Analysis: Stifel CEO puts reputation on line with KBW buy

Tue Nov 27, 2012 3:22pm EST
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By Jed Horowitz and Olivia Oran

NEW YORK (Reuters) - Over the past seven years, Stifel Financial Corp (SF.N: Quote) Chief Executive Ronald Kruszewski has impressed Wall Street with a series of acquisitions that quintupled the regional brokerage's revenue and rewarded shareholders with a nearly four-fold increase in returns over the last five years.

Still, some investors view Kruszewski's latest deal, to buy money-losing investment bank KBW Inc KBW.N, as a much riskier proposition. Some question the wisdom of spending $575 million to build out a middle-market investment banking business at a time when tougher financial regulations are posing a threat to profits of giants such as UBS AG and Goldman Sachs Group Inc.

Moreover, after years of expansion, Stifel's board is starting to worry that Kruszewski may be overextended. Before announcing the KBW deal on November 5, the board was mulling whether to appoint a senior administrator or president to help him run the company, according to one director. Kruszewski is currently chairman and president, as well as chief executive.

"We talk about him moving too fast, and whether we have the infrastructure to move as fast as we're moving," said Robert Lefton, a psychologist who has been on Stifel's board for 20 years.

But he stressed that the board supported the KBW deal and was very happy with Kruszewski, who has been CEO for 12 years and is Stifel's largest individual shareholder with a 1.6 percent stake worth more than $26 million.

"He has a very clear sense of where he's heading," Lefton said. "When he came aboard, we were a struggling little regional firm barely eking out a living. He has put together what he told us he would."

Another board member echoed Lefton's comments. "Even if there is a modest recovery, (KBW) will be a very smart acquisition because he bought it off the bottom," said Robert Grady, a Stifel director and former Carlyle Group (CG.O: Quote) partner. "I wouldn't bet against him."

Kruszewski, 53, has said he wants to better balance revenue between the St. Louis-based company's retail and institutional brokerages. The deal to buy KBW, which specializes in advising small banks and thrifts on mergers and capital-raising, takes him closer to that goal.   Continued...

Ronald Kruszewski, president and CEO of Stifel Financial Corp., speaks at the Reuters Wealth Management in New York, November 2, 2010. REUTERS/Brendan McDermid