Stifel Financial Corp (SF) 2010 Q3 法說會逐字稿

Good morning. My name is Theresa, and I will be your conference operator today. At this time, I would like to welcome everyone to the third quarter earnings 2010 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. (Operator Instructions) Thank you. I would now like to turn the call over to Mr. Jim Zemlyak to begin. Please go ahead, sir.

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

Before we begin today's call, I would 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 actually future results to differ materially from those discussed in the statements. To supplement our financial statements presented in accordance with GAAP, we use certain non-GAAP measures of financial performance and liquidity. These non-GAAP measures should only be considered together with the Company's GAAP results.

And finally, for discussion of risk and uncertainties in our business, please see the business factors affecting the Company and the financial services industry in the Company's annual report on Form 10-K and MDNA of results in the Company's quarterly report on Form 10-Q. With that, I would like to turn the call over to our Chairman, President and CEO of Stifel Financial, Ron Kruszewski.

Thank you, Jim. Good morning. As our tradition, I will start with my comment, which is our record net revenues and operating results, demonstrate the diversity of our platform and our ability to navigate the changing economic conditions. We have made significant investments in our associates and infrastructure, the latest being the completion and the integration of the merger with Thomas Weisel Partners. As we build our investment bank, we believe we are well positioned to take advantage of future opportunities.

So, joining me this morning, I am in San Francisco with my fellow chairman Thom Weisel, Sarah Anderson and Jim Zemlyak. We are here in San Francisco. Before we get started with the numbers, with respect to the merger, I just want to report that things are going very well. We are ahead of our plan on integration and on the cost side, on the business side we are winning mandate. The teams are working very well together, and based upon observable market value volumes, we are appear to be making progress in our cash equity business on a combined basis. So, from that perspective, we are quite pleased.

Turning to our financial results results, looking at the quarter, we had record net revenue of $340 million, which was an 18% increase over the third quarter of 2009, 4% sequentially. Our global wealth management business simply had an outstanding quarter and nine months, having a very good year. That segment posted net record revenues of $207.5 million, it's up 31% over Q3 of 2009, 4% sequentially. Our institutional group posted record net revenues of $138 million, 6% over last year of 11% increase sequentially. If you exclude, as we've discussed on numerous times at this point, we were taking merger-related charges. The substantial portion of that being the acceleration of deferred compensation.

If you exclude those items which we talked about last quarter, our non-GAAP net income was $29.6 million, or $0.72 per diluted share, and that would compare to $22.1 million, or $0.67 per diluted share for the third quarter 2009 and $0.69 for the second quarter. The non-GAAP core income would be an all-time record, and the $0.72 per share would tie an all-time EPS diluted record for the firm.

On a GAAP basis, we had a net loss of $84.3 million, which was $2.47 per basic share. You have to remember that when you report a loss, you do not do fully diluted shares, you do basics since the fully diluted shares are considered anti-dilutive. But if you look at the fully diluted numbers, the loss would be $2.05. Our non-GAAP pretax margins were 15% compared to 11% for the comparable period in 2009 and 11% sequentially. For the three months ended September 30, our non-GAAP annualized return on average equity was 11%, which is below our goal when it compared to 12% for the third quarter of 2009 and 11% for the second quarter of 2010.

When you turn to-- if you look at the nine months highlights, again, record net revenues nearly $1 billion, $980 million. It's up 27%. Global wealth manage record net revenues of just over $600 million, up 48%. Our institutional group record net revenues of $376 million, up 4% over 2009. Our non-GAAP net income was $77.4 million, or $2.09 of diluted share. That compares to $55.1 million,(Sic-see press release) or $1.62 for 2009. The GAAP net loss would be $39.5 million, or a $1.24 per basic share. Again, the same thing applies with respect to the anti-dilutive nature of that loss. If you look at diluted share as a loss for the nine months would be a $1.07. Our margins for the nine months, 13% compared to 10%, so the same period in 2009. And again, our annualized return on equity was 11% up from the 10% for the nine months last year.

So, if you turn to what we talked about on these merger-related charges, I have a slide here that shows the reconciliation between the GAAP loss of $84.3 million and our non-GAAP number of $29.6 million. And as you can see, it was $183 million of comp and benefit, which was substantially the acceleration of our deferred comp, a non-cash charge. Non- comp operating expenses, which relate primarily of the merger of $8.5 million, and then of course, the tax benefit. So, that number is how you reconcile between our GAAP loss and our non-GAAP net income that we are talking about.

Slide 7 will remind everyone what we talked about last quarter and reconciled those. Last quarter, we anticipated, or projected that the merger-related costs net-net, this will cut to the net number, will be $113.9 million, and we actually reported $114 million. So, about $100,000 difference. We had estimated $2.68 per share, it was actually $2.77. The reason for that discrepancy is twofold. One, we had estimated slightly higher shares outstanding so that we had reduced that loss for the shares in the tax rate. Our estimated tax rate or slightly different. But on the absolute number, it's pretty much what we said.

Going forward, one of the things actually was that the comp invested was slightly higher and the non-comp was lower. The non-comp expenses that we thought would be in the third quarter will actually be in Q4. So, we are showing the projections now for where we are in Q4 and Q1 of 2011, and then we will be done with our integration charges. So, we estimate non-comp operating expenses of $10 million in Q4 and $2 million in Q1 of 2011. So, that is just to-- the one forward projection we will give you and as I've said, will be related to our merger related expenses.

Turning to the nine months, same reconciliation. We've reconciled from a GAAP loss of $39.5 million to our non-GAAP net income of $77.4 million Again, about the same numbers, the $116 million, which is the sum of what we did in Q2 and Q3. So hopefully, those numbers will reconcile for the people that are tracking those on the call. If you look at the source of revenues on slide 9, pretty much across the board, some consistency and what you would expect. Our principal transactions relatively flat on a sequential basis and year-over-year. Commissions down, again, it was slow summer, at least -- especially the first two months.

In the cash equity business, our asset management service fees are up sequentially, primarily due to the contribution on that line item from the Thomas Weisel merger. Investment banking, I believe at 50-- nearly $52 million, may very well be a record for investment banking as we -- the integration has gone well on that side. So, the sources of revenues are pretty much what you would expect, and you see operating revenues up 3% sequentially. About the same discussion, overall growth nine months over nine months across all line items, which is going to reflect the merger with Weisel. And last year -- this year it has the full benefit of the UBS acquisition where last year only had partial aspect of that.

Looking at principal transaction revenues, we do always talk about this and get a lot of questions about it. You will see that taxable up for the quarter is relatively flat, down 21% versus the quarter last year. So, that shows the change in fixed income, although our fixed income group had a very good quarter sequentially being flat. And then you -- the offset is in equity, so that the decline in fixed income is pretty much offset by our increase in equities.

Non-interest expenses, again, the integration is going well. This will show our non-GAAP numbers as to are non-interest expenses for the quarter. The comp and benefits came in at 62% of net revenue, down from 66% and 65%. Again, that is the impact of no more amortization at this point of our deferred comp. And then the rest of the expenses, overall as a percentage of revenue, I don't believe we have hit on all cylinders on the revenue side.

So, the incremental operating expenses are slightly higher as a percent of revenue that we would expect going forward. But all in all, acceptable in that our margins on a non-GAAP basis are nearly 15%, which are our target. In a very difficult market environment. Let's not lose sight of the fact that Q3 will not go down as one of the more robust quarters in investment banking.

Turning to slide 12 , this just shows a little bit more detail in the nine months. I won't belabor these numbers in that they also show just the overall growth in the Company. On a nine-month basis, our margins all point out for the nine months are 13.3%, up from 10%. So, slightly better cost controls and then a couple of record revenue.

If you turn to segments, our global wealth management segment had a very good quarter, $207 million of revenue, nearly $52 million in contribution. Comp and benefits came in at a little over 57%. Margins nearly 24, significant margin improvement. Some of that, but not a lot of it, probably about approximately $4 million, maybe $5 million of that is where some of that deferred comp charges were cited. So, that benefit -- there's some of that benefit flowing through the segment, but despite that, a lot of improvement. I think a lot of it is getting our UBS acquisition fully integrated and getting the full benefit of that. We are still waiving substantial fees in our cash products, so that is a future revenue source when interest rates get off the floor.

Looking at the bank, a very good quarter for the bank. If you look at the numbers, you will see the total net revenues in the bank of $10 million, almost double over the quarter a year ago. Nine months, almost the same thing. It is just the increase in the bank, the margins of the bank, the bank is, again, almost a virtual bank with--. We sweep our deposits, we invest those conservatively and we do have a C&I portfolio, but it is a small portion of the bank.

If you look at the bank on slide 15, it is simply a low risk asset growth bank. We -- our assets are $1.5 billion, up 34% at the end of the year. The investment portfolio, which is a lot of the increase, stands at $830 million, it's up 44%. Our loan portfolio at about $480 million, it's up 20%, and the deposits have increased 34%. Our strategy remains the same. We want to have a solid asset quality as evidenced by the fact our non-performing loans to gross loans are 0.3%, (inaudible) 0.003. Non-performing assets to total assets 0.2%. In the trailing 12 months, we've had $100,000 loss of $1.5 billion.

A very, very solid asset quality bank, high liquidity. And that is our goal. This slide shows you where be it the assets -- the earning assets are comprised, nearly 50% are in agency investments, 19% in consumer loans and then 15% in non-agency and mortgage. And then our commercial loan portfolio, which I expect to increase, but today it is just at 3% of our total assets of $37 million. So, a very good quarter for the bank.

Turning to our institutional group, record revenues. As I have said, margins were -- are heard in this group, being 20% down from the 25.7%. A lot of that is integration type charges that do run through core. I am optimistic about the ability of this group to get back to their historical margins. But all in all, a very, very good quarter.

If you look at the revenues, I think that's -- as I have looked and listened, I am pleased with our equity sales and trading business. Essentially flat, down slightly from Q2. And many, many of the traded experience declined, in some cases significant declines in that line item. It's up 10% year-over-year to quarter basis. We're also up 10% for the nine months in our flow business.

Our fixed income business was essentially also flat, sequentially down 25%, which has been the trend. I mean, 2009 was a year for the books for fixed income. But a very good quarter in fixed income. If you look at investment banking, that runs through our institutional group, nearly $46 million almost equally split between capital raising an advisory fees. Again, we are winning mandates on a combined basis.

We have completed 28 IPOs this year, we did 11 last quarter. And looking at our filed and mandated backlog, we have 44 IPOs that we are looking to do. And the origination capital raising side of our business, with a reasonable market, it looks promising for us. So, again, I feel that I have had a lot of questions about the -- our market share on the cash equities business. As I have said, it is flat in a market that was probably down in the quarter anywhere from 15% to 20%. So, I feel that we have gained market share.

Turning to the balance sheet. Again, we remain very liquid. These slides will show the increase in assets, which is primarily related to the increase in the bank plus our investment in Thomas Weisel Partners. So, we do have a record in terms of our footings, which are a little over $4 billion, but as you can see, our capitalization is over $1.2 billion now. It's resulting in a leverage ratio that really is similar. It's a little over 3 times, 3.3 times. Book value, as we've talked about, book value on a GAAP basis is $33.97. And again, that is in large part -- the increase in the book value, despite the loss, is due to the fact that the deferred compensation charge went to equity.

Looking at our capital structure, really has not changed other than our equities now, nearly $1.160 billion. We still have our $80 million in TruPS, so we are very well capitalized as a firm. Level three assets, some changes in our level three assets, again, relating to our merger with Thomas Weisel. We have auction rate securities of $85 million. That includes $13 million of ARS that were included in the net assets of TWPG. And then on the other investments, we had nearly $30 million, primarily in the asset management subsidiaries for TWPG. But again, very liquid. And the substantial amount of our level three assets are assets of high quality, just not observable market prices.

Finally, just looking at the -- you will see in the other financial data, the footing for the Company, primarily the increase in Stifel Bank and then resulting various metrics of financial advisers, full-time associates. We have over 311 locations now with Weisel, and we manage over $100 billion for our clients. All in all, a very good quarter considering the market environment, considering the fact that we are integrating a merger, and I am pleased with the quarter.

So, with that, operator, I would be happy to take

(Operator Instructions) We'll pause for just a moment to compile the Q&A roster. Your first question comes from Devin Ryan with Sandler O'Neill.

Good morning, Devin.

Good morning, how are you?

Good.

Good. On the expenses, you gave a little bit of detail, but they just look a lot lower than we were looking for, especially with the Weisel deal. So, I just want to maybe get any more color there in terms of where you are tracking versus your original projections for the deal, because it looks like it was even better than we were looking for.

Yes, I think you are right. One of the things that reason I didn't really want to get into that is that as you combine businesses and we quickly want to do away with anything that was Weisel versus Stifel. We are one Company, we scrambled the eggs. So, it is difficult to unscramble them. But I will tell you that on a combined basis, the OpEx, I am pleased with where we are on costs and our ability to take out costs, and we are ahead of that in schedule. So, you observation is correct. I'm not -- I really can't get in to give you any real granular detail on that other than to say that we have made good progress on our cost side.

Okay. No, that is fine. And then just in institutional trading business, you gave a little bit of color there in terms of how the quarter progressed, and it sounded like September was better than July and August. But can you give any more perspective in terms of how much better it was? And just in terms of that momentum carrying into October and November, that would be helpful.

Well, September, it was really slow in July and August. So, September was clearly an uptick. I don't think that we saw anything much different on an overall bases than the street saw. And the volumes have continued, certainly up compared to July and August in Q4 today. So, it was a difficult first two months. I think what I -- it's been -- you are always trying to understand when you add new sales and trading capabilities, new trading pads, the fact that we are more significant tech and health care than we are in June we are today. We've -- I think what I want to report to you is that we have seen market share gains relative to the market, and I will get more back in that. It's hard to see market share gains when you are flat, but when you look at the overall market being down probably 15%, I know they are occuring. It's just I would rather see them occur absolute versus relative.

Right. And a follow-up to that, as you are integrating the two businesses, especially on the brokerage side, have you guys actually started getting out and having those conversations with clients yet about monetizing the additional research? Or is it more of a wait and see how things fall out and then if you are not satisfied, maybe go have some hard conversations?

I don't know if it's going to take hard conversations. People are getting out, I don't think we are ever a wait and see kind of firm. I am certainly not a wait and see kind of guy, and I know Thom isn't. We're -- I think our platform this well respected and as I sit here, I feel good about our progress. I believe that we have more market share to get out of this as we explain our process, we go through as a vote process. As people see that the integration is going well. There's a lot of questions about our ability to integrate this. And I feel good about it, and I feel that the future portends more market gains for us. It should, we are one of the largest, if not the largest provider of research on the street.

Thanks, Ron I am going to hop back in queue here.

Alright, Devin. Thank you.

Your next question comes from Daniel Harris with Goldman Sachs.

Hello, Daniel.

How are you doing, Ron?

Good.

Great quarter out of the gate with Weisel, I just wanted to turn to your FA headcount, though. It seems like it's been a little bit slow the last couple of quarters, I would guess coming out of the dislocations in '08 and ' 09. This is just a reflection of that, but what are you seeing in the recruiting line to pump that number up going forward?

It's is a good observation, Daniel. We -- two things. One, that, and I've said this on a couple of calls, over the last five years, we have grown this Company 41% compound annual growth, and we are integrating a merger. And at some point, you couple that with the fact that many of the large firms which came out of some very difficult periods have been very aggressive on the recruiting front. Very aggressive. To a point that we won't compete at the levels that they have been, and I've said that.

So the combination of the fact that we have been consolidating our recent market share gains across the side, plus the fact that we are focused on integrating a very important merger, has slowed our recruiting. A lot of our recruiting is new people opening new offices. Those take corporate resources as does integrating mergers. So, if you go back, you will see that when we have done other mergers, are base recruiting declines of the firm is doing other things. But it has not been what I would say a conducive market for recruiting from our objective. Our objective is not just to get larger. Our objective is to get larger and make money. And so as I look forward, I believe that we can continue, certainly not in the 2009 pace, that was unbelievable. But I believe that we will -- I think we are today still one of the firms that are growing as probably as fast as anyone in this side. It's just slow for everyone.

Okay. Thanks for that. Shifting to Stifel Bank and Trust. The numbers there are really good, the growth up 42% on income before taxes sequentially is very solid. But if you look at the percentage of assets, you guys are putting a lot more into agencies versus loans. And I hear you say that you want to increase the loan amounts that's coming out of the bank. With 0.1 million in losses or 100,000 losses over the last 12 months, it seems like you are extremely risk adverse. And while I am not a risk manager, I wonder, is it possible to go a little bit further out the risk curve to get a little bit more yield, or are you comfortable where you are putting your assets into agencies at this point?

Well, we'll make loans, I just don't want to take losses. I don't care what the loan is. But I hear you. The fact of the matter is, is that the policies of the last year and the yield curve made our investment strategy the most prudent on a risk adjusted basis. We are projecting over -- nearly 20% return on equities investing in agency investments on a hedge basis. It was sort of a gift, and it was the way many people are recapitalized, the way policy makers are recapitalizing the banks.

So, we think it is a good time to be a bank. We are investing in C&I. I've said that you'll see increases in C&I, you'll see increases in traditional loans, which will increase our net interest margin. The bank will improve on that side and as a result, our loan losses will also increase. But everything is on a risk adjusted basis. And today, we think we have done this right. But we -- as I look forward, the traditional assets of a bank will -- our growth will come from that area, not from making agency investments.

Okay. And then lastly, I want to go back to a question Devin had on the expense side. So your non-comps sort of shipping out the impacts from the mergers was around $79 million. Is there any seasonality we should be thinking about in the fourth quarter or -- excluding the $10 million in overlap expenses you'll have, is there any reason to think that materially was higher from here, or is that a good run rate?

I think it is good run rate. I want to hedge through the Q4 as we get our arms around all these expenses, and so I don't -- but as I sit here today, I would not have reported on a core base if I did not $80 million quarterly annualized was not a good number. And again, that is lower than what we had originally projected, but that we think we have identified some cost takeouts that we did not do before. I think I told you before, we wanted to be conservative on the way we looked at that. So, the long-winded answer is yes, I think that is a good number. We will certainly solidify that in Q4.

Okay. Thanks, Ron.

Yes.

Your next question if from Joel Jeffrey with KBW.

Hey, Joel.

Can you talk a little bit more about your M&A results and how much the Weisel business contributed to that?

Well, the M&A results were good. We had a nice M&A fee that closed in I think late August that related to the Weisel transactions. Overall, I believe that the part of this deal and part of what came to us with some good M&A expertise. So, I feel good about that. Not only in the quarter, but l looking forward. I feel good about M&A. I don't know that it was extraordinarily unusual, but it was a nice pickup, certainly sequentially. And again, if you look at it in round numbers, I will tell you this, and it's probably the last time I am going talk about it because we are one firm. But our investment, the Weisel team contributed very nicely, approximately half of our investment banking revenues, one way or another. It was from that, and I am pleased with that. So Joel, I am really, at this point, really not going to talk about one firm versus the other. We are one firm today.

Okay. And in terms of the RSU impact in the stripping out of the non-cash amortization costs, you guys had talked about $0.20 hitting this quarter. Did you guys realize that full $0.20 this quarter?

Well, I think we've said that again, it was probably based on year-to-date average shares versus fully diluted of 41-2. So, the question is, I think it's more, on a fully diluted basis, it is more like $0.17. And yes, it would have -- that impact would have been this quarter. That benefit would have been -- would have come in this quarter.

Okay, okay. And then just one last question on -- in terms of last quarter you gave a fully diluted book value that came in around 28.75, and it looks like that number still holds up for this quarter, is that right?

Yes. It would be approximately that. I will think about getting back to that number. That discussion caused so many phone calls that I have decided and I am not going to put my head in that trap one time. And so -- but if you want to run those numbers, I would answer yes, it did hold up. In fact, it might be a little bit higher. But a painful discussion, Joel.

Alright, great. Thanks for taking my questions.

Your next question comes from Steve Stelmach with FBR Capital Markets.

Good morning, Steve.

Good morning, Ron, how are you?

Good.

I just wanted to turn to the institutional business a little bit. I look at your 6/30 results versus your 9/30 results, you're up net revenues, call it $14 million. Thom Weisel, between sales trading and banking tended to do about $40 million, $50 million. What was the disparity there in the third quarter? Is it just market conditions? You are probably down about 15% on an organic basis, it looks like. Is that just a tough third quarter environment, or is it going to take time to realize the full benefits of the Thom Weisel deal in the next couple quarters?

I think there's additional benefits to come in. I don't -- I never believed that certainly out of the gate, that sales and trading on the flow business it additive immediately. There's a lot of work to do on a combined platform to increase that. So, you can't just add across on those line items, on sales and trading, which probably somewhere $60 million, $70 million of the $200 million you are talking about on an annual basis. You know that's never immediately additive although again, I will circle back to my comments about what I believe we can gain in the future, and so that is one.

But listen, I am pleased with the quarter. It was an extremely difficult quarter in July and August. And so I am going to go with that. Whether or not organically, I don't think you can look it at it that way to say that well, they get $200 million, and so why aren't you doing $50 million? Their $200 million was highly leveraged to the capital markets, and there were no capital markets in the third quarter for the most part. So I don't think you can do that. And again, I am going to go through this call and talk about the two firms. And then no more, because it is very difficult. These eggs are scrambled, as they should be. This is one firm, and I am thrilled about the integration and going forward, we'll have to look at the revenue. But I hear you, but I don't think that analysis is linear and logical for me to answer it.

I certainly appreciate the color. And then just on the comp ration, to simplify it a little bit, it talk about 62% combined. Does that feel about right going forward, or is there anything else we need to -- it seems like a decent comp ratio for a go-forward basis. Is that a decent run rate we should be using?

You are going to get quarterly fluctuations in that, because there's a lot of that --

There's a mix.

-- as we go. But, sure, I think that if you -- as I think I said before, 61.5 to 62.5, in that range--

Yes.

-- depending, is not unreasonable.

Perfect. Alright Ron, I appreciate it. Thanks.

Yes.

Your next question is from Hugh Miller from Sidoti & Company.

Hello, Hugh.

Hello. Maybe a piggyback on the last question with regards to the comp ratio, and I am assuming that 61.5% to 62 5% is on a pro forma basis. You had mentioned that on a go forward basis, I think prior to this point, you'd probably recognize somewhere in the vicinity of $0.20 in enhancement on an earnings basis because of the lack of ongoing deferred compensation cost. So, is that kind of thought of --

$0.17, $0.20 was on a different share count. On fully diluted, about it's about $0.17.

Okay. And so does that thought of 61.5% to 62.5% include that kind of enhancement? On is that on a core basis?

Well, I think the answer is yes to both. I mean there -- core GAAP is going to go away. And so going forward, that is a number that will work for you and for me.

Okay. And you have talked in the past about a longer-term goal of the non-comp ratio trying to strive to get towards that 20% ratio. As you look at the combined entity as you see it now, does that bogey kind of change? Do you see, obviously with some of the ability to take out some cost in the business that improves, or is 20% still the area that you guys strive for in a longer-term basis?

I think it is a good goal, and it's what we strive for. I think the leverage in the capital markets business, if we get that business and go in a good market, that is a number that we could do better then because of the leverage inherent in capital markets as it relates to OpEx. But I think 20% is a good number, I always -- 20% is always the number I start to close to, and then we do another deal, and then it moves away for a while. But I think that is a good goal.

Okay, and moving to the capital markets business, it seems as though there is a lot of firms that are staffing up here in anticipation of a more robust environment. And it seems in the quarter we did see some strength in M&A and a challenging underwriting side of the business. But do you foresee any type of risk with regards to conversations over pricing of some of the services with clients if things don't turn around as some are expecting? A shift in strategy to complete on price by some of your competitors, or do you think that is a very low risk?

I think that -- my viewpoint, and I am looking at Thom here, I think we both agree, that is a low risk. There is -- we have the ability to, with our cost structure, to compete very well on that. I -- but many of these firms are not -- I do not see staffing up and then competing on price. The cost of doing many of this is high, and I think the market is pretty well entrenched as to where it is. I don't see that. Does not mean it cannot happen in the short run, but on an overall basis, I don't see that really. I think people will more respond to that by cutting people, not cutting price.

Okay. Good color there. And it seems as though in the past few weeks, we have seen a very slight pickup in interest in equity investing by the retail clientele. I was wondering your thoughts there. Is it kind of resulting in any improvement in morale within the retail segment for the advisors? And any thoughts there as whether or not you expect that will -- we should see a further strengthening?

Well, some of it is going to be the fact that flash crash might get a little bit more in the rearview mirror, and that had more of an impact than people realize. The markets had a nice run through the election. There's a lot of banter about what can happen to the capital markets with some different views from Washington. I would say that there is a general tilting of the asset allocation to equities, especially with fixed income yields as low as they are are. But nothing that is noticeable to me as a major trend as the people are saying, I got a pile into equities.

Okay, great. Great color there. And the last question was just a, I obviously saw you made a comment about roughly about $10 million in non-comp costs expected now in the fourth quarter versus roughly about $2.3 million prior to that. But I did not catch, did you mention what kinds of things you're seeing as a result of those increased costs in the fourth quarter?

It has not increased. What happened, if you look at it, the -- we underestimated a little bit of the unit amortization charge, and our estimate for Q3 non-comp was higher. The net is the same number, but what really happened was some of the cost saved in terminating of contracts and all the things we do to save costs were not all done in the third quarter, so they are going to be done in the fourth quarter. So that is where we missed it on the, I think it's $4 million, give or take, that we had anticipated doing in Q3. We just moved to Q4. We know what we they are, we just did not complete them in Q3.

Okay. Thank you.

There are no further questions at this time. I would like to turn the call back over to Mr. Kruszewski for closing remarks.

I think that Thom has been sitting with me, and we're in San Francisco, and we are leaving here to go see clients and get out and tell our story. Thom, your comments as to the integration from your viewpoint, I would appreciate.

Sure. Our people are absolutely thrilled to be on this platform. I think the strength and the diversity of the combined platforms is just resonating incredibly well with our clients. And therefore we are very, very optimistic about what the business prospects, as long as we have a market, over the next year or two.

Right. And many of you have asked me about Thom's commitment to the business, and he handed me my schedule this morning, and I am off till 9 tonight with him, so there you go. With everyone else, I'll talk to you next quarter. Thank you.

This concludes today's third-quarter earnings, 2010 conference call. You may now disconnect.