Release Date: October 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Stifel Financial Corp (SF, Financial) reported net revenue of $1.23 billion, marking the second highest quarterly revenue in its history, with a 17% year-on-year increase.
- Investment banking revenue surged by 66%, driven by more than doubling capital raising revenue and a 41% increase in advisory revenue.
- Net interest income increased by 4%, reaching the high end of the company's guidance, indicating a potential bottoming out of previous declines.
- Global wealth management revenue hit a record $827 million, with pre-tax margins at 37%, supported by record asset management revenues.
- The company added 28 advisors to its platform, contributing to record fee-based assets and total client assets of $191 billion and $496 billion, respectively.
Negative Points
- Asset management revenue fell slightly below Street expectations, primarily due to lower revenue from third-party cash sweeps.
- The compensation ratio was 58%, slightly above Street estimates, indicating higher-than-expected compensation expenses.
- Non-compensation expenses were negatively impacted by additional legal accruals, affecting overall expense management.
- Despite improvements, the institutional business's pre-tax margins of 11.5% remain below the 20% expected in more normal market conditions.
- The fixed income brokerage revenue appeared softer than anticipated, with some seasonality affecting third-quarter results.
Q & A Highlights
Q: Can you quantify the level of demand for loans and explain how you plan to grow net interest income even as rates decline?
A: Ronald Kruszewski, CEO: We are neutral to a 100-basis-point move in terms of our margin. We see opportunities to grow our balance sheet and net interest income on a risk-adjusted basis. James Marischen, CFO: We have the capacity to generate attractive risk-adjusted returns through our captive audience base, including mortgages and securities-based loans, with over $3 billion in sweep deposits available to the bank.
Q: What is the outlook for fixed income brokerage, given the year-over-year revenue increase but softer-than-expected results?
A: Ronald Kruszewski, CEO: There is some seasonality in the third quarter, but I remain optimistic about the business as rates normalize and clients actively manage their portfolios. James Marischen, CFO: As the interest rate risk curve normalizes, clients will be more active in trading, benefiting our fixed income business.
Q: Can you provide more details on the $3 billion of third-party deposits and their funding rates?
A: Ronald Kruszewski, CEO: Sweep deposits are at a 4.5% smart rate, with treasury deposits generally closer to the smart rate but slightly less expensive, depending on whether they are part of a lending relationship.
Q: How do you view the opportunity for leverage in compensation rates over time, and what are your early plans for 2025?
A: Ronald Kruszewski, CEO: We have been conservative with compensation, and as net interest income and our institutional business grow, we expect positive impacts on the comp ratio. The 58% comp ratio will likely be at the high end of our guidance range for 2025.
Q: What are your expectations for the M&A environment, particularly in the sponsor market, as conditions improve?
A: Ronald Kruszewski, CEO: The M&A environment is conducive for activity, though uncertainty around the election could impact it. Overall, I see the sponsor side of M&A as strong, with potential for improvement from a regulatory perspective.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
