Stifel Financial Corp (SF) 2010 Q4 法說會逐字稿

Good morning. My name is Jackie and I will be your conference operator today. At this time I would like to welcome everyone to the fourth 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. Mr. Kruszewski, you may begin your conference.

Thank you, Jackie. Good morning everyone, this is Jim Zemlyak the CFO of Stifel Financial Corp. I would like to welcome everyone to our conference call today to discuss the fourth-quarter and full-year results for 2010. Please note that this conference call is being recorded. If you would like a copy of today's presentation, you may download slides from 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 actual 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 measurements 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 10K and MDNA of results in the company's quarterly reports on form 10-Q .

With that I would like to turn the call over to the CEO, President and Chairman, along with Mr. Weisel, of Stifel Financial, Mr. Ron Kruszewski

Thank you Jim. Good morning, everyone. First of all, great quarter. I'm very excited about our progress, and we'll talk through the quarter, try to give you some color as to what went on and how we're looking at things.

But I just have to start, as I always do, with a quote out of the press release.And that is that we are very pleased to report our 15th consecutive year of record revenue, and equally pleased with the success of our merger with Thomas Weisel Partners.

Our record quarterly revenues and record quarterly investment banking revenue demonstrate the power of the franchise we are building and underscore the success of the merger with Thomas Weisel Partners. There are clear signs of the retail or private-client investor re-engaging, as well as increased activity in capital markets, both of which contributed to our results.

Looking forward, we are well-positioned to continue to gain market share, which is accomplished through the addition of talented entrepreneurial people who share our vision to build the premier middle-market investment bank firm in the country. It was again just a good, great quarter that underscores the success of our integration. A great quarter for the global wealth management group, again, a lot of things coming together.

So what I thought I would do is, my partner in San Francisco, I got him up at 530 this morning to join our call. I have asked him to give his views quickly on the merger.We had a very successful tech conference. I'd asked Tom to do that.

As I said at the tech conference, one thing I love about mergers is that last year Stifle did not have a tech conference, and this year we just had our ninth annual tech conference. So Tom, thank you for that. Tom, give us your thoughts.

Sure, well thanks Ron. The merger has just gone extremely well and obviously you can see this by the level of this, but also the retention of people.But more specifically, with the combined platforms being much larger diversified, we've got more debt products, we've got obviously more industries and two good examples of that in the fourth quarter was the IPO of First Republic, which is a relationship we had for decades actually, and yet had no bank activity in the investment banking side, and we were part of that IPO for them.

In addition we were a book manager on one of our tech companies -- Ixia, for a convert, which we didn't have the capability, but Stifle obviously did. Those are just two examples of businesses that we wouldn't have done, I don't think Stifle would have done, but obviously with the combined platform we have done.

The tech conference went just extremely well and again I think this is an example of the power of the combined platforms. I mean our institutional attendance was up 35%. I don't think -- even though tech is kind of come back into vogue -- I don't think it was just the result of that. I think it was the result of this very large 130-person sales force that gathered more people that were interested in hearing the 235 public and private companies speaking over the course of three days. So, yes, the merger has gone, in our opinion, just extremely well.

Thanks Tom. I underscore and second all of those comments. Primarily, not only was that conference a great success, but also the fact that we are building a platform that allows us to build on each other's strengths. Most important, the people integration has been fantastic. And my experience with mergers, and we've done a few -- this is as successful as an integration as we have done up to this point and I look forward to continuing to build the franchise in 2011 and beyond.

So, let's look at the numbers. It's a year, so I think that it's appropriate that we look at what will be in our proxy for our stock performance for the five years. I am pleased to report to our shareholders that for the five years ending 12/31/10, our company's growth is up at 148% , or almost 20% compound annual growth. That compares to a five-year record for the S&P 500 of about up 12%, or 2% compound, and the AMEX Securities Broker Dealer Index which is actually down 38%.

So, our company is up 148% and our index is down 38%. I think that's a good five-year performance.

Turning to the financial results.If you look at our revenue, record quarterly revenue, it's up 26% from 2009, 18% sequentially. Over $400 million, I think we told you at the time of the merger, that we would like to see -- we thought that we could get to a run-rate of $1.6 billion in revenue in this quarter . That would be that run-rate. So in the second quarter we did achieve that.

Our comp ratio was 59% for the quarter. That's a good ratio. It's both seasonally sort of adjusted as our fourth quarter tends to be a little bit lower than in the previous quarters. But it's also good because of high revenue. As you would expect there's a component of compensation that is fixed, and so as revenue reaches these levels you're going to drive that comp ratio lower.

OpEx was 22% of revenue -- non-operating expenses not including comp . It was higher than our estimate.We still have work to do in OpEx. Again, fourth quarter tends to be a quarter where we're -- whatever expenses need to get in, get in, so it is seasonally a high quarter,, but I will talk a little bit more about that.

But net-net, our GAAP margins were 16.6% and on a non-GAAP basis taking out the merger-related expenses -- our margins were 19%. And so all in all I'm not going to complain about that. Those were very good margins for our business. And, again, a very good quarter.

If you look at our source of revenues, I want to comment about each one as to the way I look at it, and we will drill down a little bit. Principal transactions are down 22% year, quarter-over-quarter, and sequentially about 27%. There's is a couple of factors in there.

Some business -- a little bit of it is geography on our financial statement. First of all, it was a difficult trading environment in the quarter. And if I would look at, we're not a big principal trading shop but the color I would give you on that is that to the extent that we do have trading gains and we do, our trading was down about $10 million.

So that just gives some sense of what went on in our principal transaction. I don't usually talk about that, but I think that's something that we should be aware of. There's an offset to that and I will get to that.

Net; the other thing in principal transactions is that as you look at it quarter-over-quarter , it's the decline in our fixed income business. Our fixed income business had a very good year but compared to the record year of 2009 its' down. So that's a little color on principal transactions. I will touch a little more on that in a moment.

Commissions, again very good, driven by strong slows in our equity business. Our equity institutional business, very strong quarter, record quarter in our global wealth management business. And some geography gains where some of our commission business came out of the principal transaction line.

Investment banking, a $90 million, $91 million quarter, up 80% from the prior quarter, 76% sequentially. I will again give a little bit more color on that, but of course that's a very, very good quarter.

I'll remind people though, on the call that the franchise we are trying to build is not something that should look, when you think about it, too out of line for investment banking. In that, in 2007 when the markets were more conducive, I think Stifle's investment banking number was about $170 million. Tom's firm, on a combined basis with their acquisition in Canada, was about $180 million.

So $360 million on a combined basis in 2007 is not -- this is not something that is not achievable, but I would caution people that not to start annualizing that investment banking number. I think I could make my capital markets guys fall over if I told them that you had to annualize that today. It's a number we can do, but the fourth quarter was a very good quarter for investment banking.

Asset management service fees are up rather significantly quarter-over-quarter, and 12% sequentially. A lot of that increase -- we are still waiving our cash product fees. That's something that we look forward to getting back, but the increase is primarily due to the asset management business of Thomas Weisel's firm. So, net-net that was about $10 million of additional asset management fees, and that relates to the -- our partnership interest, primarily in the venture funds over in Tom's firm. But it was a nice contributor.

And in the other business, Other is up, and actually Other Income -- we had some gains in our private equity. It sort of offset half of the losses, or lack of gains in the principal transaction. So, just again, some color, but all in all, pretty good.

If you look at the next slide, which is principal transactions, you will see that unlike what maybe a lot of people expected, the decline was in taxable debt. Our muni debt, which I think the street had a difficult quarter munis, we really didn't, certainly not compared to what you have been reading about. We had a record quarter in our muni business. Our muni business is not that much of a trading operations, more of our public finance originations.

So, you didn't see the decline in the muni business that many people may have expected . On the taxable side, again a combination of the difficult trading market, coupled with reduced flows, caused the taxable business to be down 29%. But still overall a good quarter.

On equities, the equity number looks to be surprising, in being down 46% and 58%. And this is -- a lot of this is geography. During the fourth quarter we had to -- we implemented, and we had to prepare for the implementation of reg show -- and we did a programming trade. So what effectively happened was that we used to do riskless principal trades that would fall through the principal line item. Those now get classified as agency trades, and it's the way we changed our systems.

So, you see some geography between principal and agency. This probably more underscores the fact that we do not take a lot of proprietary trading risks.I've always said that, and a lot of the riskless principal business now will show up in our agency, even though we make a market, we will classify it more as it agency business, and I think that's more correct going forward. So, that will give some color on principal transactions.

If you look at investment banking revenues, again, a very good quarter with capital raising revenues up 46% year-over-year up 76% sequentially. And advisory, which was [bracing] at $40 million in advisory, so over $90 million in investment banking.

I've talked about our historical basis. I guess the way I would put a little color on it is, I have said to some of my partners that I feel like we are building a great sports car here, and we hit in all gears in the fourth quarter. But I feel like we are in third gear of a six-gear sports car. I mean, I really believe we can really build a world-class investment bank, and we're doing that.

This merger certainly is a great merger with Thomas Weisel. But it was a great quarter, but I believe there is more market share gains for us going forward.

I do want to talk about the fact that in advisory, now and that number I think will be higher than what a lot of people are expecting.We had really three relatively large transactions, that in the aggregate totaled almost $20 million in M&A fees.

So, a great quarter where some things came together. In a firm like ours, it's always interesting how backlog tends to build and get realized, certainly on the M&A, toward the latter half of the year. That continues to be the case. So, just a very good quarter , and congratulations to our investment bank on a great quarter.

If you look at non-interest expenses, again, a little, I think I had talked about we would be at a run-rate of about $80 million on a non-GAAP basis. We came in at about $89 million. About $5 million of that is things that we looked at as being normal, things that we do in year-end, plus of course, we did a lot of business. So, there is a portion of our non-comp OpEx that is driven with revenue.But overall, still, on the expense side, I would say $4 million higher, due to some sort of year-end expenses that drove that.

If you look at this, again, what I look for going forward -- to give a little bit of viewpoint of the business, is that the comp ratio is about 62 to 63, and non-comp anywhere from 20, which I've always tried to get to, 20 to 21. That's kind of what we're looking at going forward.

On the merger related expenses, we had talked about the fact for the quarter ending 12/31 that we expected a merger-related expenses of about $10.7 million. We came in at $8.3 million. We rolled that forward, as we've said, because this is timing, and we are not getting everything canceled as quickly as I thought we would. But regardless we're on track.

So, this is working just according to plan, with one adjustment that I want to talk about, or make people aware of, and that is that as we continue to maximize and optimize our real estate situation, we are looking at further integration, if you will. The way real estate works today is, if you combine properties you run it through P&L, you don't run it through purchase accounting. So, as we're looking at it today, and we're not sure yet, but we think that the thing to do both on a cash basis and on an earnings basis is to continue to combine some space, and we see some opportunities.

Net-net we could see another $8 million, we said $8 million to $10 million, but another $8 million charge that's not in our estimate for the first quarter as it relates to our ability to combine and optimize space. So, I'm not putting it in the number, I just want to have a heads-up that this is something we are looking hard at, and depending on the real estate markets we may get done. I hope we do get done because it is -- again, it flows through merge -- it's not really a cash item the way we look at real estate. But I want a heads-up on that.

If you look at the year, again, we're not -- this call's about the quarter, but I do want to comment on our 15th consecutive year of record revenue. I believe we are probably the only investment bank that can state 15 consecutive years. It was a great year, revenues, nearly $1.4 billion. On a GAAP basis we did make money after taking that huge charge related to the vesting -- retirement vesting of our deferred, and on a non-GAAP basis, diluted at about [$3.21]. So was, again for me, a very good year financially. But I think more importantly, a fantastic year toward laying the foundation for building the type of firm we are trying to build.

Non-interest expenses on Page 12.I think I've given a lot of comment on this. I'll leave with the fact that looking forward, we'd like -- I think our run-rate at this point, on non-comp OpEx is somewhere -- I had said $80 million, I think the number now is like $82 million to $84 million, so that would annualize at $328 million to $336 million.

Again as we grow and we continue to add branches and et al -- this as a number continues to go up. Our target is to again have this be 20% to 21% of our revenue on a normalized basis. But, all in all, we have some work, we always have work to do in non-interest comp expenses, but it went okay.

Look, turning to global wealth management, record, record quarter. $236 million of net revenue. The margins for the quarter at over 25% that's versus the 18%. That's a combination of a couple of things. One, again, while the Weisel firm was a strong investment banking firm, they had a nice business in asset management, and a nice business in their portion of global wealth management, that was accretive to our global wealth management business.

Couple that with the full benefit of the UBS merger, which has gone phenomenal -- not merger, the branch acquisition of UBS. That is nothing short of a great, great fit with the people that joined us in that transaction.

So, you'll see margins very strong. And this is without -- the last thing, I'm sorry, I did want to talk about was, the other reason for the improvement is a lot of the branches that we opened in 2008 and 2009 -- when I track it that way -- had lost money, and this year we made money in those branches. And while we are not at a full run rate of profitability on those branches, the profit improvement was rather significant year-over-year. Which is why we opened branches. We expect to lose money but eventually we expect to make money, any and that is what is going on.

If you look at the bank, that bank, as I've always said, the bank is a strong contributor to the profitability. The bank's profits are up 80, 84% year-over-year, relatively flat over the prior-year quarter, but the bank has again continued to grow.

If you turn to the next slide you will look that it is a low -- we think, low-risk asset growth. The assets in the bank are $1.8 billion, up 55%. There's an investment portfolio now of nearly $1 billion and a loan portfolio of about $500 million. But overall, solid asset quality, non-performing loans to gross loans of 0.38%. The non-performing assets to total assets of 0.18%. We actually had net recoveries last year versus net losses, so this all will just underscore that the bank is -- we try to keep a highly liquid, low-risk bank.

You know, looking forward for the bank, I do expect the risk profile to change, as we continue to build the loan portfolio. I think that my thoughts are that net interest margins will improve but we will take some more credit risk within the bank. But from this base which is almost no credit risk, I think that, that's appropriate.

Our institutional group, which is our fixed income and equity -- record revenue, $165 million, up 24% from the prior year, up 20% sequentially. Margins, very good, at 26%. All in all, a very good quarter.If you look at the component of revenue, again as we've always said, we felt that if fixed income was slow, equity would pick up and if equity investment banking would pick up. That's exactly what's happened.

Our equity flow business for sales and trading, $46.5 million for the quarter, so it's up 20% year-over-year which to me is gaining market share. It's part of our combination with Thomas Weisel for our investment and research, but our flow business up 20% and up 6.5% sequentially. That's offset by the decline in fixed income. But that's been expected and something we have talked about it. So net-net our flow business is down about 4%.

But, of course on the investment bank side, within their institutional group, total investment banking is $80, $81 million. The difference between this and the total investment banking is what runs through our global wealth management business, but up 82%. I've talked about investment banking, and -- but this again shows the power of the quarter.

So, if you look at the ratio of net revenues in the quarter, back a few years ago we had said I think these ratios were more -- and you can see it for the year ended 12 /31/09 we were doing 76% sales and trading -- and 22% investment banking. We felt that we were under-weighted as an investment bank, hence the strategic merger with Thom, Thomas Weisel Partners, plus what hiring we've done. So, for the quarter you will see that our flow business and our investment banking, we are about equal at 50/50, which is a ratio I like to see.

Financial conditions were again very strong. Total assets of about $4.2 billion, capitalization of over $1.3 billion. If you look at our leverage ratio, and I've had a lot of questions about this, I'm showing it this way.

Our leverage ratio is about 3 to 1, but it's comprised of two numbers at 2010. One is sort of the investment bank, which is still an un-levered model, at just two times leverage in the investment bank. And then the bank -- Stifle bank is levered at the end of the year 13 to 1.

So, our leverage ratio is going up because of the investments that we are making in the bank, and as I've said the bank will be leveraged 10, 12, 13 to 1. We'll put capital in as we need it. But that's what the growth in our balance sheet is primarily driven by, the growth in our bank. And we still are relatively -- not relatively -- an un-levered agency facing business. I think we're well-positioned as a bank because of our agency, client-facing business where we are not prop trading.

Capital structure on Page 20, there is really no change here other than we are very well capitalized. Level 3 assets, Slide 21, Level 3 assets are up. Our option rate securities -- I am encouraged by what is going on. A lot of redemption's on that. So, this seems to be working its way through the system on the option rate securities.

On our Level 3 assets excluding ARS, it's about $78 million, $40 million were trading securities. Of those, almost all of them were traded right in the first couple weeks of the year, so these are not what we hold, these are assets that we hold for sale, but that we classify them as Level 3, because they tend to not -- they are just not identical markets. But those are gone.

And then the $38 million it's primarily our investments, our limited partner investments in Thomas Weisel's asset management group. So, again, not Level 3, as a lot of people think about it from the late part of last decade.

Other financial data, just for information -- shows the leverage ratio. Book value per share ended at $36.76 . The rest of the numbers are here.

So, if I looked forward, the business outlook, global wealth management will continue to be a growth business for us. It's something where, as I look forward, we have been relatively quiet on the recruiting front for us, and we hired about 120 financial advisers, 125 last year.

It was a muted year, but the combination of our merger-related focus, plus the fact that I don't think the market has been conducive, is just the way we look at this, but that outlook has not changed for us in our ability to build this business. And I think that it will continue to do so. And we are still waiving a lot of our cash products fees and that's something that -- when the Fed gets around to raising rates we will see that benefit.

Our institutional group, again, I think we are building a world-class, middle-market, growth-focused investment bank. And the recent results show our ability to continue to build that. I think that there is a tremendous void that has been created by the events of 2008 and 2009, coupled with the consolidation that did away with the Four Horsemen and a lot of the regional investment banking firms. We intend to fill that void. I think we are on a good path and I like the trends in that business.

On the regulatory front, the studies have come out on fiduciary standard. There's a number of things going on. Net-net, I think a lot of people are trying to get this right, and I encouraged on the dialogue that I have been having that this will be done, that we'll not disadvantage business models and limit client choice as it relates to a lot of the concerns, primarily surrounding fiduciary standard. So while that's work in progress I am encouraged by the thoughtful dialogue that's going on there.

So with that,

(Operator Instructions)

Your first question comes from the line of Daniel Harris with Goldman Sachs.

Hello, Daniel.

Good morning, Ron, how are you?

Good.

Hi, been a really good quarter here, and a lot of upside in the global wealth business, which is nice to see. What are you seeing there in terms of activity rates of the end users? What are they doing these days in terms of shifting assets and how are they using margin debt?

Well, overall, the investor -- on that side of the business, I would say, the quote, Retail investor -- I don't like to use that term, but the private-client investor is clearly re-engaging, and engaging more in equity and equity-linked products, and shifting from fixed income, which I am encouraged by, for a lot of reasons in terms of asset allocation, but we see increased activity. The S&P is up 100% from its low, and it's interesting, because while that would normally underscore a tremendous bull market, on the global wealth side that was recouping a lot of losses.

And so, what you -- maybe what you are asking -- is there a lot of -- are people just piling in indiscriminate as -- which is sort of a bull market trend? I would say, no. Plus the fact that I have not seen a lot of speculation, which would sometimes be shown by increase in margin debt. So I am not seeing those things. But I'm clearly seeing increased activity.

And as that continues, Ron, where do you think we're going to see the most leverage? Do you think it's going to be a higher level of commissions and principle transactions per adviser? Do you think we'll see more coming out in terms of asset management and fees? Or how do you think we're going to see the leverage come out of that GWM business should that shift into equities continue?

I think you're going to see the leverage -- our business model is frankly indifferent to product, for the most part. I think you'll see more velocity around equities. And so that's part of where you will see some of this. The average productivity per financial advisor is up significantly for us. I expect that to continue as the markets improve. It's like everything else, as asset values increase in that base business, that rising tide is good for our business. So, I continue to -- we will continue to see that, plus again, where we still have some significant fee waivers going on. But that business -- as markets rise, that business -- there's leverage in that business.

Okay, thanks. And last for me, another pickup of about 15 financial advisers this quarter, but continuing a trend of a challenging recruiting market. You touched on it in your prepared marks, but would love to get your views on what that market looks like externally, and how you guys are thinking about both organic and non-organic growth in the GWM business? Thanks, Ron.

Yes, organic. Again, I think that we have a business model that welcomes and embraces entrepreneurial financial advisers. And so that, it continues -- we continue to be a firm of choice for those people. A lot of the turmoil that existed in the 2009, and the beginning of last year, has subsided. I think a lot of the firms have gotten their act together. And I am encouraged by that for the industry. But, we will continue to gain market share. Our recruiting has mostly been muted because I feel that what's being done on the Street doesn't make financial sense to me.

And so, we're going to continue to build this business with an eye toward shareholder value, which is what I think we are supposed to be doing. And the trends will come when they're supposed to come. We tend to recruit in more difficult markets more, in good markets like this, less. So, on the organic side, that's a long-winded no-answer for you, which is that we'll continue to take advantage of opportunities.

On the acquisition front, we will continue to evaluate. We are always looking at things, and if they make sense we will be a player. I think we have shown that we can both structure deals that add value for everyone and integrate them. And I look forward to doing more, but as always, we don't set out to do anything. We tend to take advantage of opportunities. And I'm encouraged by what I see, but we will see. There you go, Daniel. Didn't answer your question.

Thanks, Ron.

Your next question comes from the line of Devin Ryan with Sandler O'Neill.

Hi, Devin.

Hi, Ron, how are you doing?

Good.

Good. I just want to get a bit more granular on your comments on sales and trading. When we look at taxable fixed income, if we assume you don't have that same difficult trading environment going forward, is it fair to assume that revenues could bounce back to the range in prior quarters from earlier this year or does that business still need to normalize further? And then just on the equity side, do you feel like there is still a long ways to go on broker boats, and leveraging the TWPG business, or do we see a lot of that progress in the fourth quarter?

Well, I'll take equity first. No, I think that we're in the early stages of getting people to understand our new platform and our new research, and all that that entails. I am beginning to see some increase in our flow activity, which is encouraging, but I think it takes time to get through boat cycles, to understand the new sales and trading team that we have on the field, so to speak. And I think that that's an on-going process and a process that takes time, but we have excellent research, excellent analysts, excellent sales and trading.

And our capabilities, in my opinion, exceed what our market share. I think we have market share gains and we're going to continue to get those as we execute, and continue to show our product and what we are able to do on the equity side.

On the fixed income side, I think what I was trying to say was that if you look at the quarter, I think that we are sort of at a new run-rate of fixed income, but the principal transactions in a normalized basis might have been down $10 million. That was the number I gave you because of what I felt was a difficult trading environment. So, on the taxable side, if you look and add $8 million to $10 million, then that might give you a sense of what is going on there.

And on that business we can continue to add people and continue to build that business, but with the existing flow business -- 2009 was euphoria in the fixed-income markets, and I didn't expect that in 2010, and I certainly don't expect it to return in '11, but I think we have a very, very good fixed-income business, and so I would look at the fourth quarter adjusted for what I told you on what I felt was a trading, and that'll give you a decent run-rate .

Got it. Okay, that's helpful. And then just a follow-up on your comments on acquisitions, and maybe just from a different angle, I just want to get a sense of -- is it overall level of interest increasing or decreasing from potential sellers? What businesses just across the platform are you seeing the highest level of activity or interest? And then, just generally price expectations. Are they changing significantly with the market improving as much as it has?

The answer to the last question is that probably price expectations do change as the market improves. Our mergers are never sellers and buyers. Our mergers are driven by people and firms that for various reasons, primarily platform and scale reasons, want to partner with a firm that shares similar culture. So when you look at the Ryan Beck transaction, and the Butler Wick transaction, and what we did up in Minneapolis with the Miller Johnson, and frankly the UBS branch acquisitions, those were all deals that were hand-in-glove in terms of our philosophy, and the way that we run the business.

So, we are not out just to buy any firm. We are out there to partner with firms that share our philosophy. I have no comment on really what's going on. It's a good market right now, and I think that what may drive that business going forward will be some of these regulatory changes, which could be very burdensome to smaller firms. And that's -- I'm comfortable with our scale, obviously that we can handle that, but as we get through this consumer protection, and all the Dodd-Frank stuff, that may drive some activity.

Okay. Thanks for the color, Ron, I appreciate it.

Your next question comes from the line of Joel Jeffrey with KBW.

Hi, Joel.

Hi Ron, how are you?

Good.

Just to touch on the bank a little bit more. Is there anything that you're looking for in terms of -- sort of a jumping-off point to get you to take a little more risk at the bank, or are you just sort of gradually going to build this business out?

Jumping off point?

Well, I mean, is there a point in which you feel that your businesses -- other businesses may be lagging or something, that you're looking at? Are you holding off on accelerating the risk profile at the bank until other businesses pull back? Or is there just a general consensus to build the bank more slowly?

Well, it's the latter. As I've said, there's no question that the bank has the ability to double almost overnight, and that certainly could improve earnings overnight, if you would do that. But it's not linked to anything else. We are not balancing the bank's growth or slowing the banks growth because of what's going on in the investment bank. Those are not linked at all.

What we are doing in the bank is just prudent growth. My sense has been, and I think I said this on other calls, that to jump into the market and just be out there and doubling the bank overnight is making a best-in-the-moment as to that yield curve to those credit spreads, and everything that is going on at that basis. I think that flow, and we're not slow, we were up 55%, but balanced growth is inappropriate.

Now, the other question that I think you might be asking, but if you're not I'll answer it anyway, is that within the bank, I think that we need to look and we're going to look, at doing higher margin, and hence a little bit riskier product. So, I don't foresee our growth in assets to be agency-based investments. I expect them to be in C&I type loans. We are building a very strong credit-conscious culture in the bank, but when we start doing that, you're going to see net interest margins increase, you will see our loan loss provisions increase too. But net-net, the bank is well-positioned.

So, a lot of liquidity, a lot of things going in the bank, but I could make the bank $5 billion tomorrow, but that doesn't make sense to me, Joel.

Okay and then just jumping back to -- or staying in global wealth management, I should say. In terms of growth, do you think in terms of organic growth you're going to see more out of existing branches, and if so what's sort of your capacity within those branches? Or do you anticipate more of a build-out of the branch network in regions you haven't gotten to yet?

Both. I think we'll still be opportunistic to people who share our philosophy, and we'll do that. But there is also a lot of -- we are looking at, and focusing on our ability to fill empty desks. We have 30% capacity, something like that, within our existing branch structure. We've opened a lot of branches that have capacity, and so we're going to be doing that. That is the most highest-margin way to utilize our plant and equipment, if you will, and we're going to focus. It's also hard to do. It's actually harder recruiting than opening new branches. But I look forward, and we've put out some things to encourage our branch -- our FA count -- within our existing branches.

Okay, great. And then just lastly, given the growth you had in M&A this quarter, is there any particular vertical that you're seeing outside of that activity, that you expect to really continue to drive the investment banking business for the next year or so?

Again, what the last quarter shows is that you can't - you're not going to do that kind of revenue unless you're building an investment bank. And so we're adding capabilities across a broad range of industries. And as Thom said earlier on his call, the ability to cross two products and build things, whether -- I see tech and I see IPOs.

Frankly, I think 2011 can be a very good year for IPOs. We're getting certainly our share of mandates and file covers, and I am encouraged by that business. But I am mostly encouraged by the depth of quality of the people that are on our platform and their ability to have the trusted discussion in the corner suite with people and that's what drives M&A. And that's really across financial services, technology, health care -- we've added a lot of capability and I'm encouraged.

Again, Joel, I will just reiterate the remark that I don't -- I want to caution people to not just start annualizing those results. There were some nice M&A fees, but over a cycle I think that we are -- I expect our investment bank to continue to gain market share.

Great. Thanks for taking my questions.

Your next question comes from the line of Patrick David with Bank of America/Merrill Lynch.

Davitt.

Good morning, how are you all?

Hey, Patrick.

So, in the third quarter you obviously took the compensation charge to pull -- which pulled some amortization out of the out years. Now that you've kind of made the -- I assume you've probably made your end-of-year comp decisions. Do you have an idea how much of that amortization we will seep back in over 2011, from the restricted stock awards?

Yes, you've been writing about this.

We can do it off-line, if it's better.

No, actually I don't know -- no, as I go here, it's a fair comment. It's probably -- I'm not sure I can do it off-line but maybe I will get -- I'll put something out on that. Patrick, let's go on your question, I will try to give you the answer now -- Neil's sitting here, and -- forward amortization for 2011, we'll give you that. Help you write your report.

Thank you. And you talked about FA recruiting? On the institutional side is your sense that some of the comp decisions that have been made at the larger firms are going to put you in a better position for recruiting going forward? And in that vein, what kind of holes do you still feel like you want to be filling on that side?

On the institutional side?

Institutional, yes.

On the institutional side, I think we have a strong team on the field, and we are always looking to -- in markets to do things, but I think that with our recent integration and the fact that we've added sales and trading and trading capabilities in sectors we weren't trading, plus the fact that we have -- covering 1000 companies, I think we need to optimize what we have. I don't know, from my perspective, that that's going to require hiring more people.

Right.

We have very talented people, we just need to continue to get to know each other and that's part of the integration process of the merger when you add a whole new sector. But, I think that we've got a first-class, world-class sales and trading operation for our business model, and now we just need to optimize it. The real question where growth is going to come, will continue to be in global wealth management FAs, Patrick.

Right, okay. And then, as the fiduciary standard gets worked out, do you feel like you have all of the back-office and compliance, I guess, systems and expense in place, should it go to that?

Well, sure. We operate today with a portion of our business, as does every firm like ours, a portion of our business is under the 40 Act. I think that the real question is, is that this fiduciary standard, and I don't want to get too technical, but it seems to be trying to provide an umbrella, or an overlay, between the 34 Act -- the 33 Act and the 34 Act on one hand, and the 40 Act on another hand.

And while that has some regulatory appeal, it's very difficult operationally. A fiduciary standard is sort of a blanket standard and the broker-dealer model has investors with vastly different tolerances and risk objectives. So that's what's difficult. It isn't that we couldn't do it, it's just how does that impact the underwriting of a tech IPO, to the underwriting of it muni bonds, which are prohibited under the 40 Act.

Right.

So, those are the things. But I am confident that people understand that, and understand the differences in these models. And I think we'll -- I don't think people -- fools rush in, right? And I don't see 75 years of business, and the way we do business, getting just tossed around through this process.

All right. Thanks a lot.

Patrick? Here, I've got your number for you. You can write this. So, going forward, about $8 million.

Okay.

In 2011.

For the 2010 awards?

Approximately.

Yes. Thanks so much.

Your final question comes from the line of Hugh Miller with Sidoti.

Hi, Hugh.

Good morning, good morning. Most of my questions were answered so I've just got one touch up. You had made some comments about the opportunities, potentially, in the wake of Dodd-Frank in the retail side for an M&A deal here, just putting some additional pressure, from a regulatory standpoint, on some of the smaller players. I guess, given the trends we are seeing in the retail space right now with a kind of asset allocation back -- starting to shift back toward equities, how do you balance between trying to be proactive and look for opportunities, versus maybe being patient and waiting for a distress-type of purchase? Any comments there?

Well, yes. I don't -- I think it's pretty well understood by people that I talk to, that I try not to be proactive in anything, in terms of going out. I think that that doesn't make sense. There's always a deal to do if you're willing to overpay. And it's -- we look to do transactions where I'm not -- I don't want to model 40% attrition or 30% attrition and then pay a big price. I want to do deals where we have new partners. And when we sit and talk to someone, we talk like partners and everyone shares in the success. And every one of our deals has people taking equity and have shared in the increase in the equity value of our combined organizations.

And those are the deals that will be out there. They will, if you're patient, they will come. If you tend to try to go out and force those things, I think you make mistakes, not on the revenue side, because I think the revenue side will be the beneficiary of mistakes. But on the shareholder value side, and the increase to shareholder value, those mistakes are permanent. You don't get them back. And so, I'm just not about top-line growth, I'm about driving shareholder value, and so we'll remain patient.

Okay. I appreciate the insight there. And the last one is, through other deals and so forth, you guys have kind of picked up some exposure to asset management. Does that seem like an area you would like to continue to grow? Or just given the other opportunities, not even get a focus, really.

No, I think it is a focus. We have some -- I thought that -- I think that Thom, both personally, and at Montgomery, and with what he was doing at Thomas Weisel Partners, he's made some investments. I've talked to him about how to build that business. I think he's got some great ideas. They have some -- planted some seeds in some areas that are encouraging. And I think that's the way to build asset management, is sort of from the ground up. But if we would run into one of those compelling, patient, transactions, we would look at that too. Asset management is an area that we are under-weighted to right now, for the type firm we are, and if we have the right opportunity, I would love to do that . But again, not at any

Okay, just one quick last one, I guess. Would you like to share your insight into when you, maybe personally, think that we will see rates come off the bottom here?

Hugh, I tell anyone who predicts interest rates that they are either foolish or ignorant. But, since you asked. I don't know, Hugh. I think that I personally believe that we need -- interest rates, in my opinion, are low to prop real estate. I think the concept of deflation and the deflation worry, appears to be off the table. Today we're exporting our inflation to countries that link their currency to ours, that are growing fast, i.e., China, Brazil, all those countries. And that to me is a boomerang effect and that inflation can come back -- you're seeing it in commodities.

I personally believe that we need to raise rates sooner rather than later. I believe it would be actually positive for the equity market. I know people think I'm crazy that actually an increase in rates could be positive. I personally think it would be. It might suggest that the patient, i.e., the economy, is off intensive care. But I'm concerned about the unintended consequences of keeping real interest rates this low for an extended period of time. So I would hope that we would do that. My thought is that you will see something by the end of '11. But this is on the short end of the curve. What will drive it will probably be -- the long end of the curve will drive this.

Okay. I appreciate your thoughts.

That and three bucks in St. Louis will get you a cup of coffee.

Thank you so much.

All right. Any other questions?

That was our final question. I will now turn the floor back over to Mr. Kruszewski for any closing remarks.

Well, great quarter. To my partners both at Stifle and Ryan Beck and Butler Wick and UBS and all the things that make Stifel today, I congratulate them. To our shareholders, thank you for your continued investment and confidence in our firm. I look forward to continuing to build this firm and take advantage of the void in the market opportunities created by consolidation, and what happened at the end of the decade. And we look forward to talking to you next quarter. Have a great day. Thank you.

Thank you, this concludes today's conference call. You may now disconnect.