Stifel Financial Corp (SF) 2011 Q3 法說會逐字稿

Good afternoon, my name is Jessica, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the third quarter earnings 2011 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. Jim Zemlyak, CFO of Stifel Financial, you may begin your conference.

Thank you, Jessica. Good afternoon, everyone. This is Jim Zemlyak, 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'd like a copy of today's presentation, you may download the 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 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 measures of financial performance and liquidity. These non-GAAP measures should only be considered together with the Company's GAAP results. And finally, for a discussion of risks 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 MD&A of results in the Company's quarterly reports on Form 10-Q. With that, I would like to turn the call over to our Chairman, CEO and President of Stifel Financial, Ron Kruszewski.

Thank you, Jim. Good afternoon, everyone. Our third quarter demonstrates the importance of our balanced business model, particularly in a volatile environment. While not immune to the current macroeconomic headwinds, our Global Wealth Management segment generated impressive results while the dearth of capital markets activity weighed in our investment banking revenues.

Our business model and capital base are solid. We need conviction in the marketplace and lower volatility to return to the margins our firm is capable of producing. We remain focused on servicing our clients and are well-positioned to capitalize on the opportunities ahead. Looking at the third quarter, I'll comment on an overview basis on the macroeconomic environment, the market, and then how I looked at Stifel. From a macro perspective, the third quarter was marked by the downgrade of the US debt rating by Standard & Poor's in August coupled with the uncertainty generated in Washington. Of course, the European sovereign debt issues weighed on the market.

Most economic data, including employment and housing, pointed or led many people to speculate of a double-dip recession during the summer months. That resulted in the S&P, NASDAQ, Dow and Russell declining by 14%, 13%, 12%, and 22%, respectively. The VIX spiked 160%. Amazingly, there were zero IPOs in September and the flight to safety drove down US Treasury yields to historic lows. However, Stifel's balanced business model was important in this volatile environment.

Our Global Wealth Management revenues increased 6% while our operating contribution increased 8% compared to a year ago. We remain on the institutional side a provider of choice of both research and execution services and are gaining market share as evidenced by our increase in flow business. We believe in the firm's prospects as evidenced by repurchasing $48.5 million or 1.7 million shares during the third quarter. Our leverage model remains very conservative at 3.7x, and as I've said before, we have no exposure on our balance sheet, gross or net, to European sovereign debt.

Looking at the three months ended September 30, it is important to point out that year-over-year comparisons represent a true comparison of last year's third quarter. It was the first quarter that included Thomas Weisel's contributions to our firm. Also it's important to note that the second and third quarter of this year were completely different environments, as the third quarter was certainly difficult, especially as it relates to the institutional business. For the quarter, we had net revenues of $334 million, which was a 2% decrease over the third quarter of 2010. Our GAAP net income was $22.3 million, or $0.35 per diluted share, compared to non-GAAP net income of $29.6 million, or $0.48 per diluted share, in the comparable quarter of 2010.

Pre-tax margins were 12% compared to non-GAAP pre-tax margins of 15% last year. Our results compared with analysts' expectations. When you compare them to what was expected, they were off or varied primarily by three factors. First, our net revenues were 2% lower. We had a higher tax rate which accounted for about $0.03 a share, and our non-compensation expenses were also slightly higher. On the revenue side, commissions were stronger while investment banking revenues were down as was expected.

Looking at the nine-month, net revenues of $1.1 billion represent an 8% increase over the comparable nine months of 2010. Excluding non-core charges, non-GAAP net income was $86.5 million, or $1.37 a share, compared to $1.39 a share for the comparable period in 2010. For the nine months, we had GAAP net income of $57.1 million or $0.90 per diluted share. Non-GAAP pre-tax margins for the nine months was 9% compared to 13% in a comparable period of 2010.

Looking at our source of revenues, for the three months commission revenues increased 48% to $143.2 million. The increase was primarily attributable to an increase in client assets and higher productivity, plus, again, I will mention a geographic change between commissions and principal transactions. The principal transaction revenue decreased 38% to $76.7 million. And as I've discussed, the increase in commissions and the corresponding decrease in principal transactions is primarily attributable to a change in classification of certain equity trades that were recorded as principal transactions during the third quarter of 2010 that are now recorded as commission revenues.

This was the result of regulatory changes that occurred during the third quarter of 2010. This is the last quarter where this classification has slipped between the revenue categories. I think a more appropriate result is to compare principal and commission results on a combined basis. And if you look at it that way, they were flat year-over-year. Investment banking revenues declined 27% to $37.7 million. The year-over-year decrease was primarily attributable to the volatility and uncertainty in the market that curtailed capital raising and to lower M&A activity.

For the quarter ending September of 2011, asset management service fees increased 15%. The increase in the -- from the comparable period is primarily the result of an increase in the value of assets and fee-based accounts which totaled $18.5 billion at the end of the quarter, and the number of managed accounts which was offset as it has been by a reduction in fees from our money fund balance due to the waiving of these fees. Looking at our brokerage revenues, as I said, you should look at them combined, principal transactions and commissions are relatively flat when you look at it that way. And while we do not engage in proprietary trading the market environment in the third quarter impacted our net trading profits which contributed to the decline in principal transactions.

It is, even despite that, it's worth pointing out that our commission revenues even if you disregard the geography change was strong. And that represents, I believe, our gaining in market share in our Institutional business, primarily our equity business. Looking at investment banking, our investment banking results were impacted by the lack of activity in the marketplace, higher volatility and simply companies sitting on the sidelines while uncertainty surrounding major macroeconomic issues play out. While we're not pleased with our results, we are seeing increased activity in the fourth quarter.

As I said, revenues, investment banking revenues declined 27%, and both on capital raising and M&A contributed to that decline. Looking at core compensation and benefits as a percentage of net revenues, they were 63% compared to 62.3% last year, which last year that ratio excludes the acceleration of deferred compensation expenses and merger-related expenses. Transition pay, which primarily consists of amortization of up front notes, signing bonus, and retention awards contributes to the increase in our compensation ratio. Our stated goal of an annualized compensation ratio of between 62% and 63% remains, but ultimately it is dependent upon the achievement of certain revenues.

Looking at non-comp operating expenses, they totaled $84.6 million for the third quarter of 2011, which was up 8% compared to the prior quarter of 2010. Non-compensation expenses as a percentage of net revenues was 25% compared to 23%. And, again, that's driven by just lower revenues and lower activity. That also said, despite lower revenues, we've also continued building out our platform in order to maintain the scale necessary to compete and be a top player in the middle market space. We have continued to add professionals, technology and events that contribute to our full-service operations.

If you look at our segments during the quarter, our Global Wealth Management operating contribution was up significantly while our Investment Group contribution, as you can see, was down. Typically, we would expect our segments to be more balanced. I think our Global Wealth Management contributed 86% of our profits. But given the environment, it points to our balanced business model in that the Global Wealth Management balanced the decline in our Institutional Group. Our Global Wealth Management posted a 6% increase in revenues while our Institutional Group had an 18% decline in revenues from the third quarter of 2010. That, again, it's volatile times like this that I appreciate our model of stability in Global Wealth Management offsetting the volatility in Institutional business.

As I said, the contributions from Global Wealth Management was a bright spot in the quarter. We posted pre-tax operating income of $55.6 million, which was up from $51.7 million. Net revenues for the quarter were nearly $220 million. The increase was due to really three factors. First, higher commission revenues as a result of increased client assets coupled with higher productivity. Second, growth in asset management service fees as a result of an increase in assets under management. And finally, increased revenues as a result of the growth of net interest earning assets at Stifel Bank.

Those three items was offset by a decline in principal transaction revenues. Stifel Bank reported net revenues of $17.6 million, which was a 17% increase over the prior year. If you look also, if we turn to Stifel Bank and Trust, the -- we had, beside offsetting revenues, was interest expense increased $2.8 million from the third quarter. That is we have a reclassification going on that, for people that are following our numbers, we have interest expense that is associated with our bank's cash flow hedges as recorded as other operating expense. And we had -- that's offset by an increase in deposits that we sweep to Stifel Bank.

The growth in Stifel Bank has been primarily driven by a growth in deposits associated with our brokerage customers. As of the end of the quarter, the balance that we've swept to the bank is $2.1 billion compared to $1.4 billion at September of 2010. With respect to asset quality, we continue to maintain extremely favorable and positive ratios as the primary goal of Stifel Bank is to facilitate our clients. Assets continue to grow and are now at $2.3 billion. Of the $2.3 billion, $2 billion are interest-earning assets.

Our investment portfolio today is $1.3 billion. And that consists of 99% investment-grade securities, of which more than two-thirds are GSC guaranteed MBS or AAA rated investments.

Turning to our Institutional Group, for the quarter we generated pre-tax operating income of $9.2 million, which was down from $27.7 million in the third quarter of 2010. The revenues of $113 million compared to $138 million, and as I've said, the decline in revenues was primarily driven by the environment and the lack of any real conviction in the marketplace or any capital raising activity. If you look at revenues, our institutional brokerage revenues were $79 million which declined 10%. Two factors there. First, our equity institutional brokerage revenues increased 8% compared to our prior year. So that continues the trend in the equity business of gaining market share.

And our fixed income, that was offset by our fixed income brokerage revenues, which declined 27%, although our fixed income business was up sequentially. So I think we've seen somewhat of a plateau from very strong fixed income markets of 2009 and 2010. Investment banking revenues, down 26%. We had -- compared to last year, our capital-raising revenues were $21 million, down 5%. But a steep decline in advisory fee revenues. We totaled $12.5 million, down 46% from the third quarter of 2010.

While our third quarter investment banking results don't show the companies that are getting ready to go public, July started off strong. We completed six IPOs, two of which were co-book managed. But activity simply halted in August, which compounded our slowdown, which was compounded, frankly, by the debt debates and anemic growth forecasts. With zero IPO pricings in September and three in October, we are only now witnessing a pickup from September and October levels.

Currently, we're involved with four IPOs, one of which is book managed, and three are co-managed. All four of our IPOs are expected to price within the next two weeks. There has, though, been no slowdown in IPO filings. The industry backlog remains at a 10-year high. Our backlog of filed and mandated IPOs stands near its all-time high with 60 total, of which 28% are book managed. Our conversations with issuers remain active. Of course, we need to see a more favorable market for those companies to get public.

We also expect to see an active follow-on calendar between now and year end. This week alone, we've seen a number of follow-ons file and launch that aren't in our backlog numbers. Today, we announced a joint book-managed deal, and were a co-manager on two others that were in the market this week. Recent -- the volatility in the market has made M&A more challenging. Even so, we closed 10 transactions in the third quarter. Our fourth quarter started well with five transactions closed already, including advising a longstanding client, Microsemi, on its acquisition of Zarlink Semiconductor.

We also recently won our first joint restructuring assignment with Miller Buckfire. So I'm pleased with the progress that we have with that strategic alliance. Turning to Stone & Youngberg, we closed that acquisition on October 1. Stone & Youngberg's capabilities broaden our public finance exposure in markets that we previously did not conduct business in, which was primarily California and Arizona. If you look at these rankings, you will see that while we had no -- really any business in California, we now are ranked number one by number of issues and number two by par value in California. I'm excited about our positioning in [muni] finance, and I am pleased to welcome the team from Stone & Youngberg and look forward to their contributions going forward.

If you look at supplemental financial data, we have a strong balance sheet, $4.9 billion of total assets, $1.3 billion of equity resulting in a book value per share of $24.48. As I've said, we have no exposure to non-US sovereign debt. We continue to manage our business utilizing low leverage. I think that's particularly important in these uncertain times. Our leverage ratio at the parent broker dealer is a little over 2x, and including the bank, our leverage is at 3.7x.

We'll continue to examine strategies to increase the leverage of our Company and our return on equity, but we will execute this on a prudent risk-adjusted basis. As I mentioned during the quarter, we repurchased $48.5 million or 1.7 million shares. On November 7, the Board authorized an additional 3 million shares. So today we have a total repurchase authority of 4.3 million shares.

Our financial advisor growth remains relatively muted due to the very competitive environment where we choose not to be overly aggressive. However, we'll continue to seek opportunities as we always do. Our client assets increased 7% to $108 billion as of the end of the quarter. Looking at Level 3 assets, which are primarily, consist of ARS, our Level 3 assets totaled nearly $189 million at September 30. Of that, $67 million of that is ARS held at Stifel Bank in our available for sale portfolio. The increase in ARS at Stifel Bank has been offset by issuer redemptions in our broker/dealer during 2011.

Other investments consist primarily of $30 million of private investments held by our TWPG subsidiary. Finally, I have received a number of questions on our growth strategy. I want to emphasize that we remain committed to our strategy of building the firm by taking advantage of opportunities. We will see through this current market turmoil. I will now open the call for questions.

(Operator Instructions) Your first question comes from the line of Devin Ryan with Sandler O'Neill. Your line is open.

Hey, good afternoon, Ron.

Hey, Devin.

So you've recently commented that, I guess, some regulations like the Volcker Rule could be good for Stifel. So just wanted to get a sense of are you seeing any fallout from your larger peers where you feel like you're benefiting? Also, do you feel like there's any merit maybe to the argument that the extent the regulation weighs on overall industry volumes, that's going to impact all firms, not just the firms that are subject to regulation?

Yes, I think you're commenting on a comment I made at our Industry Conference. And while I said that since we're not as impacted by the Volcker Rule, as proposed, as some of our larger competitors, that that could be a competitive advantage. But I went on to say, Devin, that I don't believe that that rule is in the best interests of capital formation, liquidity, a number of things. And so being somewhat altruistic, while I could see some benefit from us, I certainly believe that the overall impact on markets activity and capital formation would be a net negative for Stifel and maybe not as big of a negative, but I certainly don't even want to see a net negative.

Got it. Okay. And then just -- there's obviously been some well-known acquisition opportunities in the market recently. Without getting into any specifics, would just be helpful to get your general philosophy on when you look at deals, what are the most important criteria and what makes a deal make financial sense to you? Just in general?

I mean, in general, I mean, we always look to take advantage of opportunities where we can increase our capabilities and increase shareholder value on a prudent risk-adjusted basis. I think that our past has shown that that's what we do, and when we look at things that's always our same criteria. So we're -- we continually evaluate opportunities with those core principles as our cornerstone.

Okay. And then just within fixed income, it sounded like there may have been principal marks this quarter, maybe some inventory marks. Just want to get a sense of, if you can give any more sensitivity around how much that played on kind of the fixed income results in the quarter?

Yes, I think, I mean, overall the numbers -- and I'll come back -- but I think the -- we're not big on net trading profits which is a more significant aspect of principal transactions. And while I don't -- we didn't have trading losses, I think that our net trading profits were down $10 million to $12 million. You can run the math on that. So it was not a conducive to -- really in almost any context in the institutional side.

Okay. Perfect. Yes, that's the color I was looking for. And then just lastly from me, with the tax rate, there sounded like some adjustments this quarter. Were those essentially one-time in nature, or is a higher tax rate reflecting -- is a higher tax rate how we should think about things going forward?

I think that the tax rate, 38.5% in that range, is what we're looking for. We had some -- those had to do with some adjustments in some of our foreign subsidiaries. I'm not sure I completely am conversant on all that. But I do know that that's not reflective of a run rate going forward tax rate.

Okay, great. Thanks, Ron.

Yes.

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

Hey, Ron, how are you doing?

Hey, Joel.

Just to follow up a little bit on Devin's question. In terms of acquisitions, I mean, what capabilities are you specifically targeting at this time?

I'm not targeting anything.

Is there anything you feel like you can build upon?

We always look to add to the capabilities of our firm. We -- Stone & Youngberg was a great fit in the muni finance area. We didn't have -- that was a straight bolt-on, almost merger, in terms of adding capability in our muni finance area. Miller Buckfire was good. Thomas Weisel -- all have their unique characteristics that play as to -- we're trying to build a firm that, as you know, has grown for 16 consecutive years. We try to build the firm with an eye toward being the premier middle market investment banking firm in the country.

Okay. And then just maybe sort of housekeeping question. It looked like Other revenue was down pretty substantially. What was driving that, and is it sort of where should we model that going forward or is it likely to bounce back to the higher number of the past?

That number will tend to be a little more volatile, Joel, in that we have, with our Weisel transaction in our asset management subsidiaries, we have private investments that fluctuate in value. The number's not big one way or another. That line item isn't that big. But it does show swings and a lot of that is marking those investments to market.

Great. And lastly, thinking about -- I apologize for not remembering this, but the asset management line item. Are your asset management fees based on the trailing quarter end asset levels?

For, the current quarter is based on September 30 asset levels, if that's what you're asking. So Q4 is based on beginning of quarter asset levels. Q3 was based upon June, end of June. So we bill, whichever way that is, in arrears or advance, I guess --

In advance.

In advance, thank you.

Great. Thanks for taking my questions.

Sure, Joel.

Your next question comes from the line of Daniel Harris with Goldman Sachs. Your line is open.

Hey, Ron, how you doing?

Good.

So I wanted to talk a little bit about the window that exists here in the fourth quarter for investment banking. You mentioned that you've seen a number of deals come to market. There's some follow-on activity. But it seems like the markets are still really volatile here. I think today's a very good example. Is this window something that can shut pretty quickly with a few bad deals, or do you think given that we haven't seen much in the last three months that there's just a level of activity that has to happen whether it's this quarter or at the, I guess, latest or the first half of next year?

I think -- that's a great question which I don't know that I know the answer to. I -- you see, it's almost as if the people anticipate the volatility. And while you have good days in the market, you follow with a day like today. The only thing I will say is that our conversations with clients, companies, so to speak, if you want, when I look at our backlog, there is a high quality backlog of companies that just need relatively stable markets.

It's hard to launch these deals into this kind of volatility. So when -- if we can get some resolution to Europe, I think that the US double-dip recessions are behind us absent some impact of Europe. I think if we can get Europe solved and if there's some positive that comes out of this budget committee, I really believe that these markets and the capital markets from these equity levels which are not -- which are conducive, I think, to these companies coming public. But when you go from -- when you go from Greece to Italy both sliding into the sea it seems like, it's very difficult. So I don't know the answer. What I do know is we have a high quality backlog and these companies will get to the marketplace. Fourth quarter, good question.

Yes. So I wanted to also stay in the securities area and talk about fixed income. You actually did very well versus, obviously, the larger peer group, and your strategy in this business is very different. But I was wondering if you could characterize what is -- I'm guessing August was difficult. But what is the right environment for you to sort of maximize your profitability in that business? And any help you would give us on how things are going thus far in the fourth quarter would be great.

Yes. Fixed income for us is not -- what I think you see, the volatility that you see in the marketplace is the result, in my opinion, of large marks of Level 3 assets swinging one way or another which masks overall flow business. We don't really have that. We're primarily a client-facing business. And so I'm not looking at huge marks that are masking my results.

Sometimes I think some of the performance when it's really good are simply marks up and marks down. So our strategy has not -- we're not levered in that business. We don't prop trade and we don't have a huge carry trade. So I think what you're seeing in our business is just strictly flow and client facilitation business. The market that we -- that is good for us I think is -- can be really any market absent huge volatility or uncertainty. It's been a decent environment relatively speaking, third quarter, and it continues in the fourth quarter.

Okay. That's helpful. And then my final question here is, and this is sort of two parts. But your Stifel Bank loans are up 43% this year, which is obviously a very good number off a low base, of course. Would love to get your view on where that could go just in the current environment, both in terms of your assets and in terms of the macro? And then the second part this question is, your leverage has down from 3.0 to 2.2 over the past year. I mean, how should we be thinking about that? Are you just going to be in this 2x to 3x leverage and then keep the bank levered to 13x or can we see the broker/dealer leverage go up, as well?

Well, first of all, the bank is undersized relative to its opportunities in our brokerage. So we continue to grow the capability of the banks you're seeing. We see a lot of demand out of our system, and I can -- I believe that we'll continue to see quality asset growth. A lot of that is our Regulation U loans, security-based loans. We've been looking at [portfolio-ing] more of some of our adjustable rate product and our jumbo product.

Again, we're seeing very high quality assets that is being generated both out of the Private Client Group and as the bank gets larger, it opens our ability to participate in more quality corporate credits that our clients, as our ability to lend goes up, as we grow the bank. And this is all balanced. So I continue, and I've said that as I look forward, the bank will continue to increase its relative profitability of the Global Wealth Management. It will grow faster organically, but we're doing it with prudence, we're not just wholesale increasing assets in the bank.

So I'm pleased with that, and I continue to believe that we will leverage the bank and its capabilities and continue to grow assets nicely. As it relates to the leverage, our leverage is actually 3.7x, which I think is a little bit up consolidated. That leverage is all driven by leverage in the bank because we're increasing our footings by sweeping deposits off balance sheet/on balance sheet and putting assets out there. And I've said that you'll continue to see the leverage increase in the Company at the bank level. I'm comfortable with our business model.

And the broker level, I don't see a real need to increase the leverage there. If we increase the leverage at all, as I've said in the past, we'll look at it in our capitalization structure as to debt versus equity and how we'll deal with leverage there. I mean, I think overall we tend -- we are overcapitalized. But this environment -- that has served us well.

Okay. Thanks a lot.

Your next question comes from the line of Hugh Miller with Sidoti. Your line is open.

Hey, good afternoon.

Hi, Hugh.

Hi. I had a question about the comp ratio this particular quarter. I guess, given some of the top line challenges, it actually came in on a ratio basis a bit below what I would have anticipated. Wondering whether or not there was any true-ups in the quarter, or is that just kind of a shift in mix towards more GWM business and kind of growth at the bank where, obviously, there's some good leverage there, as well?

I think it's a combination of all of those, frankly. The ratio on a relative basis, though, is -- would normally trend down as we get more into the year and we get more visibility. So you didn't see that. The comp ratio is something we have to look at closely if revenues don't materialize because I don't want to dismantle what we've built over the last few years because of a couple of difficult quarters. But I think you answered your own question with respect to a lot of the increase in profitability in the bank does not result in an increased comp ratio.

Yes. Okay. And can you just remind us again, your conversation about that 62% to 63% target ratio? Is that on a gross or a net revenue basis?

Net.

Okay. Okay. And one of the areas, I guess, we didn't talk about much on the advisor recruiting side, I mean, you were able to pick up a couple of advisors during the quarter. But I guess some of your peers have just talked about seeing a little bit of a pickup in interest, home office visits and so forth, and people looking to possibly make a move, stronger recruiting environment relative to the beginning of the year.

Just was wondering if you could talk about that. I realize fourth quarter, brokers don't tend to move around nearly as much. What you're seeing on the recruiting side and how conversations about up front money are now relative to how they were at the beginning of the year?

I would think that the general competitive environment is less competitive relative. I don't see the amount and magnitude of deals that we have seen. But the same volatility and uncertainty in the marketplace, and days like today, I think it's very difficult for financial advisors to be talking and reassuring their clients and also be thinking about picking up and switching firms.

I just -- so we look at these times and understand the relative -- I think it's still relatively muted in these times. And I think it's justifiable. There's a lot of volatility in the market. And I think a lot of people are tending to their knitting versus considering their alternatives which we remain, I think, a number one alternative for people that want to work in the firm they used to work at. But it's muted.

Okay. I appreciate the insight there. And, I guess, as you look at the investment banking business, you guys obviously gave some great color on the backlog and so forth. But were you personally a bit surprised at how it kind of stuck out where the underwriting side was kind of holding it a bit better than the advisory side during the third quarter? It seemed like most other firms kind of saw the reverse of that, just given how challenging the underwriting environment was. Or is it just a matter of how strong you were at the very beginning of the quarter on underwriting?

Yes, it was the latter. I mean, in July I was looking forward to a very good investment banking quarter. Okay. July started out great and backlog looked good. And M&A can always be somewhat lumpy. But the debt financing or lack of debt financing certainly weighed on the ability to close M&A.

And, frankly, the capital raising machine stopped early August, effectively. But I think on a relative basis we relatively got off to a very good start. So that's why maybe it doesn't look like everyone else did. I mean, had we had a normal July our results would have looked differently, certainly on a percentage basis.

Sure, sure. And I realize that a lot of times you see late quarter activity here and the market conditions will weigh on things. And some other people have kind of touched on the subject here. But the market conditions seem to be just as challenging as they were towards the latter part of the third quarter, and you had mentioned about some of the successes you're having here so far recently with investment banking activity. What's kind of driving that given that things are -- it seemed to be just almost as difficult as they have been in recent --

Well, I think they've gotten difficult since -- really since the Greece decision to hold a referendum and what that did. We started off with August with one of the best -- I'm sorry, with October, with one of the best rebounds and the market felt like it was getting toned to it. And companies have made commitments to go. So what I'm encouraged about is the fact that we have deals in the marketplace right now. But let's see if we get them closed. That's what -- so there was encouragement by the way the quarter started. But this recent couple weeks of volatility certainly feels more like August than it does the early part of October.

Okay. Appreciate the color there. And looking at the Global Wealth Management segment, it seems as though even with the market rally that we've gotten recently that we're still seeing outflow of assets from equity products. And just want to get your sense of what you're hearing from advisors and the appetite for a retail investor to kind of be putting money to work in equities and what we may need to see aside from just a moderation in volatility for that to kind of happen?

Yes, I think it's a moderation in volatility, but I've been -- I have and continue to remain pleasantly surprised at the resiliency of that business and at the -- and the fact that people are investing. And they might be rotating out of equity but into bonds or other products. But our results in that segment have been resilient. Days like today don't help, though.

Yes. Okay. And the last question I had was just with regards to kind of backing into some items here with client assets down about 7% sequentially in the quarter. Have you kind of looked in, or give us any flavor as to what we could consider being market depreciation versus net inflows and outflows of client assets or just giving us a sense of what you'd [guesstimate] as the exposure to equities relative to fixed income within those client assets?

Well, if you're asking if I -- first of all, we know the numbers, okay. We haven't done it -- I'll certainly take under advisement if you think that's useful information. We know the net flows versus market depreciation and we certainly know our mix of assets. And that might be interesting to track on a quarterly basis just to provide you some color as to what we're seeing on that aggregate basis. So I'll certainly ask Sarah to look at what other companies are doing and I don't see any reason why we can't provide that.

Sure. Okay. I think a lot of other companies will just kind of loosely talk about it on calls and so forth. But that would -- certainly always gives an additional level of insight into the Company and the successes that you're having. But certainly appreciate all your help.

Okay. Very good.

Thank you.

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

Thank you very much, operator. Thank everyone for their continued interest in our Company. We will continue on our stated goal of building a premier investment, middle market investment banking and brokerage firm. We will look beyond this current feeling of an abyss in front of us and look forward to a more conducive market environment which will show the earnings power that I believe that we're building. So with that, I look forward to talking to everyone on our next call which will be in February of 2012. Thank you very much, operator.

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