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Edited Transcript of SF earnings conference call or presentation 30-Oct-19 12:00pm GMT

Q3 2019 Stifel Financial Corp Earnings Call

St. Louis Nov 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Stifel Financial Corp earnings conference call or presentation Wednesday, October 30, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* James M. Marischen

Stifel Financial Corp. - CFO

* Joel Michael Jeffrey

Stifel Financial Corp. - SVP of IR

* Ronald James Kruszewski

Stifel Financial Corp. - Co-Chairman of the Board & CEO

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Conference Call Participants

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* Alexander Blostein

Goldman Sachs Group Inc., Research Division - Lead Capital Markets Analyst

* Christopher John Allen

Compass Point Research & Trading, LLC, Research Division - Analyst

* Devin Patrick Ryan

JMP Securities LLC, Research Division - MD and Senior Research Analyst

* Hang Leung

Wolfe Research, LLC - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. I would now like to turn the call over to Joel Jeffrey, Head of Investor Relations with Stifel.

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Joel Michael Jeffrey, Stifel Financial Corp. - SVP of IR [2]

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Thank you, operator. I'd now like to welcome everyone to Stifel Financial's Third Quarter 2019 Financial Results Conference Call.

At this time, I'd like to remind everyone that today's call may include forward-looking statements. These statements represent the firm's belief regarding future events that, by their nature, are uncertain and outside of the firm's control. Our actual results and financial condition may differ possibly materially, from what is indicated in those forward-looking statements.

For a discussion of some of the risks and factors that could affect our future results, please see the description of risk factors in the current annual report on Form 10-K for the year ended December 2018. I would also direct you to read the forward-looking disclaimers in our quarterly earnings release, particularly as it relates to the firm's ability to successfully integrate acquired companies or branch offices and financial advisers, changes in the interest rate environment and changes in legislation and regulation.

You should also read the information on the calculation of non-GAAP financial measures that's posted on the Investor Relations portion of our website at www.stifel.com. This audiocast is copyrighted material of Stifel Financial Corp. and may not be duplicated, reproduced or rebroadcast without the consent of Stifel Financial Corp.

I will now turn the call over to our Chairman and Chief Executive Officer, Ron Kruszewski.

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Ronald James Kruszewski, Stifel Financial Corp. - Co-Chairman of the Board & CEO [3]

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Thank you. Good morning, and thank you for taking the time to listen to our third quarter 2019 results. Earlier this morning, we issued an earnings release and posted a slide deck on our website. Joining me on the call today is our Co-President, Jim Zemlyak; and our CFO, Jim Marischen.

I'm going to run through the highlights of our quarterly results as well as our segment results. Jim Marischen will take you through our net interest income, our balance sheet, expenses and our outlook for the fourth quarter. I'll then come back with my concluding thoughts.

So we had a great third quarter of 2019 as we posted record quarterly net revenue of $822 million, up more than 11% from 2018. Contributing to our record revenue was a 9% increase in brokerage, an 8% increase in asset management service fees and an 18% increase in investment banking. Furthermore, both our primary operating segments generated excellent quarterly results. Wealth management posted record revenue of $535 million, while institutional revenue of $290 million was the second highest in our history. In addition to our revenue growth, our expense discipline contributed to pretax margins of more than 20%, and our second-highest non-GAAP earnings per share of $1.50, up 11%, resulting in non-GAAP return on tangible common equity of more than 24%.

Brokerage revenue totaled $262 million, up from $241 million in 2018. The improvement was driven by institutional brokerage that increased 23% over 2018 with fixed income increasing 58%, more than offsetting a 7% decline in institutional equities. We had expected institutional headwinds, primarily tied to seasonality, but increased market volatility during the quarter resulted in higher trading volumes. I would note that our modest sequential increase in institutional equities compares favorably with many of our mid-cap peers, who experienced sequential declines.

Wealth management brokerage revenue was up 1% year-on-year. As I stated in the past, the mix between brokerage and asset management is shifting with more weight now in asset management. Asset management and service fees were a record $218 million, up 8%. On a combined basis, Global Wealth Management brokerage revenue and asset and service fees totaled $378 million, up 5% from 2018.

On the next slide, we examine our investment banking revenues of $199 million compared to $169 million in 2018. Our advisory business generated fees of $105 million, which was up 39% from 2018 with our strongest results coming from the financials and technology verticals.

KBW benefited from increased activity levels that included the closing of the TCF-Chemical deal. I think it's worth mentioning that KBW has advised on 7 of the top 10 bank mergers in 2019, and as of today and through our third quarter, only one of them is closed. In addition, strong advisory results in our technology vertical was impacted by our recent acquisition of Mooreland Partners.

Capital raising totaled $94 million, up 1% primarily as a result of a 51% increase in debt capital raising. As you know, much of our debt capital raising is attributable to our public finance business that continues to rank #1 nationally in the number of senior-managed negotiated new issues with roughly a 10.5% market share. Additionally, we anticipate incremental contributions in the fourth quarter from the recent acquisition of George K. Baum. Equity capital raising revenue of $53 million was driven by solid activity in health care and technology, which helped to offset slower activity in financials.

Moving on to our segment results and starting with Global Wealth Management. As I stated, we posted record quarterly revenue, which increased 7% from 2018. Quarterly profitability was a record $203 million, representing a pretax margin of 38% driven by our revenue growth and lower noncomp expenses. I am pleased not only with our record revenue, but also the fact that net interest income increased 8% from 2018, while net interest margin, despite 2 rate cuts in the quarter, increased sequentially. Jim will provide greater detail on our NIM later in the call.

A key element to the growth in private client revenue has been the success of our recruiting. During the third quarter, we added 25 new advisers with estimated annual production of $15 million and had only 2 regrettable departures with estimated production of $700,000. Year-to-date, we have recruited 105 financial advisers with trailing 12-month production of approximately $82 million. The success of our recruiting and continued solid market performance resulted in record client assets of $312 billion, including record fee-based assets of $108 billion. Our institutional business posted $290 million in revenue, our second highest quarterly revenue result and an increase of 18% over 2018. As I have previously stated, our institutional revenue was driven by a 39% increase in advisory and a 23% increase in brokerage, offsetting modest decline in capital raising and other revenue. We continue to see the benefits of the investments we've made in our business as our platform is both larger and more diverse than it was just a few years ago and enables us to generate revenue growth in various market conditions. We look at our institutional business through the lens of advisory on one hand and both equity and fixed income brokerage and capital raising on the other. I spoke to the strength of our advisory revenue earlier, but we also posted very strong fixed income results with revenue of $92 million, up 55%, driven by strength in both brokerage, up 58% and banking, which increased 51%.

Our equities business generated $94 million in revenue. This represented a 7% sequential decline as a slowdown in equity underwriting revenue was partially offset by a slight increase in equity brokerage revenue. Our institutional business generated pretax margin of nearly 17%, which increased 290 basis points from 2018 due to the improved revenue, a 30 basis point decline in the comp ratio and a 250 basis point decline in the noncomp ratio.

To date, we've made investments in our platform through hiring and strategic acquisitions as well as return capital to our shareholders, always with a focus on risk-adjusted returns. As you can see on this slide, we've made a significant number of acquisitions throughout the last 20 years. And in 2019, we again deployed our excess capital to acquire businesses that would further enhance the value of our franchise. So far in 2019, we've closed the acquisitions of First Empire, Mooreland Partners, George K. Baum and B&F Capital. Additionally, we expect to close MainFirst and GMP in the fourth quarter of 2019.

And with that, let me turn the call over to our CFO, Jim Marischen.

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James M. Marischen, Stifel Financial Corp. - CFO [4]

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Thanks, Ron, and good morning, everyone. So starting with net interest income. As expected, net interest income totaled $135 million, which was up 11% over 2018 and flat with the second quarter. The results were in line with the midpoint of our guidance for the second half of the year as a 3 basis point sequential increase in net interest margin to 270 basis points was offset by a modest decline in average interest-earning assets.

The sequential increase in firm-wide net interest margin was due to a 3 basis point increase in bank net interest margin to 314 basis points as lower funding cost and continued remixing of assets more than offset the impact of lower rates during the quarter. While I'll get into more detail on the opportunity for additional changes in the composition of our balance sheet in later slides, I want to note that this is consistent with the strategy we laid out at the beginning of the year to limit our balance sheet growth and focus on opportunities to remix our assets and liabilities, which we believe will generate the best risk-adjusted returns.

Moving on to the balance sheet. Total assets decreased sequentially to $24.2 billion. Total consolidated average interest-earning assets were $19.9 billion, which were down roughly $325 million sequentially, due to nearly $540 million reduction in our securities portfolio that was partially offset by a more than $200 million increase in our loan portfolio. Average yields on our loan portfolio decreased by 12 basis points, and our investment portfolio yield decreased by 13 basis points as both were negatively impacted by lower LIBOR rates.

The average yield on our liabilities decreased by 18 basis points sequentially due to the impact of the cut in fed funds as our deposit beta on the July rate cut was roughly 70%. Additionally, we continued our liability optimization strategy by replacing higher-yielding CDs with lower-yielding sweep deposits. While we closed 3 acquisitions and continued our share repurchase program, the strong earnings performance offset those factors and resulted in essentially flat capital ratios with a Tier 1 leverage ratio of 10% and a Tier 1 risk-based capital ratio of 18.1%. Book value per share of $46.34 increased by $1.66 as a result of the aforementioned strong earnings growth and acquisitions, partially offset by repurchase activity.

In terms of Stifel Bancorp, total assets were $16.4 billion, a decline of approximately $200 million. The reduction in assets was due to selective bond sales and amortization from the investment portfolio, which outpaced the reinvestment of cash into higher-yielding loans. Total bank loans increased 10% year-on-year to roughly $9.4 billion, which was driven by growth in C&I, mortgage and securities-based loans. Total investments decreased by 20% year-on-year to $6.3 billion due to declines in asset-backed and mortgage-backed securities. Cash as a percentage of client assets totaled 4.6%, which was slightly up sequentially. Total client cash was $14.3 billion, which is up from $13.7 billion at the end of last quarter. We stated on our last earnings call that client cash levels had increased to roughly $14 billion by the end of July. So that trend continued during the remainder of the quarter. I also want to note that the $14.3 billion does not include roughly $6 billion that our clients hold in money market accounts. As rates decline, we could see some movement of those funds back into our Bank Sweep Program. Overall, client cash levels continue to benefit from strong FA recruiting that's adding to client cash levels as well as from our new deposit gathering initiatives at Stifel Bank.

Our provision for loan loss expense was just under $1 million and declined by approximately $1.5 million sequentially as loan growth was driven by lower-risk mortgage- and securities-based loans. The allowance for loan loss as a percentage of loans decreased to 99 basis points. Overall, our credit metrics remained solid as the nonperforming asset ratio was 11 basis points, which was down modestly on a sequential basis due to the sale of an OREO property. We continue to see strong asset quality metrics that compare favorably to the overall market.

Moving on to the next slide. We generated a pretax margin of 20.2% that was up modestly from the prior quarter. The sequential improvement was a result of a 60 basis point decrease in our noncomp ratio that was partially offset by a slight increase in our comp ratio, which came in at 58.1% in the third quarter. This was essentially at the midpoint of our full year targeted comp range of 57% to 59%, and our comp ratio increased modestly from the prior quarter due to a number of factors, including flat net interest income, the impact of increased recruiting activity, investments in our business as well as some charges we took in the quarter that impacted other revenues. For the fourth quarter, we anticipate the comp ratio at approximately 58%, given the impact of lower interest rates, continued strong recruiting of financial advisers as well as investments in our business.

Non-GAAP operating expenses, excluding the loan loss provision and expenses related to investment banking transactions totaled approximately $169 million and were within our guidance range. The sequential increase was a result of higher travel, legal and professional fees. While we remain focused on cost discipline, given the recent investments, the timing of revenues associated with them as well as higher seasonal business development costs associated with higher revenues, we'd expect our targeted noncomp operating expenses in the fourth quarter to come in between $170 million and $175 million.

In terms of our share count, our average fully diluted share count was down roughly 900,000 shares sequentially as a result of our share repurchase activity and the overall lower share price during the third quarter. In the fourth quarter, we've already repurchased approximately 500,000 shares. Assuming no further share repurchases and a constant share price, we expect our fully diluted average share count to be approximately 77.6 million.

With respect to our outlook. In our Global Wealth Management segment, our fourth quarter asset management revenue will benefit from the 4% increase in fee-based assets during the third quarter, which outpaced a roughly 1% increase in the S&P 500. I would also note that we would expect some negative impact on our revenue capture rate related to third-party cash sweeps as a result of the expected rate cut. In terms of our bank, we'd expect fourth quarter average interest-earning bank assets to decline modestly from third quarter levels, and we are increasing our NIM guidance to 310 to 320 basis points. This is a 5 basis point increase versus last quarter's guidance, primarily due to lower funding costs as we were able to replace higher cost CDs and other wholesale funding with sweep deposits. Additionally, we will benefit from the timing of the repricing of our assets. These factors should more than offset the impact of the expected rate cut on our fourth quarter results. I would also note that given the decline in absolute deposit yields, we'd anticipate a deposit beta on today's expected rate cut of around 50%. While we will still be able to transition to the higher-yielding assets and offset the roughly $1 billion in CDs and FHLB advances that are still on our balance sheet with lower cost funding, any further rate cuts would result in significantly lower deposit betas. Based on this guidance, we'd expect fourth quarter net interest income to be in the range of $130 million and $140 million, which is in line with the guidance that we gave for the second half of the year on our last earnings call.

Moving on to our institutional business. In terms of investment banking, our pipelines remain robust, and we anticipate fourth quarter revenue to be higher than revenue in the third quarter. That said, concerns that the ongoing trade dispute between the U.S. and China as well as political uncertainty could lead to more volatility in the markets and could impact the timing of deal closures. For our institutional brokerage business, we expect to see slightly higher revenue sequentially due to the usual seasonal pickup in the fourth quarter.

And now, let me turn the call back to Ron.

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Ronald James Kruszewski, Stifel Financial Corp. - Co-Chairman of the Board & CEO [5]

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Thanks, Jim. Before my concluding remarks, let me anticipate a number of questions that I assume I'll get based on recent events.

First, the announcement by the major discounters cutting commission rate to zero has really had no impact on Stifel. Simply, we are in the advice business and compete on advice and client service, not 0-based rate cost. Also, certain firms have announced the elimination of separate asset management fees and wrap-type accounts. I believe this is simply the bundling of separate fees into one fee without any overall change in the overall fee paid by clients. So again, really no impact on Stifel.

With respect to Reg BI, I have previously stated, I believe this is a good rule and an enhancement to the FINRA suitability rule. Implementation will require some additional work, especially as to form CRS and the fact that Reg BI introduces a formal duty of care. Also, the Department of Labor is expected to propose a rule for retirement accounts, but I believe this rule will largely conform with the principles of Reg BI.

As I said in my opening remarks, I am pleased with our performance in the third quarter. Our record results and the growth in the business validate our long-term strategy to build a diversified financial services firm that can consistently generate strong performance in various market conditions. The success of our long-term growth strategy is apparent when looking back 5 years to our results in the third quarter of 2014. Comparing that quarter to our third quarter of 2019, which I would note saw an interest rates decline, volatility increase and weaker equity capital market activity. This comparison truly underscores the remarkable progress we've made. In the third quarter of this year as compared to the third quarter of 2014, we've generated net revenue of $822 million, up 57% from $525 million. Net income of $117 million increased 141% from $49 million. Adjusted EPS of $1.50 increased 134% from $0.64. Pretax margin of 20.2% compared to 14.9% 5 years ago. And return on common equity of 15% increased from 9%.

The improvement over that time frame was driven by significant revenue growth in advisory and asset management, as well as net interest income. As these are all areas where we focused our growth initiatives. Again, this underscores the benefits of the investments in our business and Stifel's ability to continue to grow, despite changes in the market environment. I would also note that despite several acquisitions and continued share-based compensation, our diluted shares outstanding have only increased 2%.

The only negative in the comparison between these quarters is that our forward PE multiple in 2014 was about 15x versus our current multiple of roughly 9x. While I understand that all financial firms have seen multiple compression, I believe our current earnings multiple represents a significant discount to our closest peers.

As I look forward, I am optimistic about the outlook for our business as well as our ability to generate strong returns, despite potential market headwinds that include political uncertainty, a lower rate environment and ongoing global trade concerns. We projected for 2019 that we would generate $500 million of excess capital. We are on track to reach, if not surpass that projection. We put this capital to use as we've repurchased 3.3 million shares of stock, paid out more than $50 million in dividends, recruited over 100 new financial advisers and closed 4 acquisitions as well as 1 strategic investment so far this year. Our capital deployment illustrates our ability to both invest in our business for future growth and continue to return capital to our shareholders.

While our capital deployment will continue to be guided by where we believe we can generate the best risk-adjusted returns, I believe that our current share price and discounted valuation make share repurchases an attractive use of capital. With nearly 6 million shares remaining on our current repurchase authorization, we would expect to continue to repurchase shares at these price levels.

So with that, operator, please open the lines for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Alex Blostein with Goldman Sachs.

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Alexander Blostein, Goldman Sachs Group Inc., Research Division - Lead Capital Markets Analyst [2]

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First question, just around compensation structure and compensation leverage really as we go forward. So I guess, totally understand the dynamic about lower interest rates, and obviously that's going to put some pressure on the comp rate. So maybe it'll be helpful to talk about the comp rate in the context, kind of, excluding NIR and cash sweep revenues. It looks like that ratio has been around 70% over the last 4, 5 quarters. So maybe you guys can kind of help us think through how the evolution of the business model will impact that ratio, again, isolating the impact of lower interest? In other words, like, 70%, a good run rate? Should be higher, should be lower, given how the business mix is changing?

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James M. Marischen, Stifel Financial Corp. - CFO [3]

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Yes, this is Jim. I would say that's a good run rate going forward, excluding NIR and the other noncompensable factors. The other thing I'd say, we talked a little bit about some of these charges and other revenues. There was about $8 million of charges there this quarter, which is impacting that. So you have to bake all of that into the analysis. But again, 70% -- you're right that 70% is a good run rate there.

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Ronald James Kruszewski, Stifel Financial Corp. - Co-Chairman of the Board & CEO [4]

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And I would just add, I think that we have the range, and we have a diversified revenue source and different revenue levels. In this quarter, the noncompensable revenues relative to everything else was a little bit less. And so that moves the comp ratio around. And we always like to be conservative also before the end of the year. So I understand the question, but I don't think there's a lot of variance around what you're saying.

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Alexander Blostein, Goldman Sachs Group Inc., Research Division - Lead Capital Markets Analyst [5]

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Got it. Second question for you guys, just around the handful of deals that you've done this year. Some of them obviously already closed, some haven't. Maybe as we look out into 2020, assuming that everything closes in 2019. Can you help us think through the kind of incremental revenues and incremental expenses that we should anticipate from all these deals, kind of hitting the full run rate? And then which ones of these would you say could be the most, sort of, synergistic with the rest of Stifel, particularly on the revenue side?

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Ronald James Kruszewski, Stifel Financial Corp. - Co-Chairman of the Board & CEO [6]

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Well, I think, first of all, we want -- So I think we'll have more visibility in that in our fourth quarter call, when we -- because I think we need to provide a bridge for revenue incorporating these 6 acquisitions. And since we haven't really discussed it and nor have given all the revenue numbers, Alex, it's hard to do on this call. Each of them are unique in their ways. You saw -- already seen a benefit -- so we've already seen benefits from the Mooreland deal. Certainly, the First Empire deal has worked out nicely, and we've just closed George K. Baum and B&F. They just closed. And then we have -- we both -- we expect that MainFirst and GMP will close in the fourth quarter. Those deals are incremental obviously. They are different geographic markets, their investments as well. But I -- there are -- these are 6 transactions that will add nicely to revenue and to profitability, the way that we've structured these deals. Unfortunately, I can't put numbers to that today, because I haven't done it yet. But it is on our, what we want to do when we talk about 2020 on our next call.

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Operator [7]

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Your next question comes from the line of Devin Ryan with JMP Securities.

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Devin Patrick Ryan, JMP Securities LLC, Research Division - MD and Senior Research Analyst [8]

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Maybe first one here, just a question on M&A opportunities in wealth management. With rates going in the opposite direction, I think many thought it's obviously I think changing the financial forecast for many companies. And so I'm just curious, how you think that might impact companies in the wealth management industry, kind of their willingness to look to sell their business in either the employee or independent channel? And interrelated, what -- maybe if you can, your current view on just independent brokerage channel and appetite there?

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Ronald James Kruszewski, Stifel Financial Corp. - Co-Chairman of the Board & CEO [9]

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Well, first, I -- it's -- the current environment certainly with rates coming down, would put some pressure on most financial services firms and wealth management firms for sure. I don't believe that it really creates a lot of opportunity in M&A, in almost any industry, when you have something like this and people may view it as short term. Their price expectations do not come down commensurately. So there's risk. Who knows, politically, there could be risk in the tax rate, there's risk in the interest rates. So I don't see the current changes primarily as it relates to the interest rates and the cuts recently, maybe even one today, driving people to a conclusion that they may need to do something, not this soon. And to the extent they do, I do think this has been a sellers market in wealth management. With respect to the independent channel, we've always -- we look at that channel, we believe that, that is a business that requires -- certainly requires some scale, and we would always, and we have looked at those businesses. We actually bought and sold one in an independent model for reasons that we sold it because it, believe it or not, we don't do -- every acquisition we do, we don't keep everything. I know it's hard for some of our shareholders to believe, but that is the case. But we would like -- we would look at independents if the right situation came along.

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Devin Patrick Ryan, JMP Securities LLC, Research Division - MD and Senior Research Analyst [10]

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Terrific. And just one on recruiting. You guys have had a lot of success here recently. And so this is a little bit of a what-if, I mean, so you pulled back on recruiting ahead of the DOL rule, just given the uncertainty, I think with the rule. And so as we're heading into an election year, just the possibility of a democratic agenda and potentially increased or incremental regulation that's currently unknown. Do you see anything that would change kind of your more aggressive stance right now or some of that momentum as we get closer to that election? Or do you still -- as you, kind of, look out over the next few quarters, feel like it's right thing to do?

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Ronald James Kruszewski, Stifel Financial Corp. - Co-Chairman of the Board & CEO [11]

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Well, I -- look, our recruiting is as robust as it's ever been. There is not -- I think we're way too early to make that call with respect to what could happen. I also believe that you need more than just a change in the presidents, you probably need something in the Senate as well. Although, I do recognize that executive branches can do things. But I think it's early to make that call. I think what we did learn from the DOL is that there's also a cost of trying to slow down recruiting in that it takes a while to pick it back up. So the answer is, we're in recruiting mode, and I don't see any reason now to slow it down.

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Operator [12]

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Your next question comes from the line of Chris Allen with Compass Point.

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Christopher John Allen, Compass Point Research & Trading, LLC, Research Division - Analyst [13]

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Just wanted to follow up on kind of the recruiting FA count a little bit. Obviously, the recruiting production numbers are trending in the right direction. It was a little surprising to see flat FA count. So this being due to a little bit higher retirements or just people leaving you, as you said, a non-regrettable attrition numbers. So just any color beneath the hood there would be helpful?

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Ronald James Kruszewski, Stifel Financial Corp. - Co-Chairman of the Board & CEO [14]

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Yes. Look, we're trying -- we've been trying to give you the 2 numbers that we focus on. One is who we're bringing in the door. That's our hires and those that have left that we didn't want to leave, and we gave those numbers in the quarter. In between that and what we don't really talk about as much, but it is, as we've said in the past, our retirements and people that have retired or that's primarily what it is. So I don't know what else other color I can put to that. Other than a lot of those books, you'll see in our asset growth, and you're seeing the fact that our AUM is outpacing market gain. That's from recruiting. And a lot of the retirements have been planned, and they're into existing teams and those books are transitioned. So I thought we had a good recruiting quarter. I recognize that the flat number has a certain message at the highest surface. But that's why we try to give the -- in this case, the 25 and 2. So we had a good recruiting quarter. And the people that retired, those assets are still here and are clients of the firm.

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Christopher John Allen, Compass Point Research & Trading, LLC, Research Division - Analyst [15]

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And then just on the investment banking, obviously fairly positive, and you talked -- kind of alluded to M&A -- the advisory potential from KBW deals closing. Any color just in terms of how you're thinking about the ECM and DCM pipelines there?

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Ronald James Kruszewski, Stifel Financial Corp. - Co-Chairman of the Board & CEO [16]

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We have good and robust pipelines. I will say that when I look at our advisory platform, we have a number of announced deals that you just mentioned, and I mentioned on the call, deals that are announced and have not closed. We have a number of private transactions and capital market transactions. I -- the market, while we're hitting all-time records, I would say that it's actually becoming a little more difficult to do deals in this environment. Not sure if it's -- I think it is a combination of great uncertainty in terms of what's going to be said today regarding the future, geopolitical trade. So the market on the capital raising side, while the pipeline, both in public and private is strong and robust, the probability weighting of actually getting these deals done, it's probably a little choppy right now to just tell you how we look at it. So it's good. You would think that when you hit all-time highs in the market, deals would be getting done a lot faster. That's just -- it's not true, but not true just at Stifel. That's not true across the market.

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Operator [17]

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Your next question comes from the line of Steven Chubak with Wolfe Research.

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Hang Leung, Wolfe Research, LLC - Research Analyst [18]

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This is actually Sharon Leung filling in for Steven. I kind of wanted to get your updated thoughts on what you are seeing in terms of cash sorting behavior? Because it looks like client cash balances grew in the quarter, but your IEA declined a little. So I was wondering, if there are any dynamics related to money market and what you're seeing in terms of that?

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Ronald James Kruszewski, Stifel Financial Corp. - Co-Chairman of the Board & CEO [19]

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There was a slight decline in IEA a very, very small. I don't think there's really -- I don't know, Jim, I don't know of anything that links those 2.

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James M. Marischen, Stifel Financial Corp. - CFO [20]

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No, I mean I think one of the things we talked about is the $6 billion in money market accounts is an opportunity for us. And I think as we continue to expand some of the deposit capabilities of Stifel Bank and also try to pull some of those funds back into the sweep program, it's an opportunity for additional dry powder to grow the bank going forward.

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Hang Leung, Wolfe Research, LLC - Research Analyst [21]

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Okay, great. And then just one on capital management. I know you mentioned more than $500 million of excess capital generation this year. Just wanted to get your updated thoughts on how your thoughts are in terms of the balance of M&A versus pursuing accelerated buybacks?

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Ronald James Kruszewski, Stifel Financial Corp. - Co-Chairman of the Board & CEO [22]

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Well, that's always a -- that's always a great question without a specific answer. We look at buybacks as a return on investment, and we look at acquisitions as a return on investment. And we evaluate them. In fact, one becomes a hurdle for the other and vice versa. So the appetite depends on the attractiveness of the deal versus the attractiveness of buying back our stock. And it's a calculation that we make all the time. And certainly, whenever we're doing a transaction we have a number of hurdle rates and relevance rates, as we call them, in terms of does the deal help us become more relevant. But one of them always is, well, what if we just bought back our stock? What if we acquired us instead of acquire -- or looking at acquiring? And so those are the exercises that we go through to, as I said, today, we believe that our stock certainly relative to our closest peers is trading at a discount, and we have said that we believe that our stock is an attractive option today, but that doesn't mean an acquisition couldn't become more attractive. So it's always opportunistic. It's always based upon what is the best use of capital. And until I -- until we see it and analyze it, it's hard to answer a question like that as to which one would be more attractive.

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James M. Marischen, Stifel Financial Corp. - CFO [23]

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And I think you can see it in what we talked about in terms of what we already repurchased in October. Given what our share price did, we've already repurchased 500,000 shares in the quarter. And I think that's indicative of kind of our intentions there.

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Ronald James Kruszewski, Stifel Financial Corp. - Co-Chairman of the Board & CEO [24]

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Yes. And let me take a moment. I wanted to go back to the question about capital markets. I do want to make sure that when we were -- when I was talking about equity capital markets and that's choppy in our pipeline. We do -- I don't want to, in any way, darken the comments I made, which is I believe that in the fourth quarter, banking is going to be up and adviser -- I think it's all going to be up. So we see good -- we're seeing good market. It's just -- they feel choppy, but they're choppy, higher than the third quarter in terms of what we think is going to happen.

There any other questions? Yes?

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Operator [25]

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There are no further questions at this time. I turn the call back over to the presenters.

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Ronald James Kruszewski, Stifel Financial Corp. - Co-Chairman of the Board & CEO [26]

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Well, I would like to say good morning to everyone. Thank you for joining us. I hope everyone enjoys Halloween, and let's look forward to getting together, not only with what I hope will be a good quarter earnings call in line with what we've told you today, but we'll also provide you some look into what we're thinking about 2020. And with that, I wish everyone a great day. Thank you.

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Operator [27]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.