Stifel CEO Tweaks the Competition
Stifel Financial Corp. Chief Executive Ron Kruszewski took pains on the company’s earnings call Wednesday to emphasize the firm’s diverse business mix beyond wealth management into trading and investment banking, but its core retail brokerage business was what stoked the flames.
“We are a wealth management firm that owns a bank, not a bank that owns a wealth management firm,” Kruszewski said. “That will explain most of the difference of our advantage. As I look forward, our recruiting will accelerate regardless of who enters the fray. Welcome to the competition.”
Another analyst asked if Morgan Stanley’s pending acquisition of Eaton Vance could prompt Stifel to buy an asset management firm whose products could be pitched by Stifel’s brokers.
Big firms pushing advisors to sell proprietary product “drives a lot of advisors to come to Stifel,” he countered. “We offer an open platform and choice of the best products for clients. We are not trying to cross-sell.”
To be sure, Kruszewski’s acquisition appetite—he has orchestrated the purchase of more than 15 trading firms and investment banks, seven retail brokerage firms and three banks in the past two decades—remains, and the bulk of Stifel’s recruiting has not come from bank-owned wirehouses.
Stifel might be tempted to buy an alternative asset management firm, Kruszewski said, and he congratulated Morgan Stanley for “showing faith” in asset management even though Eaton Vance’s strength in fixed-income active investment could be diluted by passively managed exchange-traded funds.
Stifel hired 45 financial advisors with average 12-month production of $844,000 in the third quarter, calling it one of its strongest periods ever despite the pandemic. On a net basis, including departures, the firm added 39 advisors during the third quarter and 60 in the past 12 months.
The St. Louis-based company’s total count of 2,271 brokers as of September 30 is up 4% from 12 months earlier. Despite expectations of year-end seasonal slowing, the recruiting pipeline is robust, Kruszewski said.
Stifel Financial’s overall net revenue climbed 7.5% to $883.3 million in the third quarter from the year-earlier period but was down 1% from the second quarter due to “significant decreases in net interest income and deposit fees,” it said in its earnings release.
The company’s net income available to shareholders rose 5.8% from a year ago and 7.4% sequentially to $110.6 million.
Lamenting Stifel’s lagging stock price, which values the company at less than ten times earnings, Kruszewski urged investors to consider the diversification benefits that’s enabled it to report record nine-month revenues in institutional businesses despite a pandemic-induced drought in banking deals as well as a record revenue year to date in wealth management despite rock-bottom interest rates and rising customer holdings in cash.
Stifel last year derived 64% of its net revenue and 82% of its operating profit from global wealth management—which includes its core private client business along with its retail bank and asset management activities. The wealth businesses contributed 60% of net revenue and 82% of operating income in the first nine months of 2020.