Fueled by a 48 percent rise in fourth-quarter earnings, Stifel Financial Corp's (SF.N) top executive defended his aggressive acquisition spree on Monday.
The St. Louis-based securities firm, which has bought four investment banks and trading firms in fewer than three years, will continue to make investments and build its profile with the public as larger investment banks shrink, Chairman and Chief Executive Ron Kruszewski told analysts after the company said its quarterly net income rose to $40 million, or 63 cents a share, from $27 million, or 43 cents a share, a year earlier.
"The financial market is huge, highly fragmented and under tremendous disarray," he said. "There is a lot of market share to gain without overburdening the balance sheet."
Stifel last week completed its purchase of KBW Inc KBW.N, a smaller investment bank that specializes in raising capital and arranging mergers for small financial companies, for about $575 million in cash and stock.
Kruszewski dismissed criticism that the deal would be marred by overlapping research coverage, personnel and branding problems at a time when few financial deals are being executed and KBW has been recording losses
"I believe 2012 was a trough year in financial services," he said of the opportunity to benefit from KBW, adding that he expects duplicative expenses to be eliminated by the first quarter of 2014.
Stifel disclosed that KBW booked $70.6 million in the fourth quarter, a number that JMP Securities analyst David Trone said exceeded his estimates by $12 million.
A lot of work remains on the integration, Kruszewski said, but the company will continue to hire brokers and traders in the year ahead and increase its advertising and branding budget, an area where it has been lax in the past. Stifel began a television campaign aimed at the public and its fellow bankers on Monday.
Stifel's fourth-quarter profit was boosted by shares it purchased in Knight Capital Group (KCG.N) last August to help bail out the trading firm. Stifel booked $13.4 million of quarterly gains and $39 million for the entire year from its Knight investment.
Excluding the 2 cent-per-share quarterly gain from Knight, Stifel earned 61 cents a share, above analysts' expectations of 60 cents a share, based on Thomson Reuters I/B/E/S estimates.
Kruszewski said Stifel is expanding in both its retail brokerage business and its smaller institutional banking business, with a particular emphasis on adding fixed-income capabilities. Neither he nor the firm commented on reports that Stifel is buying Knight's credit brokerage business.
In all of 2012, Stifel hired 152 financial advisers in its wealth management unit and 77 fixed income sales and trading professionals.
Its fourth-quarter, Stifel's net revenue rose 17 percent to $417.8 million from a year earlier, below Wall Street expectations of $418.4 million, according to analysts surveyed by Thomson Reuters I/B/E/S. Total compensation and benefits costs in the fourth quarter rose 14.6 percent to $262.2 million.
Wealth management revenue climbed 13.6 percent to $255 million, lifted by growth in asset management and services fees on rising client assets. The firm's financial adviser count grew by just 54 on a net basis from a year earlier to 2,041 advisers in 340 offices at the end of 2012.
Total client assets rose 12.6 percent to $137.9 billion.
Revenue from trading and banking in the institutional group rose 23 percent to $165.1 million, despite a drop in municipal bond revenue.
Kruszewski said that in spite of Monday's 216-point drop in the Dow Jones Industrial Average on news related to the Italian election, retail investors have been moving money from low-return fixed-income products to equity markets.
"People forgot there was risk in the market, and we saw a little of that today," he said.
Monday's news, however, is unlikely to reverse a "trend of improvement in the Eurozone," he added.
(Reporting By Ashley Lau and Jed Horowitz in New York; Editing by Bernard Orr)