Stifel Financial Corp (SF) 2007 Q3 法說會逐字稿

Good morning. My name is Heather. I'll be your conference operator today. At this time I'd like to welcome everyone to the Stifel Financial third quarter conference call. (OPERATOR INSTRUCTIONS)

Now at this time I'd like to turn the call to Jim Zemlyak, Chief Financial Officer. You may begin your call.

Thank you, Heather. Good morning everyone. This is Jim Zemlyak, CFO, Stifel Financial Corp. I would like to welcome everyone to our conference call today to discuss the third quarter results of our 2007 fiscal year. Please note that this conference call is being recorded. If you'd like a copy of today's presentation, you may download slides from www.stifel.com.

Before we begin today's call, I'd like to remind listeners that this presentation may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not statements of fact or guarantees of performance, they are subject to risks, uncertainties and other factors that may cause actual future results to differ materially from those discussed in the statements. Supplement our financial statements presented in accordance with GAAP, we have certain non-GAAP measures of financial performance and liquidity, these non-GAAP measures should be only considered together with the company's GAAP results. Finally for a discussion of risks and uncertainties in our business, please see the business factors affecting the company and financial services industry and the company's annual report on form 10K and MDNA results on the company's quarterly reports on 10Q With that I'd like to turn it to the Chairman, CEO and President of Stifel Financial, Mr. Ron Kruszewski.

Thank you, Jim. Good morning to everyone. First of all for those of you, as is our custom, we have slides that accompany this presentation and you can either stay on the Thomson network or you can download from our website at stifel.com. With that, I would like to talk about our highlights for the quarter. As we all know, it was a turbulent quarter, but that said, Stifel Financial annualized return on equity was approximately 14% with pre-tax margins of approximately 13%., 12.7 to be exact. I'll comment a little on those later. But, all in all, all things considered, a very good quarter. Three factors impacted the quarter, besides obviously the markets. First was that there was a soft quarter for us in investment banking. Although investment banking was up 57% from Q3, of 2006, it declined 52% from Q2 , 2007, or on a sequential basis. And I'd like to remember everyone that we had a large investment banking transaction of the people's stock conversion which generated approximately $24 million in investment banking revenue in Q2 of this year. In addition, we had some trading losses while not significant, they did somewhat impact our margins. It was approximately 1.5 million in July in fixed income, not anything more for us than just a widening of credit spreads on inventory that we held for sale. But, it did impact the quarter somewhat.

And then finally, increased operating expenses relating to our continuing integration of Ryan Beck. While that integration is going very well, in fact, during the quarter, we completed the last of the branch conversions. We've done that in five waves and all of the Ryan Beck branches are on Stifel's operating systems today. And, that has gone quite well. As I've said, back when we did the deal the full integration process of Ryan Beck could well take a year. And that is true, so that our margins are impacted by increased operating expenses as we work through the integration of Ryan Beck. With that, Jim, why don;t you just go through the numbers quickly. We'll switch--we'll move on to page three of our

Thanks Ron. Today we reported on audited quarterly net income of 8.1 million or $.45 per diluted share on revenue of 190.8 million or net revenue of 183 million for the quarter ended September 30, '07. With the comparable quarter of '06, net income was 5.4 million or $.39 per share on net revenue of 115.2 million. After adjusting for acquisition related charges, principally stock-based awards offered to key associates of Legg Mason, Capital Market Division, non-GAAP net income and non-GAAP earnings per share , our core earnings were 14.3 million and $.80 per share for the third quarter of '07, compared to 2006 third quarter core earnings of 9.6 million in core earnings per share of $.69 per diluted share. For the nine months ended September 30, '07, we posted net income of 18.3 million or $1.09 per diluted share on revenue of 574 million compared with 8.2 million or $.59 per diluted share on 336.2 million for the same period a year ago. After adjusting for acquisition-laid charges, principally compensation expense for accelerated deferred comp for the Ryan Beck acquisitions deferred compensation plans and stock-based awards offered to key associates of Legg Mason Capital Markets, non-GAAP net income and non-GAAP earnings per share are core earnings for the nine months ended September 30th, were 46.3 million or $2.75 respectively compared to $27.7 million or a $1.99 per diluted share for the nine months ended September 30th '06.

Again as Ron noted, while net revenue increased 67%, from Q3, '06, they have decreased 13% sequentially from Q2. The next slide highlights our segment comparisons of note. All three major segments achieved record revenues on a nine month basis. Private Clients up 89%. ECM up 69% and Fixed Income Capital Markets up 14%. Now into the Private Client Group slide, Private Client Group comparisons are impacted by the Ryan Beck-- favorably by the Ryan Beck acquisition which closed in Q1 of '07. Private Client Group net revenue for the third quarter of '07 was $112.6 million an increase from 100% of the third quarter of '06, principally due to increased commission, and principle transactions, sales credits from investment banking and increased asset management service fees.

Sales credits from investment banking increased due to increased underwriting activity, principally corporate finance. Asset management and service fees increased as there was a 32% increase in the number of managed accounts and a 41% increase in assets under management in those accounts. Private Client Groups operating contribution increased to $23.4 million, 84% over the third quarter of '06 as a result of the 100% increase in net revenue and the leverage and increased production.

Our operating margins came in 28.8 for the quarter down from 22% for the previous quarter and the previous year as we are completing the integration of Ryan Beck, as Ron previously noted. Private Client net revenue for the first nine months of '07 was $316.5 million an increase of 89% for the first nine months of '06, principally due to increased commissions and principle transactions, sales credits from Investment Banking and increased asset management service fees. Sales credits from Investment Banking increased due to increased underwriting activity, principally corporate finance. The Private Client and operating contributions increased to 67.9 million, 84% over the he comparable '06 period as a result of the 89% increase in net revenue and leverage and increased production.

The next slide will go over the Equity Capital Markets division which reported net revenue of $47.7 million in the third quarter '07. An increase of 30% from the same quarter last year. Principally due to increased commissions and principle transactions and increase in Investment Banking revenue. Investment Banking revenue increased principally due to financial advisory fees of $10.1 million a 12% increase over the last year and equity financing revenue of 6.5%, of 30% compared to the third quarter of '06. Non-interest expense increased 37% to $39.2 million in the third quarter '07 compared to $28.6 million in the third quarter of '06, principally due to a 35% increase in employee 'compensation and benefits to $28.2 million compared to $20.9 million in the third quarter of '06.

The increase in employee comp and benefits primarily due in increase in variable comp associated with the increased revenue. As a percentage of net revenue, employee comp and benefits was 59.2% and 57% for the third quarter of '07 and '06 respectively. Increases in all non-comp expense categories we attributed to the increase in revenue. ECM operating contribution increased 5% to $8.5 million in the third quarter of '07, compared to 8.1 in the prior year period as a result of 30% increase in net revenue and the leverage in the increased production. On our next slide, Ron will make some

I think the next slide is somewhat instructive of what happened in Equity Capital Markets. First of all, I will point out that the margins declined in the quarter to approximately 18% down from 22% a year ago. The next slide we can talk about the components of our Equity Capital Markets. First of all, something that we're very pleased with is the increase in our flow business. Many people have been reporting declines in the flow business. That being simply the commissions and principle transactions that, that we do on a day-to-day basis. As you can see, our flow business increased 41% over the comparable quarter a year ago. It's up 28% for the year and it's up 5% sequentially.

So that certainly was a positive impact in the quarter but on the banking side our investment banking capital raising was up 24% and advisory fees up 12% so investment banking quarter-over-quarter was up significantly. But. as we've said in previous calls, we have been ramping that business up nicely. The summer-- certainly the capital raising slowed down in the summer and that's further exasperated, if you will, by the large transaction we did in Q2. So those sequential declines look significant, but if you take out the one large transaction, I would still say it was a soft quarter in Investment Banking and frankly not unexpected considering what happened during the summer. Jim, why don't you do fixed income, quickly.

Fixed income capital markets net revenue for the third quarter increased 15% to $16 million from $13.8 million during the same time period last year. Principally due to increases in investment banking revenue. Investment Banking revenue increased 57% due to increased advisory fees. Non-interest expense increased to $3.1 million or 29% to 13.8 million primarily due to a 27% increase in employee comp and benefit which increased as a result of increased transition pay for additional fixed income salesman and increased occupancy and equipment due to office expansion. As a result of increased non-interest expenses, fixed income capital markets, operating contributions decreased $1 million from the previous year.

For the nine months fixed income capital markets, net revenues increased 14% to $41.1 million from $35.9 million during the same period last year. Principally due to an increase in commissions and principle transactions and Investment Banking revenue. Investment Banking revenue increased principally due to increased underwriting activity for the nine months. Non-interest expense increased 7.6 million or 25% to $37.7 million primarily due to the 27% increase in employee comp and benefits which increased as a result of increased transition pay for institutional fixed income salesman, increased occupancy and equipment rental due to office expansion. Operating contributions decreased 42% to $3.4 million from $5.9 million in the first nine months of '06. Principally as a result of inventory losses that Ron discussed and increased non-interest expenses.

That's for the nine months. Those interest losses primarily occurred in Q2. Other than the little bit that we took in in July. The good news in fixed income capital markets is that we basically broke even. A slight loss in Q2. While we achieved profitability of $2.1 million, the margins still were relatively weak,if you will, at 13%, but our fixed income capital markets group, all things considered, especially what went on again in the industry, I thought has done a stellar job of managing risk and managing our inventory. I'll take a moment at this time to tell you that we have really nothing on our balance sheet that provides us any concern on a mark to market basis. So our fixed income group did well.

If you flip to the next slide quickly, our flow business up 39% sequentially, 4% from the previous quarter. Investment Banking which is primarily our tax exempt munny finance business, I'm pleased to report, will have--- I believe will have another record year in 2007. As you can see the Investment Banking line item is up 67% sequentially and 57% over the prior year quarter. And over 60% year-to-date. So they're having a nice year in our public finance.

Our next segment is banking. Maybe I'll take a few questions on the banking segment. All in all, the bank is proceeding right on plan in terms of both our asset generation and our integration. So the banking segment is, according to Hoyle, with respect to our other segments, we spend this time, quickly, just to talk about our acquisition related other expenses. It's been the story-- the same story now for a year and a half as it relates to acquisition related compensation or stock-based compensation primarily. Further we had some Ryan Beck acquisition related charges. So as you all know, we've been growing very fast and with that comes some, what we term, acquisition related expenses. You'll also note that our other segment, not acquisition related for the quarter is up from $7.5 million if you will, to 11.2 million and that's the result as we integrate the Ryan Beck acquisition, we do also add to our overhead staff here. All of that is on target although our integration is not complete. The comparison in the other segment is more-- , is, it almost looks doubled year-over-year and that's primarily because last year we included our New York Stock Exchange gain in our other segment. That's why you'll see that variance.

Quickly, if we reconcile GAAP to core earnings you will see on slide 13 that for the quarter we had net-- a net loss, an acquisition of $6.2 million or $.35 a share. $27.9 million or $1.66 a share. For the nine months, slide 14 will show our projections and what we've done on that. As you can see, for Q3, there-- there were two things that happened here. We had a, we had a few additional acquisition related expenses. Primarily our move in Baltimore that was budgeted to occur earlier in the year actually fell into Q3. You'll see that variance. That's been planned as we have moved our headquarters, as we had to get out of the former Legg Mason headquarters and move into our new building in Baltimore. So, that caused that variance to be up about 400 grand from our projection.

And, the Ryan Beck acquisition-- we had estimated cost of $2 million for the quarter, it actually was $3.2 million. We simply just missed the cost of converting all those accounts. Postage alone ran three quarters of a million to notify new clients. So that just came in a little bit higher. I think the important thing is, if you flip, is our annual income statement impact as to what we project. This really hasn't changed. Legg Mason acquisition charges for 07 and 08 remain at $25 million a year. zero for '09. The Ryan Beck acquisition charges of $31 million of which a lot of that, almost $20 million of that was a non-cash charge relating to the restructuring of their deferred compensation. We talked about that in Q2. But in fiscal year 2008, we'll be left with the Legg Mason acquisition charges and in 09 we will not be reporting any more on a core, non-core basis, we'll be right back to GAAP.

If you look at the next slide, our balance sheet, we have $1.5 billion in assets supported. by $400 million of equity. Book value of about $27 a share. I think it's important to always look at our equity roll forward, because, if you follow our book value and our equity, you'll note that our equity account grows much faster than our GAAP earnings. This just tries to illustrate for you what is happening. We've had $18 million of GAAP earnings. And then you have stock-based compensation, the Ryan Beck units, that I spoke to earlier, plus the acquisition of Ryan Beck causes equity to change from $220 million at the beginning of the year to $406 million today.

Slide 18 looks our capital structure. Again, I think today with everything that's going on, strong balance sheets are important. We think we have a strong balance sheet. We have assets of $1.5 billion. Stockholders equity of $406 million. Supplementing our stockholder's equity is $105 million of trust preferred. Which, as you can see here, we have three, they range in rate from LIBOR plus 170 to LIBOR plus 185. I'd like to do more of that today, unfortunately I don't think that's possible.

We've further swapped that out, fixed 638 to 679 until, it's a-- we did a swap on interest rate from 10 to 12 so you can see we're averaging 665 per annum. As you know, these truck preferred are-- have really no covenants. They're due between 35 and 37. As in 2035 and 2037. It's a good part of our capital structure. Actually very cheap capital today. We have $511 million in total capital, our equity to assets is 27%, our capitalization, which includes debt to assets is 34% and our truck preferred to our equity is a very reasonable 26%.

With that, the last slide just shows other financial data in terms of how we've been growing. We've had a slow down in our-- at least for the quarter, in our growth to financial advisors. We've been focused on the integration of Ryan Beck. So you can see our advisors go from 938 to 956. Although, that's picked up pretty-- pretty much at pace in September and into today as we have gotten the Ryan Beck acquisition behind us. We manage over $61 billion for our clients today. All in all, all things considered, a very good quarter, albeit lower than what we would have expected had-- when we spoke in June, but a lot of things have changed in the last three to four months. With that operator we'll take questions.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of [Brian Haggler with Kennedy Capital]

Hello Brian.

I was wondering if you could give an outlook or pipeline data for your Investment Banking Division and maybe your Fixed Income Division. I know you said it was a little soft this quarter, I was just wondering what the pipeline looked like going forward.

Well, traditionally the fourth quarter is strong for Fixed Income. I believe that pipeline is strong. Again, this year I've already said that we believe they'll have a record year, so again with the caveat of who knows what happened to rates, but the Fixed Income pipeline is strong. Same with Investment Banking Capital-- the Investment Banking pipeline, is as robust as ever.

In the regional firm environment, you can have swings of-- when things close in a quarterly basis, that can cause bumps in the road. But I think-- I think probably the important thing would be that we believe our banking platform-- our banking pipeline is very good, but you have to look at it by sort of smoothing out Q2 where we had a very large transaction and I wouldn't want that to be the baseline. In fact, I remember answering this question then by saying you don't-- you don't grow from that base. All that said, it was a soft quarter, but our pipeline is strong.

Okay, so it looks like some of the stuff that you maybe thought would close this quarter just got pushed back a little bit?

Well, I think-- yeah, it was a combination. Plus, if you look at a lot of the firms that have been reporting the capital raising activity, obviously slowed down, especially in a lot of the interest and credit type industries, financial institutions where we're large and a lot of the equity read areas. Things slowed down. So capital raising was slow and I think the MNA environment got delayed because of all the concerns over Stifel financing and what not. ISo, I'm not going to-- I don't want to apologize for a slow quarter, sounds like-- and it was a slow quarter, that's how it goes in our business. Looking forward, I don't think it's a trend to anything negative although we're all wondering about how the economy's going to shake out through all of this.

So it sounds like you are seeing maybe a little evidence of the capital raising picking up? Even though we are still in a somewhat tough environment.

Well we do, again, I think this is a good quarter. Usually-- the fourth quarter is usually stronger, but if I would look forward into '08, I would think that the, the Capital Market activity industry-wide is, I would expect it not be as robust as it has been in years past.

Okay. And one last question. and the $1.5 million of trading offices in July, I guess-- , I guess, where's-- , do you have an unrealized gain or loss on that portfolio today or could we expect maybe more of that to come or what's kind of the outlook there, it depends on obviously

Right, I think it was. First of all we mark that to market. We mark to market daily, obviously I think that was more the not. It was more indicative of what happened in the summer months than our daily business, but we generally-- even after hedges, we'll have a net long exposure to the marketplace to support our flow business and while we hedge, sometimes hedges are not as effective as you'd like them to be, and that's what happened. But I would consider that more a reflection of some very disruptive markets, which I do want to say I believe our risk in the way we manage risk, our team came through that very, very well. All things considered.

Right. All right, thanks, guys, appreciate it.

Sure.

Your next question comes from the line of [Thomas Haines with Empirical Capital]. .

Yes, just needed to go back. I missed a number. I think you said that you had, so far, had about $31 million of charges related to run back, $20 million non-cash, is that year-to-date?

Yes.

And then, how much--- , how much are you estimating for the rest of this

I thought I had that on the slide where it was going to be $3 million for Q4 and then nothing after that.

And then--

Slide 14.

Okay.

And then nothing in the,-- for the-- , in

And then the Legg Mason charges, are those on the slides also?

Yes.

So I don't have them in front of me, but what are the estimated charges for '08, I mean for Legg Mason?

$25 million that hasn't-- that 6 million, 250 a quarter, , that really hasn't changed since we did the deal, give or take some of the things that were--- we had budgeted at the time to-- to fully pull them out of their former firm. That's on slides, I think it's 14 and 15 of our

And you said that the Ryan Beck charges this quarter were, I think about a million dollars higher than you expected?

Yes.

Could you just give a little more color on that?

Well, we had estimated, I mean, we went through converting some 31 branches that we were doing on a rolling basis and we had estimated the cost of duel staffs and duel operations and the-- and some of the costs that you can't charge to the deal and we simply-- they came in higher than we thought. I gave the example of just the printing costs-- printing alone and postage to notify the clients of our charge. I don't know if I thought about it an it was 3/4 of a million bucks. So, things like that. I don't know that it's--- we estimated 2 million, it came in at 3. It wasn't that bad of an-- a bad estimate, but I did want to point it out. We did project last quarter. We thought it'd be 2 million.

For Q4, you're pretty confident of that number?

3 million?

Yeah.

Yeah.

That's all I had thanks.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of [Joel Jaffrey with KBW].

Hey guys. I know you guys typically disclose certain metrics in your 10-Q. But, can you give us, at this time, sort of the number of managed accounts and assets under management and particularly number of independent contractors that you guys have?

Ah, let me see. Our Q, we won't file our Q until Friday. And I don't believe that I have that. I apologize. I just don't have that in front of me. We normally-- we normally file our press release and Q at the same time which is why we disclose those in our press release, so, we didn't because we released our earnings. So, we can come to your conference tomorrow, frankly.

We appreciate that. Just one other question. Have you guys noticed any regional differences in activity in your private client base between say the midwest and mid-Atlantic states over the past quarter or is it generally similar activity across the board?

Similar activity across the board. In terms of volumes or-- I'll just tell you I think the businesses are very similar. The Private Client businesses are almost homogeneous across most firms quite frankly. We don't see any regional differences.

Okay, great, thanks very much.

Yep

Your next question comes from [Dan Winstet from. Ed Capital and Capital]

Good morning.

Morning.

Can you spend a second and let's talk macro, big picture. Obviously there's a lot going on with your competition as it relates to sub prime at all and I think one of the advantages to coming to Stifel is-- is to not be at, in those kind of environments. So perversely, all the disruption in the markets right now may make it easier for new Private Client guys in particular to come over to you with a higher payout at all. Just talk about a couple things please.

The good and the bad with the current environment, how that makes it more attractive to come to your firm vis a vis the Merrills of the world, or other people. And then, maybe talk about-- now you've got the five Ryan Be--- you've got a lot of the acquisitions behind you and the footprint in place, how many bodies could you add given your current infrastructure so you can begin to leverage this infrastructure you've got put together. Or, is the thought more, all right, we're going to get this assimilated and go to the next large acquisition down the line. That's one question, please, and I have one more follow-up.

Well, I think that's, on a macro basis, almost why I don't like quarterly earnings calls. You have to measure quarterly, but on a macro basis, I think you'be got your finger right on what I focus on., and that is-- and I'll separate it to answer your question, between the Private Client group and the Capital Markets Business. I'll say the Capital Market Business is a growth business and it's a business that we can continue to do well in as we--- as we build out our Investment Banking platform, we have tremendous research and we think that we can do this. But, it's not the growth business today that I think the Private Client has been. Nor has it been in the past, absent acquisitions. It can grow very nicely, don't get me wrong, but the real question is can we go from say 1,000 financial advisors over time to 3,000? And that's our plan and that's our goal. And it's been stated that we can do that.

We, of course, have to grow infrastructure as we-- as we grow that number of financial advisors, but on the margin, it's definitely accretive to shareholder value. So then, back to the environment, this environment we have found historically that we grow faster in times of disruption than in times when things are great. So it's times like this that we look to really begin to grow or add to our platform. That disruption can come from either the sub prime if you will, that's less of a factor for us, than just the consolidation that's going on. So as I always say, consolidation in and of itself is one of our largest drivers of growth because that disruption is what makes the Stifel model the most attractive. So net net, I think you're right, we can and will continue to grow and we are, we're a growth story period, faster on the Private Client side but we'll also grow our capital markets. We think that the middle market as consolidation occurs, it orphans the middle market. There's less firms. So we're very optimistic over the long-term of our growth prospects. Short-term, you know, cyclical business.

How much of the little 2, 3, 5, 10-person teams given your infrastructure how could you-- could you just infill without adding additional infrastructure. Could you go to 1500 guys?

Yeah, sure. We've done that. If you look at when we started here we were able to grow from say 200 to 600 organically and then with really a flip of the switch, it wasn't that easy, we went from 600 to 1,000 in the last six months. You don't do that without infrastructure capability.

What I don't want to mislead anyone on, is that-- that does--- that's not just without additional cost. You do need to add-- In certain areas the business isn't as efficient as you'd like it to be, so you need to add people to open new accounts and there are certain administrative functions, human resources, where you just need to add-- as you add body counts, but the platform in and of itself today, there's really-- I don't want to say no limit-- but I would--- I would like to be challenged as to how many three to five member teams we can take. We've not run into that problem yet.

Ron, I know you talked about this, I apologize, but a quick summary of the $123 million charges that you talk about on slide 15. How much is cash and non-cash? And just a quick break down for those numbers in terms of where the major charges are coming.

Well, which slide?

15, just the charges that were laid out for Legg and Ryan. Just looking at '06, '07, '08.

The Legg Mason charges and this is going to have to be very approximate, okay? I would say, I believe of the $91 million about $88 million-ish and I could get this to you, a majority. I don't want to put a number on. The majority of that is stock-based compensation. There are some charges relating to double brand. There were some charges in the first year on-- where we had to carry over compensation plans that were different than ours. That was in 06, but the majority of the Legg Mason is--- is non-cash charges.

Of the Ryan Beck, I would say two thirds of it is non-cash and-- or maybe a little bit more and the remainder of charges relating to the integration. The additional charges for having two operation centers as we've had to integrate that. So those are, if you will, the L egg Mason is primarily stock-based comp. The portion of the cash charges in Ryan Beck relate to the cost-- , the merger related costs to put the merger organizations together. I would say that probably in a 31 million, to a third of it is cash

So just looking at the bodies that you've added, the productivity side of this, if you were to do another large acquisition, can we assume these kind of numbers going forward in terms of per headcount addition? See what I'm saying?

I know what you're saying, I don't know that I'm prepared to say -- I think each deal is unique. The cost per person to bring on Legg Mason was much lower than the Ryan Beck. And it depends on factors such as who does their clearing how's that going to work. Is there-- is there-- there's just a lot of things that can happen in a Private Client business. I think each deal has to stand on its own, so I don't know that I can answer that question for you.

Ron, last question. Bank Atlantic that position in your stock that they own, obviously there are, their parent company, given the Florida home building exposure, do you have first writer refusal if they have to sell all a part of that piece? Is there any constraints they have in terms of checking in with you or do you have any right if they have a foresale or have to sell that given what's going on in the erst of their portfolio.

First of all, Alan Laband has been a very good shareholder. We communicate, so he has been-- we have been talking period. And he is someone that talks to us. I can't speak for Alan nor would I speak for him, all I can tell you is his shares free up, a third, a third, a third, so he is free at some point to do a third of his shares. So, call it 600,000 shares approximately or maybe 700 would be free to trade, but I think we all recognize if he would want to do a trade like that, he needs to work with us. So we have been communicating and he has been a very good shareholder and understands the importance of working with us to the extent that he would choose to, and I won't comment on that, it's his, he would choose to dispose of any of his stock. Although, I do think he's said that he's not, I don't think he intends to have this kind of position in a broker dealer long-term.

Last question, just in terms of balance sheet, optimal capital structure for future acquisitions what kind of fire power in terms of, again, acquisitions do you have?

Well, I went through our capital structure, I think we're very well capitalized. I wouldn't want to push the envelope on any kind of transaction that would make us financially vulnerable. I also don't want to do diluted transactions. We have a publicly traded currency which we'e used in the past. So, I look at cost to capital, balance it debt versus equity, accretion versus prudence and act accordingly. We can adjust our capital structure by stock repurchases if we so choose and so, the answer is, I think we have fire power to do what we want to do, but we've never been reckless acquirers.

(OPERATOR INSTRUCTIONS) There are no further questions at this time, sir.

Very good, thank you everyone for your time. We'll convene again in February of 08. Thank you

This concludes today's conference call. You may now disconnect.