June 9, 2011 / 7:46 PM / 7 years ago

UPDATE 2-Stifel may buy all Miller Buckfire after 'dating'

* CEO says undisclosed minority stake is “significant”

* Restructuring rebound seen as crisis-era loans come due

* Kruszewski warns economy more sluggish than was expected

* Stifel’s business “has been impacted” so far in 2nd-qtr (Adds more CEO comment, background on Stifel performance and the broader economy)

By Joseph A. Giannone

NEW YORK, June 9 (Reuters) - The head of Stifel Financial Corp (SF.N) said on Thursday that the U.S. brokerage’s $40 million investment in restructuring advisor Miller Buckfire & Co will likely lead to a complete takeover down the road.

Stifel’s investment, which will pay off when bankruptcy and restructuring activity rises, also comes as Stifel Chief Executive Ronald Kruszewski warns the current economic environment is making things tough on brokerage and banking.

Shortly before midnight on Wednesday, St. Louis-based Stifel announced it was buying $40 million of senior preferred securities from Miller Buckfire, a nine-year old firm that has advised on such major restructuring deals as Dana, Calpine and Delta Airlines.

Kruszewski, expanding on Wednesday’s deal announcement, said Stifel will have an undisclosed minority stake, but one that he emphasized was significant.

“We’ve structured this as a strategic investment, which allows us to sort of date before we get married. I can see eventually folding them completely into our organization,” Kruszewski said at a Sandler O‘Neill & Partners conference.

Stifel may not be a household name but the firm has grown rapidly for the past 15 years through timely acquisitions and by hiring when other Wall Street firms are shedding. It is one the best performing financial services stocks of the past decade and one of largest remaining independent brokers.

This time, he said, more companies will be forced to raise capital or convert their creditors’ debt into equity.

Stifel, which has nearly 2,000 retail financial advisers and a growing middle-market investment bank, will offer Miller Buckfire restructuring advice to its clients. Miller Buckfire will likewise offer Stifel capital markets services to clients.

Miller Buckfire is not expected to boost revenue in the short term, he said, but it will in a few years. A wave of debt refinanced during the 2007 and 2008 financial crisis, helping struggling firms defer their problems, will come due soon.


Indeed, Kruszewski paused during his presentation to express his concerns about the state of the U.S. economy and the capital markets.

    “That robust recovery many of us anticipated in December 2010 has yet to arrive,” he said. “Where we had thought GDP would be growing 4 to 5 percent, it’s under 2.”

    Instead of economic acceleration in the second half this year, he said, “what we see is a deceleration across almost all businesses.”

    Stifel’s own business “has been impacted by anemic industry volumes,” he said, as well as muted market swings, an unsteady equity-underwriting market and “softness” in retail brokerage.

    Kruszewski told reporters afterward that the tsunami in Japan earlier this year has had a big impact on the U.S. economy, shaving about one percentage point from GDP growth in the United States.

    The recruiting environment for brokers also has become more difficult this year, he said, as the biggest firms dangle ever-higher pay packages to brokers not locked down by 2008 and 2009 contracts.

    “We’re standing down,” he said, saying some of the priciest broker packages have become “uneconomical.”

    That said, Kruszewski said he intends to greatly expand Stifel’s use of debt relative to capital -- in larger part to fuel the expansion of its small commercial bank unit.

    “A three-to-one leverage ratio is too low. We will get our leverage higher,” he said, to as much as six-to-one. (Reporting by Joseph A. Giannone, editing by Bernard Orr)

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