuesday.

Jefferies said it earned $48.4 million, or 21 cents a share, last quarter, compared with a profit of $63.7 million, or 31 cents a share, a year earlier. Excluding one-time items, it earned 17 cents a share, beating the Street’s view of 14 cents.

Revenue shrank 16% to $556.5 million, compared with estimates for $562 million. Investment-banking revenue fell to $261.3 million.

Bowing to intense market pressure, Jefferies said it reduced its total balance sheet and lowered its leverage, which can exaggerate both gains and losses.

“We are proud of our 3,851 employee-partners who successfully navigated an extremely challenging fourth quarter that included continuing global volatility compounded by a November filled with a barrage of misinformation about Jefferies,” Handler said in a statement. “Our firm responded by reducing our total balance sheet by nearly one quarter, decreasing our leverage to 9.9x from 12.9x, maintaining the already high-quality of our inventory, and delivering solid profitability.”

The moves come months after credit-ratings company Egan-Jones spooked shareholders by downgrading Jefferies’ credit rating due to concerns about its leverage.

During a conference call with analysts, Jefferies said it now has a $123 million net short position in European debt. The company said its debt positions fluctuate, turning over two to three times a week.

In a sign of the difficult trading environment, Jefferies said profits at its fixed income, currency and commodities division plunged almost 40% to $140.7 million. The markets are bracing for steep declines from larger investment banks like Goldman Sachs (GS) and Morgan Stanley (MS) next month.

Shares of Jefferies leaped 5.93% to $12.50 Tuesday morning.

Follow Matt Egan on Twitter @MattMEgan5