UPDATE 1-Stifel earnings, revenue sink in line with views

* Net income meets 43 cents/shr average estimate

* Investment banking activity is up so far in '12

* Stifel profit, revenue sank from year-ago period

By Joseph A. Giannone

Feb 15 (Reuters) - Regional brokerage Stifel Financial Corp said difficult markets led, as expected, to lower fourth-quarter earnings and revenue, but that business so far this year is off to a stronger start as confidence and financial markets rebound.

The St. Louis company on Wednesday said net income fell 35 percent to $27 million, or 43 cents a share, compared with record $41.4 million, or 65 cents, a year ago.

Analysts, on average, had expected earnings per share of 43 cents, according to Thomson Reuters I/B/E/S estimates.

The second half "proved to be a challenging period for the markets, businesses and the overall economy. Our results reflect these challenges," Stifel Chief Executive Ronald Kruszewski said in a conference call with analysts.

Net revenue fell by 11 percent to $356.0 million, as Stifel, like other brokerages, suffered the effect of fewer transactions by cautious investors and companies. Many customers stayed on the sidelines during the volatile second half.

Revenue from Stifel's retail brokerage arm fell a more manageable 5 percent to $224.5 million, as muted customer trading cut into commissions and trading income. It was partly offset by greater net interest income from Stifel's bank unit.

The ranks of Stifel financial advisers rose by 52, or 2.7 percent, to 1,987 advisers while client assets increased by 8 percent to $119 billion from the year-ago period. The takeover of Stone & Youngberg last year led to about 30 new advisers coming on board, while adviser recruiting from rivals picked up.

Stifel's institutional brokerage and investment banking income sank 10 percent to $134 million, reflecting a decline in equity underwriting, advisory fees during a challenging year-end environment.

Fixed income brokerage trading and underwriting revenue rose from a year ago, reflecting the acquisition of Stone & Youngberg last year.

Stifel's shares fell 1.6 percent to $36.01 in Wednesday trading. They sank 24 percent last year, lagging the benchmark S&P 500 Index, which was flat.

"It was a tough year across the Street," Kruszewski said, citing wild swings in stock prices, the debt crisis in Europe, and uncertainty surrounding U.S. regulation and tax policy.

Over the first seven weeks of 2012, he said, investment banking is off to a better start. Stifel, which priced eight IPOs and nine follow-on offerings in the fourth quarter, has already priced six IPOs and 36 follow-ons this year.

"Despite the market volatility of the last couple days, I still think that the improvement in Europe and improvement in the economic fundamentals in the United States point to a better year in 2012 than we saw in 2011," he said.