425
Filed by Stifel Financial Corp.
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
of the Securities Exchange Act of 1934
Subject Company: KBW, Inc.
Commission File No.: 001-33138
Final Transcript
Final Conference Call Transcript
November 13, 2012 / BAML 2012 Banking and Financial Services Conference
CORPORATE PARTICIPANTS
Ronald J. Kruszewski
Stifel Financial Corp. - Chairman, President and CEO
CONFERENCE CALL PARTICIPANTS
Michael Carrier
Bank of America Merrill Lynch - Director, Research
Michael Carrier -
Bank of America Merrill
Lynch - Director, Research
We're going to get started here with the next presentation. It is my
pleasure to introduce Stifel Financial's Chairman and CEO, Ron Kruszewski.
Stifel is a full service regional brokerage and investment banking firm that
provides services to both individual investors and institutions. Ron and his
team have grown the firm significantly over the past decade and continue to
build a premier middle-market investment bank, given its level of organic
and inorganic growth, including the recent KBW transaction at a time when
the industry has seen reduction in growth. I'll turn it over to Ron to find
out where he sees Stifel and the industry heading in the years ahead, after
which, we'll have some time for Q&A. Ron.
Ronald J. Kruszewski -
Stifel Financial
Corp. - Chairman, President and CEO
Thank you and good afternoon. Let's see. Forward-looking statements, let me
get started. First of all, I'm excited to talk about our pending merger with
KBW. I'll talk a little bit about that and I'll give you a brief overview of
our quarter which seemed to have got lost in the shuffle of the announcement
of this deal and then I'll be glad to sit down and take some questions.
First of all, our stated goal is to build a premier middle-market investment
bank. We have been accomplishing this through both organic growth and
acquisitions. We believe we're well positioned to take advantage of
opportunities due primarily to the fact that we are unburdened by capital
constraints. We have a low leverage business model, primarily an agency
based model, conservative risk management. We've build the company through
nine acquisitions since 2005 but we prudently evaluate all opportunities. We
passed on certain opportunities that we felt we couldn't integrate. We
capitalized on the headwinds and the turmoil that has impacted our industry.
On the organic side, we are growing through the addition of high quality
talent and we've driven revenue synergies by leveraging our global wealth
and our institutional business depending on the transaction that we've been
doing.
This next slide is how we look at the market and our place in the market. I
view that the bulge bracket, the large firms, have to deal with two
cross-current issues. First, they need to deleverage from whatever it was 35
to 1 to 12 - 15 to 1 while at the same time raising common equity and doing
that against a backdrop where their ROEs were 18% so when you deleverage and
have to raise common equity, the end result is maybe it's difficult to earn
your cost to capital. Therefore, in financial services, I think you need to
shrink. And, I think that's what you're seeing going on in the industry.
On the other end of the equation, you have the boutique firms where
regulation and lack of scale, coupled with the fact that most boutique firms
are institutionally focused firms today, with the backdrop of a very
difficult volumes in the equity business, makes it very difficult for them
to also earn acceptable returns. We believe we're in the middle. This will
be, I believe, our 17th consecutive year of record revenue. We've not had a
year where we've ended with less people than we began the year and we
believe that we have the right size and scale, stability, capital,
distribution, to be able to grow into a market that is facing a lot of
turmoil and that's the position that we see ourselves in and it's a position
that I'm pleased to be in. Throughout the years, and primarily since 2005,
we have been a growth company as evidenced by these slides. Net revenues,
we've grown 26% per year, again, 17 straight years of record revenue and I
believe we might be the only firm on the Street that can say that. We've
grown core net income 23%. We're very well capitalized with over 1.4 billion
of equity. We manage today nearly $140 billion in our global wealth
management business. We deliver that through over 2,000 advisors in 300
offices and we've grown book value per share 22% per year.
On the acquisition side, we've had a lot of questions over the years about
our acquisition strategy. I can tell you that up until this last one, and I
believe this last one past will be prologue, but each merger has been a
creative to Stifel and retention in each one of these deals was very high
going back to 2005 and the Legg Mason Capital Markets, and Ryan Beck in
2006. We acquired a bank that was very small. Today, it's approximately $3.5
billion, very high quality, asset quality, very few problems. In fact, there
are virtually no problem assets in our bank today. We acquired Butler Wick
in that same time frame. Fifty-six branches from UBS back in 2009 and then
the last three transactions have been institutionally focused, but each has
filled a niche. When we looked at our business model back in 2009, we had a
very significant research platform and a very significant global wealth
management business, but felt we were undersized in the investment bank.
When we looked at investment banking, we felt we had to invest in technology
that lead to the Thomas Weisel transaction, which has been a very good
transaction, growth focused in technology, consumer, healthcare, and energy
in Canada. We've achieved all the cost efficiencies. Everyone is still with
us and it's been a very good transaction. Last year, we had the opportunity
with Stone and Youngberg, a muni opportunity. In 2010, we did not do a
negotiated underwriting in the State of California, and in 2011, we were the
number one negotiated underwriter in the State of California. When you look
at our quarterly results in investment banking, a lot of that growth, which
was significant, has been driven by the fact that Stone and Youngberg is
beginning to kick in on the fixed income side.
And then, our most recent transaction, which I'll talk more about, is KBW. It's
a boutique specialist in FIG. Many of you know of it as this is a FIG
conference. When you look at Thomas Weisel on technology and KBW on FIG, I
think we've put stakes down in the two biggest verticals in investment
banking and we believe it's going to help us drive a lot of shareholder
value.
Our balance sheet facilitates our growth. Most of the growth, as you can
see, we have over $6 billion in assets today but almost all of that growth,
in terms of leverage is in the bank. Our bank is levered 13 to 1, but our
broker/dealer is only levered 2 to 1. So, we're a very conservatively funded
investment bank. Most of our leverage is in the bank which we fund with
customer deposits. Our total capitalization is about $1.7 billion, $1.4
billion of equity and about $300 million in debt. So, again, a low leverage
model.
We've done all of these acquisitions, and about the same time since 2002 our
stock has appreciated 7.5 times compared to the next, which is a little less
than 2 times. So, I think that we have not only grown the company but we've
grown the company on the top line while more importantly growing the equity
value per share. I can tell you that when I look at most measures, it is
not gross revenues or gross earnings, it is revenue per share and earnings
per share is what really matters.
So opportunities will continue to drive our growth. Our initiatives are to
attract and retain talent, expand our private client. Private client will
always be a growth business at Stifel. We have made significant investments
in fixed income. We're going to expand our investment banking. We see a lot
of opportunity to gain market share, as evidenced by our announced KBW deal.
We will focus on growing the bank but with quality assets. We're not going
to do wholesale asset generation. We'll look at asset management
capabilities if and when they arise. To date, none of them generate return
on investment hurdles. It's been difficult to expand an asset management and
I think that underscores what we'll always do is approach our acquisition
opportunities with discipline.
So, talking about KBW, why this combination makes sense. It simply creates
the dominate force in financial services including research equity, sales
and trading and banking. It's highly complementary to what we currently do.
We believe that we have significant synergies but we're going to maintain
KBW's premier brand in financial services. I believe that the financial
sector is poised to benefit from improving fundamentals. I don't know if it
will occur next year or in a few years, but I do believe that there's a lot
to do in this sector and that we will benefit. We will also leverage our
Global Wealth Management platform and I believe this deal is a creative to
the shareholders of Stifel.
The next slide, I won't go over it again, but it's it's the background of
the two firms, Stifel's grown significantly. Back in 2005, we were really
about the same size as KBW but today, about $1.6 billion in revenue and
almost 5,500 associates. In investment banking, we've been the number one
U.S. equity underwriter with issuers, what we define as small cap, less than
$500 million. We think KBW is the leading global investment bank and number
one across almost all categories with small and mid-cap banks.
Turning now to how the KBW deal changes our revenue mix. I've always felt
that Global Wealth Management of 55% to 60% is probably our optimum revenue
mix. It's a stabile business that offsets the cyclicality of our
institutional business. On a pro forma basis, our annualized revenues are
over $1.8 billion, 54% global wealth management and 46% institutional. The
deal is we will acquire 100% of KBW. They had excess capital and we'll
effectively use $250 million of their own cash to fund the majority of the
cash consideration of the deal. The public shareholders will receive $17.50,
$10 in cash and $7.50 in stock. We have a collar between $29 and $35. The
exchange ratio will float and outside the band, it becomes fixed. You know,
we believe there are significant synergy opportunities and I'm pleased that
Tom Michaud will remain the CEO of KBW and he'll join our board. We went out
to some 95 key associates of KBW. We asked them to have their restricted
stock not vest on a change of control, which was their legal right. They
agreed to roll it on the original terms and they signed retention agreements
that give us 14 months, but these deals run five years. So, I believe the
people are here to really drive this business. Tom and one outside director
will join our board. The deal's subject to customary approval. We have to
file a proxy and it will depend on whether we get a review, but it will
probably close early in 2013 if I had to guess today.
If you look at the transaction we took out the excess capital and then
valued the business after effectively dividending out their excess cash and
then looked at this on an effectively adjusted purchase price of a little
over $300 million, $327 million. We think, based on these metrics, this
deal meets our investment hurdles. We believe that on a cash-on-cash basis,
this transaction delivers 10% to 16% ROE between $250 and $300 million of
revenue. We think the business will run both domestically and
internationally on $64 million of incremental, non-comp opex and we also
believe that this transaction is 5% to 7% accretive to our earnings per
share after cost savings are fully implemented.
As I've said, this is the time to invest in financial services. At least, I
think it's the time. It's kind of late to change my mind, but we believe
financials are a large driver of the U.S. economy and almost any way you
want to look at it, we believe that there's significant business both in
M&A, capital restructuring and capital raising to do in the FIG space.
If looking at Stifel and KBW combined, we're the dominant force in financial
services. We'll be the leading financial services IPO and follow-on as a
bookrunner and we're the number one depository bookrunner and number one
conversion advisor, and number one FIG M&A advisor. We're going to maintain
what I believe is the real strength of KBW, which is their specialty sales
and trading sales force. We'll be number one in U.S. equity research
coverage, number one in depository equity coverage. We'll cover over 400
financial companies. I believe significant revenue enhancements will occur
in fixed income when we take our fixed income platform to KBW's client base.
The one thing that's been a little confusing, I've been talking a lot today
about is how we're going to integrate KBW, which is different than how we've
done most deals in the past. We intend to maintain the KBW brand in
financial services and face our clients through this brand. It's confusing
because people say, well, how do you achieve the cost savings and I just
want to reiterate that how we face the clients through a sales and trading
and research products that's going to branded KBW has very little to do with
what happens in the back of the shop in terms of how we clear and manage the
business. We can do both and we have a plan to do that, but we do not want
to decimate the KBW brand and frankly, their focus on small-cap and mid-cap
banks and their expertise, which is phenomenal. So, we believe that in this
slide, it attempts to show how we look at Stifel's private client group
revenues of about $1 billion, our institutional group of $600 million and
then KBW's of $250 to $325 million. All these groups face the market and are
overlaid against one common infrastructure.
The rest of this is just simply again, the culture and the brand, we think
is powerful. When you look at overall, we will be the number one proprietor
of domestic research of all the firms whether it's boutique, regional or
bulge bracket. We significantly improve our trading capabilities on a
combined basis.
This slide looks at all managed equity offerings since 2005. Pro forma will
be seventh and in terms of bookrunner equity offerings, in our target
market, which is less than $500 million, we end up being second jumping from
ninth today. So, we again believe this helps us with both scale and
capability. As I've said, if you look at just depositories across almost any
metric, we're number one at a combined basis and again, I think that this is
going to really help us. I competed with KBW, in fact my entire career, I
used to be a FIG investment banker and I appreciate their
capabilities. Combined with Stifel, we believe we will create a very
powerful competitor.
I won't spend a lot of time on these slides but it just shows that there's
not as much overlap as you might think there is in M&A or in capital
markets. Fixed income, I will tell you that we will increase our combined
fixed income revenues to depository institutions. I have been surprised at
how fragmented this market is and frankly how little business we do at
Stifel and combined, we're going to do a lot of business in fixed income.
It's already helped on the Global Wealth Management side, which helps our
brand. We have financial advisors calling us today and saying, with KBW I
want to talk to you about joining your firm. Those calls go on every day,
but they're going on more now that we've announced this transaction. So, the
rest of this I'll take for questions as this is what we've done and how
we've grown Stifel. Again, we've just had tremendous growth into a market
that's shrinking but again, that's our business strategy. If you look at the
institutional business, while it's been difficult on the Street, we remain
profitable and continue to add people in this business.
Finally, just quickly, we had a great quarter. No one's even mentioned it to
me today or since we announced the quarter, which I'm a little disappointed
about. I guess, note to self, don't announce a major merger the same time
you're announcing great financial results. But, as you can see, quarter over
quarter, our revenues are up 25%. Income is up significantly, but I'm really
pleased with the revenue number in what was a difficult market. In that
number was about $0.09 a share relating to our investment in Knight Capital
but even absent that, we significantly beat expectations both on the revenue
and bottom line. So, it was a great quarter. For nine months, same
thing. You can see that we're poised, as I said, for another record year in
revenue and I believe it will be a record year in net income.
I will talk quickly about our Global Wealth Management business, which has
been very strong. Quarter over quarter revenue growth was 15%, but we also
had a significant sequential improvement in operating contribution, which
increased 11%. Our Institutional Group also posted a significant
improvement, but that's also where we recorded the Knight transaction. So if
you would want to normalize this for Knight, I would take out about $25
million in revenue at about $0.09 cents a share in profit.
And finally, and then I'll take questions, I talked last quarter about the
impact of our investments on our margins. We've made significant
investments because we are not cutting people to meet the new normal. We're
adding people to gain market share. It's contrarian, but it's what we've
done in the past. Last quarter I talked about the fact that it had cost us
about $0.13 a share in margin and you can see these are investments that
we've made in the private client, hiring fixed income people, a few
underperforming businesses that we had exited, but as you can see, in the
third quarter, you can see the revenue's grown from $5 million to $15
million and our per share impact on those investments have gone from $0.07
to $0.06 to now $0.02, and I believe we'll make money on these
investments. If you take the investments out, even in a difficult market,
we are achieving our stated goal of 15% pre-tax margins.
So, I'll end with a thought that sometimes in our careers we'll see another
bull market, and, if we do, I think we are very well positioned to
significantly add shareholder value at Stifel.
So thank you and I'll be glad to take some questions.
Michael Carrier -
Bank of America Merrill
Lynch - Director, Research
Okay. Hopefully, you're right on the environment. I'll kick it off and then
we'll open it up to Q&A. Given the structure that you foresee KBW within
Stifel, is it unique or could we see overtime another subsector, maybe it's
not financial, but it's materials or that would actually have its own place
within Stifel. So, just any color on why that structure versus I guess what
would be a typical structure?
Ronald J. Kruszewski -
Stifel Financial
Corp. - Chairman, President and CEO
Well, first of all, the structure is meant to first maximize client
interaction and best serve the client. We always think about what is the
best way to maximize revenue and serve clients since that's what this game's
about. And, like in the Weisel case, we integrated the business although we
kind of, we didn't really integrate the investment banks or put them
together but there was really virtually no overlap. In this case, FIG is
such a homogenous vertical, and the fact that KBW covers 450 companies, and
does it very well in small and mid-cap, the idea that you would get rid of
the sales force that knows that or integrate it into a more generalized
sales force doesn't make a lot of sense. KBW is also doing significant
revenue. So, we're not married to any one strategy. We try to maximize
revenue and we believe maintaining the brand and maintaining the sales and
trading and research in the way they interact with clients is the way to go.
But that does not mean that we're not efficient on our costs. We'll be very
efficient on the costs we just believe this is the way to maximize the
revenue and frankly, the client experience.
Michael Carrier -
Bank of America Merrill
Lynch - Director, Research
Okay. I think there was a question right there.
Question:
Hello. Can you give us an insight as to how we can understand your numbers,
your purchase numbers. So, how do we begin to fathom how well the old parts
are doing within the new setting and what the management has been adding to
the total corporation?
Ronald J. Kruszewski -
Stifel Financial
Corp. - Chairman, President and CEO
You're talking about our past acquisitions?
Question:
I'm talking about the numbers presented that show the effects of the
acquisitions on a purchase basis. Unless we know on a pro forma basis the
growth or the lack of growth or the very bad environment that you've been
through, it doesn't reflect in the understanding of what's been accomplished
or what we should worry about.
Ronald J. Kruszewski -
Stifel Financial
Corp. - Chairman, President and CEO
I mean that's a fair question. I'm not sure I can answer it. I can only
answer it from the perspective that we don't measure it by
acquisition. When we merged Weisel, I don't keep track of their old
business. I first of all think it's culturally dangerous to do that. I don't
really have any idea of what Ryan Beck or the UBS branches have performed
versus expectations. I know they've done well because our earnings per share
and our revenue have grown in a market that's down 20%. So these
acquisitions have done very well, but we quickly integrate and then don't
report on any of them separately. So, I'm not sure I can answer your
questions; I'm not sure what it would accomplish frankly.
Question:
I think what it might accomplish is allowing for the development of a
multiple so that the market can distinguish whether there's a difference
between being good at acquisitions and actually growing the core of the
company, and showing that it performs differently than your competitors.
Ronald J. Kruszewski -
Stifel Financial
Corp. - Chairman, President and CEO
Well I can tell you I've been asked this question in the past. Before KBW,
between 2005 and 2012, half of our growth has been organic and the other
half has been by acquisition and that's just by taking the numbers at the
time of acquisition and adding them to the results versus where we ended up
so it's half organic and half acquisitions. Whether or not you're adding by
organically hiring people or doing mass hires through acquisitions, the key
is keeping and retaining people and driving earnings per share. I think
we've been doing this for 15 years so I would hope our operating history is
built into our multiple.
Question:
I could just further, with one other question to you. You gave the example
of Weisel and with respect to that, I can understand the divisiveness that
would be caused by measuring how each branch is doing, but on the other
hand, how do you measure whether the branches are worth keeping or not or
the people are worth keeping if you're not measuring individual units and
sub-units?
Ronald J. Kruszewski -
Stifel Financial
Corp. - Chairman, President and CEO
Well, of course we do. I mean we measure businesses for compensation
purposes. I just don't get into trying to remember or keep track of what
was Weisel and what was Stifel. I find it to be an exercised that yields no
results, but trust me people get paid according to their productivity.
Question:
And in terms of potential acquisitions in the years forward, do you feel
that the historic rate can be perpetuated of acquisitions?
Ronald J. Kruszewski -
Stifel Financial
Corp. - Chairman, President and CEO
Well, I wouldn't think that we would do nine large transactions in the next
nine years as we've done in the past nine years. I wouldn't predict that.
Michael Carrier -
Bank of America Merrill
Lynch - Director, Research
We have another question behind you.
Question:
Ron, I think you've done a pretty good deal but my question is, a very small
premium with a less than 10%, 7% or 8%, you're paying the cash portion with
their cash, I believe KBW's employee shareholders have a majority interest.
Is there any opposition from the public, KBW shareholders because the priced
is about what the offering price was when it went public a few years ago.
Why did they sell? Why did they agree to sell to you?
Ronald J. Kruszewski -
Stifel Financial
Corp. - Chairman, President and CEO
You're asking me that question?
Question:
I don't see any KBW people here. Maybe they can tell me if they're here. It
seems to me like you're getting a fantastic deal if that group performs
going forward.
Ronald J. Kruszewski -
Stifel Financial
Corp. - Chairman, President and CEO
I mean, that's really a question for KBW, is it not? I don't want to
speculate on why they agreed to merge, but I can tell you that they are a
stronger part of us and we're a stronger firm with them and there's a lot of
things that go into a deal so I'm just not going to answer a question
directed to them. I hope you appreciate that.
Question:
Okay, Ryan Beck, they've operated as a separate division, Ben Plotkin is
running it, are they going to be folded into KBW going forward because they
compete in a lot of the same businesses.
Ronald J. Kruszewski -
Stifel Financial
Corp. - Chairman, President and CEO
Ryan Beck is not a separate division and Ben's not running it. No, Ryan
Beck is fully integrated as part of Stifel but in cases, there are a couple
of branches that like the Ryan Beck name and they keep it up and it doesn't
matter to me. But Ryan Beck is not in any way separate from what we've done
with Stifel.
Question:
Are you going to continue in the thrifts conversion business?
Ronald J. Kruszewski -
Stifel Financial
Corp. - Chairman, President and CEO
We're number one and we plan to continue to be number one.
Michael Carrier -
Bank of America Merrill
Lynch - Director, Research
One area that you mentioned expanding which is kind of contrary to maybe the
entire industry, that's in the fixed income area. Now could be just
partially the size that you were and then you have players that are exiting
so I guess when you're looking at the fixed income market and based on your
footprint, your franchise, where are the opportunities in that space and
when you look at capital intensity versus non-capital intensity, how do you
make those two mesh and still generate a decent return?
Ronald J. Kruszewski -
Stifel Financial
Corp. - Chairman, President and CEO
The fixed income business, first of all, I think has been a very good
business obviously by what's happened to the yield curve and the short-term
rates. It's been a bull market but going forward, when I look at many
clients' portfolios, I see relatively short durations that will need
significant adjustments as the yield curve shifts up and steepens. It's not
going to stay like this forever so I think the prognosis for the fixed
income business is good. When I've looked at and come to understand some of
the potential client bases that we were not penetrating, one that jumped out
to me significantly were depositories. It's a huge market and was dominated
really by a few players and we set out, we've hired some 60 people to go
after the depository business, and we are in the process of doing that, and
now we bring KBW in. If KBW has one thing, they have great relationships
with thousands of CEOs and CFOs and we intend to penetrate that with fixed
income.
Michael Carrier -
Bank of America Merrill
Lynch - Director, Research
Given the mix currently, when you think about growth from this point
forward, and it can be whether it's organic or inorganic, but when you look
at the trends that you're seeing on the wealth management side versus the
institutional side, is there something that's more attractive and I guess on
the inorganic, it's really the opportunities that present themselves, but
when you look at the outlook for Stifel over the next five years, is it
still going to be about the same relative contribution or do you foresee one
of those pieces gaining?
Ronald J. Kruszewski -
Stifel Financial
Corp. - Chairman, President and CEO
In terms of market growth, I think the Institutional business has more
opportunity to rebound just in terms of improvement in market even more than
the Global Wealth Management business has done. But in terms of our organic
growth going forward, I think that a private client business will outpace
the institutional business organically. We made a lot of investments. We're
going to digest some of these investments. It's going to be much more in
Global Wealth Management going forward, but the impact on the revenue line
item in any six month or two year period can be more significant in the
Institutional business because it's frankly been flat on its back so an
improvement there could be significant. I want to say though, again, our
entire business model, and I think we've been contrarian, in that we haven't
had a layoff and we're not cutting back. Our business model is based upon
the belief that the large universal banks, as I have said, have to delever,
raise capital and restructure their businesses to achieve market returns on
equity. Most of that is going to occur by cutting people and cutting people
is going to cut not just excess capacity, but revenue and we believe that
we're well positioned to gain that market share in a market that could
otherwise look flat. That's what we intend to do.
Question:
Ron, let me see if I understand you on the restricted stock. 95 KBW
employees have restricted stock and they've agreed to extend that for 14
months and accept as part of a stock situation between $29 and $35 a share
of Stifel stock. At the end of 14 months, then they can sell it and they
have five year contracts with the company? Is that what you said in the
presentation?
Ronald J. Kruszewski -
Stifel Financial
Corp. - Chairman, President and CEO
I don't think that's what I said but I'll say it again, okay. More than 95
KBW people had restricted stock, but the 95 people that we identified as
absolutely key to this transaction we went to and said that instead of your
stock vesting upon a change of control, meaning to be freely tradable, we
want you to let it vest as it otherwise would vest, which would be over
another one to three years. And, you might ask why someone would do that
and the answer is we weren't going to do the deal unless they did, and these
people see the power of this transaction and all of them, or the vast
majority, agreed to extend or not have their stock vest on a change of
control. In addition to that, they agreed to effectively work for just KBW
for the next 14 months, effectively a non-compete for 14 months. Plus we
then put five year retention stock on top of that. So, the combination of
those three things is the retentive aspects of this transaction which I can
tell you are extremely high. I'm not worried about people leaving or not
working hard to gain market share. My primary worry is the overall market.
And my biggest worry is what's going on in Washington.
Question:
So, how long does the non-compete go for now?
Ronald J. Kruszewski -
Stifel Financial
Corp. - Chairman, President and CEO
Fourteen months.
Question:
Just back on the wealth management side, you mentioned the organic growth in
the private clients spaces outpace other parts of the business. Do you mind
just elaborating on within wealth management, where you see particular areas
of growth and how you're positioned relative to others to capitalize on that
growth?
Ronald J. Kruszewski -
Stifel Financial
Corp. - Chairman, President and CEO
Well, primarily our growth is in financial advisors. Effectively thousands
of financial advisors have been consolidated up into universal bank models
from firms that used to look a lot like Stifel. What's happening today is
many of these financial advisors at the larger firms want to go back to the
firm they used to work at, more entrepreneurial, more freedom for them and
unfortunately, their firm doesn't exist anymore so the firm that looks a lot
like where they used to work is Stifel. We see a lot of people that want to
come back to their old environment, not everyone obviously, but that's going
to drive a lot of our growth. That coupled with our Bank, which has and will
continue to be a significant contributor to our profitability as it grows.
Michael Carrier -
Bank of America Merrill
Lynch - Director, Research
One last one. It seem like just based on what you were saying in terms of
maybe we're in for some improvement in financials, in that environment,
you're positioned to do well, yet if the sluggishness continues then maybe
you're right in terms of the big banks continuing to delever and cutt
costs. So it appears that you can gain market share in either scenario.
Which one do you hope for? Which one do you feel like you're better
positioned?
Ronald J. Kruszewski -
Stifel Financial
Corp. - Chairman, President and CEO
The one that I hope for is, as I've said all day in our meetings, I have
not, in my 30 years in the business have ever witnessed the economy or
frankly the capital formation and wealth management business held as hostage
to what's going on in Washington as I do today and the uncertainty caused by
the fiscal collapse, the inability to deal with the deficit and all the
uncertainty has really put a damper on confidence and therefore on our
business. I believe that that will get resolved. I believe a big factor
that's going to help get capital in motion will be corporate tax reform. I
believe that's a bipartisan issue. I will say that from Stifel's
perspective, corporate tax reform has to help us in that we pay the highest
marginal tax rates possible in the United States, nearly 40% which I find is
ridiculously high and the highest in the world so I believe we're going to
be a net beneficiary. Corporate tax reform, a long-term solution to our
long-term debt issues I think can reignite confidence and it makes no sense
to me where the ten year yield stands versus the yield on the S&P 500 in any
growth environment. With confidence, I believe you'll see money rotate out
of fixed income back into equities, which will allow investments, volumes to
improve, the market to improve and I believe we're well positioned for that.
The counter side is that nothing happens. We go off the fiscal cliff. Europe
goes into the abyss. We go into a deflationary cycle and I've made some bad
investments in that environment but I'm not counting on that one.
Michael Carrier -
Bank of America Merrill
Lynch - Director, Research
All right, people, we'll wrap it up there. Thanks again Ron.
Ronald J. Kruszewski -
Stifel Financial
Corp. - Chairman, President and CEO
Thank you.
Cautionary Statement Concerning Forward-Looking Statements
Statements in this Current Report on Form 8-K that relate to Stifel
Financial Corp.'s (the "Company") or KBW, Inc.'s ("KBW") future plans,
objectives, expectations, performance, events and the like may constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Future events, risks and uncertainties, individually or in the aggregate,
could cause our actual results to differ materially from those expressed or
implied in these forward-looking statements. The material factors and
assumptions that could cause actual results to differ materially from
current expectations include, without limitation, the following: (1) the
inability to close the merger in a timely manner; (2) the inability to
complete the merger due to the failure to obtain KBW stockholder adoption of
the merger agreement or the failure to satisfy other conditions to
completion of the merger, including required regulatory and court approvals;
(3) the failure of the transaction to close for any other reason; (4) the
possibility that the integration of KBW's business and operations with those
of the Company may be more difficult and/or take longer than anticipated,
may be more costly than anticipated and may have unanticipated adverse
results relating to KBW's or the Company's existing businesses; (5) the
challenges of integrating and retaining key employees; (6) the effect of the
announcement of the transaction on the Company's, KBW's or the combined
company's respective business relationships, operating results and business
generally; (7) the possibility that the anticipated synergies and cost
savings of the merger will not be realized, or will not be realized within
the expected time period; (8) the possibility that the merger may be more
expensive to complete than anticipated, including as a result of unexpected
factors or events; (9) the challenges of maintaining and increasing revenues
on a combined company basis following the close of the merger; (10)
diversion of management's attention from ongoing business concerns; (11)
general competitive, economic, political and market conditions and
fluctuations; (12) actions taken or conditions imposed by the United States
and foreign governments; (13) adverse outcomes of pending or threatened
litigation or government investigations; (14) the impact of competition in
the industries and in the specific markets in which the Company and KBW,
respectively, operate; and (15) other factors that may affect future results
of the combined company described in the section entitled "Risk Factors" in
the proxy statement/prospectus to be mailed to KBW's shareholders and in the
Company's and KBW's respective filings with the U.S. Securities and Exchange
Commission ("SEC") that are available on the SEC's web site located at
www.sec.gov, including the sections entitled "Risk Factors" in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2011, and
"Risk Factors" in KBW's Annual Report on Form 10-K for the fiscal year ended
December 31, 2011. Readers are strongly urged to read the full cautionary
statements contained in those materials. We assume no obligation to update
any forward-looking statements to reflect events that occur or circumstances
that exist after the date on which they were made.
Additional Information
In connection with the proposed Merger, the Company will be filing a
registration statement on Form S-4 that also constitutes a prospectus of the
Company and other relevant documents relating to the acquisition of KBW with
the SEC. The registration statement on Form S-4 will include a proxy
statement of KBW, and the final proxy statement/prospectus will be mailed to
shareholders of KBW. The Company and KBW shareholders are urged to read the
registration statement and any other relevant documents filed with the SEC,
including the proxy statement/prospectus that will be part of the
registration statement, because they will contain important information
about the Company, KBW and the proposed transaction. Investors and
securityholders will be able to obtain free copies of the registration
statement and proxy statement/prospectus (when available) as well as other
filed documents containing information about the Conpany and KBW, without
charge, at the SEC's website (www.sec.gov). Free copies of the Company's
filings also may be obtained by directing a request to the Company's
Investor Relations by phone to (314) 342-2000, in writing to Stifel
Financial Corp., Attention: Investor Relations, 501 North Broadway, St.
Louis, Missouri 63102, by email to investorrelations@stifel.com or at
Stifel's website (www.stifel.com). Free copies of KBW's filings also may be
obtained by directing a request to KBW's Investor Relations by phone to
(866) 529-2339, in writing to KBW, Inc., Attn: Alan Oshiki, c/o King
Worldwide Investor Relations, 48 Wall Street, 32nd Floor, New York, New York
10005, or by email to kbw.inv.relations@kbw.com.
Proxy Solicitation
The Company, KBW and their respective directors and executive officers may
be deemed, under SEC rules, to be participants in the solicitation of
proxies from the shareholders of KBW with respect to the proposed
transaction. More detailed information regarding the identity of the
potential participants, and their direct or indirect interests, by
securities holdings or otherwise, will be set forth in the registration
statement and proxy statement/prospectus and other materials to be filed
with the SEC in connection with the proposed transaction. Information
regarding Stifel's directors and executive officers is also available in the
Company's definitive proxy statement for its 2012 Annual Meeting of
Shareholders filed with the SEC on April 20, 2012. Information regarding
KBW's directors and executive officers is also available in KBW's definitive
proxy statement for its 2012 Annual Meeting of Shareholders filed with the
SEC on April 27, 2012. These documents are available free of charge at the
SEC's web site at www.sec.gov and from Investor Relations at KBW and Stifel
Financial Corp.