Stifel Financial Corporation (SF)

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Stifel Financial Corp. (SF)

Stifel Financial at Bank of America Merrill Lynch Banking and Financial Services Conference Call

November 13, 2012 3:25 pm ET


Ron Kruszewski – Chairman, President and Chief Executive Officer


Unidentified Analyst

We are going to get started here with the next presentation. It is my pleasure to introduce Stifel Financial’s Chairman and CEO, Ron Kruszewski.

Stifel is a full-service regional brokerage and investment banking firm that provides services to both individual investors and institutions. Ron and his team have grown the firm significantly over the past decade and continue to build a premier middle market investment bank given its global organic and inorganic growth including the recent KBW transaction at a time when the industry has seen reduction in growth.

I’ll now turn it over to Ron to find out where he sees Stifel and the industry heading in the years ahead, after which we will have some time for Q&A. Ron?

Ron Kruszewski

Thank you and good afternoon. Forward-looking statements, let me get started. First of all, I’m excited to talk about our pending merger with KBW. I will talk a little bit about that. I’ll give you a brief overview of our quarter which seemed to have got lost in the shuffle of the announcement of this deal and then I’ll be glad to sit down and take some questions.

First of all, our stated goal was to build the premier middle market investment bank. We have been accomplishing this through both organic growth and acquisitions. We believe we are well positioned to take advantage of opportunities due primarily to the fact that we are unburdened by capital constraints. We have a low leverage business model primarily an agency based model, conservative risk management. We’ve build the company through nine acquisitions since 2005, but we prudently evaluate all opportunities. We passed some certain opportunities that we felt we couldn’t integrate.

We capitalize on the headwinds and the turmoil that has the impact to our industry. On the organic side, we are growing through the addition of high quality talent and we’ve driven revenue synergies by leveraging our global wealth and our institutional business depending on the transaction that we’ve been doing.

The next slide is how we look at the market and our place in the market. So I view that Bulge Bracket, the large firm have to deal with two cost current issues. First is that they need to deleverage from whatever it was 35 to 1 to 12 to 15 to 1 while at the same time raising common equity. And doing that against the backdrop with the ROEs were 18%. So when you deleverage and have to raise common equity, the end result maybe it’s difficult to earn your cost of capital. Therefore, in financial services, I think you need to shrink and I think that’s what you are singling on in the industry.

On the other end of the equation, you have the bouquet firm where regulation and lack of scale coupled with the fact that most boutique firms are institutionally focused firms today with the backdrop of very difficult volumes in the equity business makes it very difficult for them to also earn acceptable returns. We believe we are in the middle. This would be I believe will be our 17th consecutive year of record revenue. We’ve not had a year where we’ve ended with lots of people than we began the year and we believe that we have the right size and scale, stability, capital, distribution to be able to grow into a market that is facing a lot of turmoil. And that’s the position that we see ourselves and the position that I’m pleased to be in.

Throughout the year primarily since 2005, we have been a growth company as evidenced by these slides, net revenues we've grown 26% per year again 17 straight years of record revenue. I believe we might be going from a street that can say that we've grown core net income 23%, we’re very well capitalized with over a $1.45 billion of equity. We managed today nearly a $140 billion in our global wealth management business. We deliver that through over 2,000 advisors and 300 offices, and we've grown book value per share 22% per year.

On the acquisition side, we've had a lot of questions over the years about our acquisition strategy, but I can tell you that up until this last one, and I believe the fast one past will be prolog, but each merger has been accretive to Stifel and retention in each one of these deals is very high. Going back to 2005, Legg Mason Capital Markets, the Ryan Beck in 2006, we acquired a bank that was very small today, it’s a $3.5 billion very high quality, asset quality, very few problems in fact virtually no problem assets in our bank today.

We acquired Butler Wick in that same timeframe, 56 branches from UBS back in 2009. And then the last three transactions have been institutionally focused or at least sell to niche. When we looked at back in 2009, when we looked at our business model we had a very significant research platform and a very significant Global Wealth Management business that’s we are under size in the investment bank. When we look at investment banking, we thought we had the investment technology that lead to the Thomas Weisel transaction which has done a very good transaction, growth focused and technology, consumer healthcare and energy in Canada. We've achieved all the cost efficiencies, everyone is still with us and it's been a very good transaction.

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