Q4 2019 Earnings Call
The 19th earnings Conference call.
All lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer session.
If he would like to ask a question. During this time simply press Star then the number one on your telephone keypad.
If he would like to withdraw your question. Please press the pound Keith. Thank you Mr. Joel Jeffrey Senior Vice President of Investor Relations for Stifel Financial you may begin.
Thank you operator, I'd like to welcome everyone to Stifel financial fourth quarter, and full year 2019 financial results Conference call.
This time I'd like to remind everyone that today's call may include forward looking statements. These statements represent the first belief regarding future events that may by their nature, the uncertain outside of the firm's control.
Actual results and financial condition may differ possibly materially from what it indicated in those forward looking statements for a discussion of some of the risks and factors that could affect the firm's future results. Please see the description of risk factors in the current annual report Form 10-K , 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 the branch offices and financial advisors changes any interest rate environment and changes in legislation and regulation.
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 Dot Stifel Dot com.
This audiocast is copyrighted material to people financial Corp. and may not be duplicated reproduced or rebroadcast without the consent of Stifel financial I will now turn the call over to our chairman and Chief Executive Officer, Ron Kruszewski.
Thank you Joe.
Good morning, Thank you, taking the time to listen to our fourth quarter and full year 2019 resolve earlier. This morning, we issued an earnings release and posted a slide deck on our website.
Joining me on the call today, our co president, Jim Zemlyak, and Victor Neesy as well as our CFO Jim Marisha.
I'm going to run through the highlights of our full year in quarterly results as well as our segment results.
Jim will take you through our net interest income expenses in our balance sheet. I'll, then come back with our guidance for 2020, and my concluding thoughts so by almost any measure 2019 was a fantastic year for Stifel has the combination of the investments we've made into our business and the market environment contributed.
Who are very strong performance.
2019, with a year for the record books as we achieved the following record annual milestones.
Our 24th consecutive year of record revenue, which total more than 3.3 billion up 10%.
Please note that we define revenues gross revenue less interest expense.
We achieved non-GAAP earnings per share of $6 than 10 cents up 16%.
Investment banking revenue totaled 817 million up 16% asset management service fees 848 million up 5% net interest income of 547 million up 15%.
Client assets of 330 billion up 22% and record fee based assets of 117 billion up 30% again all of these metrics are annual records of course topline records are less meaningful unless they translate into bottom line result.
We are a growth oriented company that also displays expense discipline and this was demonstrated by our pre tax margin of nearly 20%. In 2019. We also believe in maximizing returns on invested capital focusing on risk adjusted returns as such I believe it is no.
Worthy that's staples 2019 annual return on tangible equity was 25%.
Our profit results enabled us to deploy significant amounts of capital through investments in our business.
Well a share repurchases and dividends in 2019, we close six acquisitions. In addition to the investments we made in our people and technology. We also returned 300 million to common shareholders to the repurchase a net settlement of 4.7 million shares and common stock dividends.
Given our investment in the business a solid market backdrop, and the fact that our backlog a both recruiting investment advisors and investment banking is as strong as it has ever bad during my tenure as CEO . Therefore, I am optimistic about our outlook for 2020.
Selecting our continued growth and optimism we are increasing our quarterly stock dividend to 17 cents per share and increased 13%.
Before I move onto our quarterly results I want to take a minute to review the growth of our business since 2015.
As you can see from the slide our record results in 2019 were not a onetime event as we've shown substantial growth in operating improvement frankly over two decades as indicated on this chart significant growth in improving profitability since 2015.
Our revenue increased nearly 1 billion since 2015, primarily driven by a significant increase in wealth management strategy of growing our bank and recruiting highly productive advisors resulted in an 81% increase in assets on our balance sheet and a more than 85% increase in FY <unk>.
Based asset the growth of these revenue generating assets resulted in a more than 70% increase and asset management revenues and a more than 300% increase in net interest income.
The growth in our business is not confined so it'll wealth management as revenues and our institutional group have improved since 2015 led by a 70% increase in investment banking I'd highlight that our focus on expanding our advisory practice was a key factor that's growth as our advisory revenues have increased by nearly one how.
And 30% I'd also note that while our brokerage business has been challenged by regulatory and other structural changes the investments. We've made in fixed income has helped to partially offset the decline in equities.
In addition to the success of our revenue growth strategies. We also focused on expense discipline in generating increased operating leverage the meaningful improvement of our comp and noncomp ratios resulted in pre tax margins, increasing from 10% in 2015 to nearly 20%.
Additionally, our net income increased by 330 million earnings per share rose by $4 and 20 sound and our return on tangible common equity improved by nearly 1500 basis points.
Finally, Stifel has completed 12 acquisition since 2015 and it it pays its employees on par with equity.
With this level of activity I believe it's noteworthy that our diluted shares outstanding in 2015 at 2019 are essentially unchanged.
Improvements of this magnitude are nothing short of remarkable and I would like to take this time to thank all my partners at Stifel for their hard work and successfully executing our growth strategies I believed that our results last year and over the past five years show that steeple is a growth company in fact, we continually to.
Great and ability to grow bore both organically and through acquisitions, while improving our profitability ratios as we have gained market share in improved our operating leverage. This is this again as illustrated by the fact that over this timeframe. We have averaged an annual increase in revenue of 9% well.
Our non-GAAP EPS.
Growth has averaged 35%.
It is clear that this level of growth is not reflected in our valuation multiples and while I believe our numbers should speak for themselves I wanted to address, especially because I'm regularly Asquith stiefel stock price trades at an earnings discount to both the market and our peers clearly I do not believe this should be the case based on.
Our five year history, our 2019 result, and maybe most importantly, our future outlook.
Turning to our quarterly results our record year was closed out by our best ever quarter with record results as follows revenue of 944 million up 19% asset management service fees of 224 million up 7% and investment bank.
Revenue of 278 million up 38% on a non-GAAP basis net income available to common shareholders of 147 million up 16% earnings per share of $1.88 up 20% pre tax margin of 20.5%.
Which was up 30 basis points quarter over quarter and a return on common tangible equity I'm, sorry, I return on common equity of 18% and a return on tangible common equity of 31%. In addition, we repurchased approximately 600000 shares at an average price.
It's a $54.15 opposing on our acquisitions of Maine, first and GMP capital.
Moving on to our segment results and starting with global wealth management.
We posted record revenue for both the year in the quarter annual revenue increased 7% to more than 2.1 billion, while corridor quarterly revenue increased 9% to 553 million I'm pleased with the profitability of wealth management as operating contribution totaled 786 Smith.
And it was a record with operating margins of approximately 37%.
We had another strong recruiting quarter as total advisers increased to 2222 at your AD for the year. We added 150 advisors with annual production of nearly 119 million and client assets up more than 17 billion, which includes 45 out advisers.
But the annual production of 36 million during the fourth quarter of 2019.
The success of our recruiting and continued solid market performance resulted in record client assets of 330 billion, including record fee based assets of 117 billion in the fourth quarter and were up 30% from 2018.
We will also continue to invest in our technology platform as we firmly believe and combining digital and mobile capabilities with trusted human advice recognizing the importance of it the advisor client relationship. We are working on advances aimed to help clients organized and manage their financial affairs, while staying in comp.
I think contact with an advisor who is helping deliver a sound goals based investment strategy.
These investments include Digitization of client records improvements in client reporting mobile banking applications, and leading edge aggregation of client assets liabilities and network.
With each advancing advancement mentioned, we aim to help our clients understand their individual situations and see the value of the trusted advice. Our advisors break we know that one size fits all solutions do not best serve client interest technology is helping us do better.
Turning to our institutional group for the year. This group had record revenue of more than 1.2 billion, a 9% increase from our previous record set in 2017 due to record investment banking revenue went up 14% increase in brokerage revenue from 2018, the fourth quarter was.
Adults were equally impressive with record revenue of 392 million, which increased 37%.
We generally examine our institutional revenue through the lens of advisory fixed income an equity.
Annual advisory revenue of 448 million increased 21%.
This is a business where revenue was typically weighted toward the second half of the year and particularly towards the fourth quarter 2019 results fit this pattern as we generated a record $155 million in the fourth quarter up 40% from 2018 and.
Our fourth quarter accounted for 35% of our full years advisory revenue.
For the year fixed income revenue totaled 383 million up 39% for the quarter, we generated record revenue of 118 million up 62% year on year, driven by a 59% increase in underwriting revenue and 64% increase in brokerage.
Looking at equities annual equities revenue came in at 371 million, which was down 7% from 2018 for the quarter equity revenue of $110 million increased 9% of underwriting rose, 24% offsetting a 6% decline in brokerage revenue.
Quarterly pre tax margin of 14.2% declined 50 basis point from 2018 as the result of a comp ratio that increased to 63.7%. This was primarily due to an elevated international comp ratio as as a result of our acquisitions. This was part.
The offset by improving the non comp ratio to 22.1%.
Declined 120 basis points.
Turning to brokerage and asset management service fees. These fees totaled 1.1 billion in 2019 that which were up 6% and 290 million in the quarter, a 17% increase from 2018.
Wealth management revenue and fees totaled 1.5 billion up 4% for the year and quarterly revenues of 398 million, which were up 8%.
We continue to benefit from strong recruiting activity that is increasing both fee based on brokerage activity levels as I've said in the past, we believe that the best analysis of our activity levels and wealth management is represented by the combination of brokerage and asset management revenues given the trends in the industry.
Our institutional equities revenues of 167 million were down 10% and 2019, yet fourth quarter revenues of 46 million were up 12% sequentially, while no one likes declines in annual numbers I believed that our performance in this challenging regulatory and operating and buyer.
But as at least on line, but likely superior to our peers reported results.
Fixed income brokerage up 256 million was up 38% from 2018 and fourth quarter revenues were in a press of 70 million up 64% from last year.
The improvement was a result of the addition of first Empire as was the growth in our non CUSIP business as trace volumes were essentially flat year on year.
I'm, especially pleased with our continued growth in investment banking for the year. Our banking revenues were 817 million up 16% and fourth quarter revenues were 277 million up nearly 40% from 2018.
Over the past several years, we've built our capabilities through the addition of talented individuals coupled with strategic acquisitions and turn we've become more relevant to clients as the size and complexity of our mandates has increased as we successfully execute these transaction ARX our expertise.
Becomes recognize leading to more mandates in short the definition of a virtuous circle.
In particular, our investments where a primary driver of our 21% increase advisory revenue to 448 million as for long term growth of advisory. These revenues have grown a 130% since 2015. This year. So strong contributions from a number of verticals.
Some notable transactions include in a technology space, we advise on the sale of electro site scientific industries to MKS and in restructuring we advised the COFINA, Puerto Rican senior bond holder coalition looking at financials, we advised on three of the most notable merger.
Cool chemical financial and Tcf financial Iberia Bank in first Horizon, and independent Bank in Texas capital KBW in particular had its strongest here as to their buys on 10 of the top 15 bank deals on the year.
Additionally, KBW backlog at the ended the year was nearly double that at the end of 2018 and our pipelines for the remainder of our advisory business are also significantly above their year ago level.
Fourth quarter Advisory revenue of 155 million increased nearly 40% was our strongest results came from the financials technology and industrial verticals as well as strong performance from Eaton partners and our new colleagues from Moreland partners and BNS capital markets.
That underwriting revenues of 138 million increased 37% in 2019 and quarterly revenue of $51 million was up 53% from 2018.
As this business is primarily public finance, we benefited from the improvement in municipal issuance volumes during the year and particularly during the quarter. In addition to the benefit we got from our recent acquisition of George Kaybob, Our public finance business continues to rank number one nationally and the number of senior manage the goes.
You do issues with roughly 14% market share during the fourth quarter of 2019.
Equity capital.
Raising revenue of 231 million declined modestly from 2018 levels. Despite the slight decline I am pleased with these results as the number of equity offerings Industrywide declined 8% in 2019 as the market was negatively impacted by the government shutdown in the first quarter.
During the year, we had strong contributions from our real estate technology healthcare and financial verticals, notably KBW ranked number one and bank IPO last.
Lastly for the full year I'd be remiss, if I didn't mention our success unwanted steeple ranked number two in terms of investment banks by the volume of UK deals in 2019, our quarterly equity underwriting revenue of 71 million was up 25% from 18 as we had a very strong.
Order from financials as well as strong performance from our real estate and healthcare verticals I would highlight our real estate practice in particular as this was driven by our successful 144 a.
144, a offering for net street with the closing of the steel and two more 144 a offerings in the first quarter of 2020, we have now raised over 1 billion to 144, a offerings and with that let me turn the call over to our CFO gym membership, thanks, Ron and good morning, everyone.
On this slide we examine our net interest income of 136 million, which was similar to prior quarter levels just above the midpoint of our guidance. Our firmwide net interest margin increased to 274 basis points, primarily as a result of the increase of Stifel banks net interest margin to 319 basis points, which.
At the high end of our guidance.
Improvement was due to our ability to remix or assets and liabilities that more than offset the impact of the October rate cut as well is relatively flat average interest earning asset levels.
Moving onto the next slide.
In terms of Stifel Bank were total assets were 16.9 billion a sequential increase of approximately 500 million as loan growth towards the end the year led by nearly 300 million dollar increase in residential mortgage lending as well as an increase of 100 million in both Cnine and securities based loans.
Total investments decreased by 3% sequentially to 6.1 billion due to declines in asset backed mortgage backed securities.
Client cash balances increased by nearly 600 million sequentially to 14.8 billion as we continue to benefit from strong epay recruiting and additional deposit gathering initiatives at Stifel Bank.
Well the absolute level of client cash increased it declined to 4.5% of total client assets due to continued strength in equity markets.
Our provision for loan loss was 4.4 billion, which is primarily a result of new loan originations.
Allowance for loan loss as a percentage of loans decreased to 98 basis points.
Overall, our credit metrics remained solid as the nonperforming asset ratio was nine 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 onto the next slide.
We generated generated a pre tax margin of 20.5% there was up 30 basis points from the prior quarter.
The sequential improvement was the result of a 50 basis point decrease in our non comp ratio that was partially offset by slight increase in our comp ratio, which came in at 58.3% in the fourth quarter and for the full year.
This was above our guidance of 58% as growth in our institutional revenues in the impact of our acquisitions led to higher than expected compensation costs in our institutional segment that drove the higher firm wide comp ratio.
non-GAAP operating expenses, excluding the loan loss provision and expenses related investment banking transactions totaled approximately 180 million and were 5 million above our guidance.
Higher than expected expenses were the result of the combination of factors tied to the very strong revenue results in the quarter as well as small increases in a number of expense line items.
In terms of our share count our average fully diluted share count was down by more than 300000 shares as result of our share repurchase activity that was partially offset by the improvement in our share price.
While we're not going in the market so far in the first quarter, we anticipate repurchasing at least 800000 shares during the first quarter.
No additional share repurchases to those anticipated under constant share price, we expect our fully diluted average share count in the first quarter to be approximately 77.5 million shares.
Moving onto the balance sheet.
Total assets increased sequentially to 24.6 billion.
Total consolidated average interest, earning assets were 19.8 billion, which were down roughly 100 million sequentially due to lower corporate cash trading securities and other investment balances is average loan balances increased nearly 500 million during the quarter and as we reduced our securities portfolio by more than 200 million.
Average yields on our loan portfolio decreased by 21 basis points and our investment portfolio yield decreased by 27 basis points as both were negative negatively impacted by lower LIBOR rates.
The average yield in our liabilities decreased by 28 basis points sequentially due to the impact of the Clinton fed funds as their deposit beta on the October rate cut was roughly 60%.
Additionally, we continued our liability optimization strategy by replacing higher yielding Cds with lower yielding sweep deposits.
While we closed two acquisitions and continued our share repurchase program. The strong earnings performance during the quarter resulted in an essentially flat tier one leverage ratio of 10%.
Our tier one risk based capital ratio declined to 17.6% as result of the acquisitions closed during the quarter and associated with an associated goodwill and due to the growth in our loan portfolio.
Book value per share $40.37 increased by $2.03 as a result to the aforementioned strong earnings growth in acquisitions, partially offset by repurchase activity.
And with that I'll turn the call back over to Rob.
Thanks, Jim.
So as you can see from this next slide our 2019 results came in at the high end of the guidance that we provided last year at this time frankly as our fee based revenue and net interest income have increased in both absolute and relative terms our ability to forecast revenue has improved and.
2019, we continued to exit execute our growth strategy as we augmented our organic growth with acquisitions, which led to revenue of more than 3.3 billion, a 10% increase that with at the top of our guidance for two for 2020, we're guiding to a revenue range of three point.
Five to 3.7 billion, which would represent an increase of 200, a 400 million or 6% to 12%.
How are we achieved thus.
Given the market conditions. The current market conditions, we anticipate continued revenue growth in our global wealth management and institutional group segments wealth management growth will be driven by continued growth in fee based assets and from improvements in the markets as well as continued strength in recruiting and the resumption of growth at Stifel Bank.
Our net interest income growth expectations are based on a two to 3 billion to add two to 3 billion of growth and interest, earning assets and bank net bank net interest margin.
310 to 320 basis points.
We expect our institutional business to benefit from continued strength in investment banking and fixed income brokerage our deal pipelines are very strong and we also expect to see incremental revenue benefits from the acquisitions, we made during 2019.
As you can see on the slide we generated an additional 84 million in revenues from these transactions in 2019 and in 2020, we anticipate an incremental 120 to 135 million from these deals.
We are guiding to a compensation ratio between 57 at 59%, which are the same as last year's range has the benefits from growth in net interest income.
We will be offset by the investment will make in our business given that our comp ratio came in at the low end of our range last year at 20.1%, we're now guiding to a range of 19% to 21% in 2020.
We are maintaining our tax rate guidance of 25% to 27% our full year tax rate for 2019 came in at the low end of the range due to a lower tax rate in the fourth quarter, which was related to tax benefits from our equity based comp and an acquisition that we made in Canada. So.
So based on our guidance you can see that I am optimistic about 2020, while the market environment as not without risk we believe even in the low even the low end of our revenue forecasts that we will have another year of record revenue at the investments we made continued to generate incremental benefits.
With that said those of you about steeple for any period of time know that our business typically is more back half weighted seasonality typically impacts businesses, such as investment banking and institutional brokerage, especially in the first quarter of any new year. However, the increased contribution from our asset management.
And net interest income revenues continue to provide offset typical seasonality. So as I look at the first quarter I'd note that our first quarter asset management revenue will benefit from the more than 8% increase in fee based assets during the fourth quarter in terms of net interest income we would expect average into.
Turning bank assets to increase sequentially as much of our growth in assets occurred late in the fourth quarter and we expect to continue to grow our loan and securities portfolio. In 2020 in terms of net interest margin, we're maintaining our guidance from last quarter of 310 to 320 basis points.
Based on this guidance, we would expect net interest income to be in the range of 135 to 145 million in terms of expenses, we'd expect the ranges. We gave for the full year to be applicable to the first quarter as well that said given typical seasonality, we would expect our comp ratio to come in at the higher.
End of our annual range in the first quarter.
So in conclusion I am obviously pleased with our record results as they validate the strategic investments we've made over the past several years.
Additionally, as you can see from our 2020 guidance I remain optimistic about our future as our strategy of building a diversified financial surfaces franchise continues to consistently generate strong performance despite ever changing market conditions.
In 2020, our business will continue to generate significant levels of excess capital and we will deploy our capital with a focus on growth and as always the best risk adjusted returns, we would anticipate again generating an excess of 500 million of capital. This year, our recent history illustrate.
It's our flexibility and deploying capital in 2018, we saw the best returns and bank growth share repurchases and dividend growth in 2019, we reduced the size of our bank and focused our capital deployment on acquisitions share repurchase we purchase of the dividends.
While we continue to focus on maintaining flexibility in being opportunistic with our capital. We would anticipate 2020 is capital deployment to focus more on bank growth than acquisitions. Additionally, we will continue to repurchase shares and as I noted earlier, we have again increased our quarterly dividend our common.
Shares the bottom line is that Steve has bad and continues to be a growth company and the substantial excess capital that we generate we'll continue to be put to use where we see the past risk adjusted returns.
So with that operator, please open the lines for questions.
Thank you very much at this time, if you'd like to ask a question simply press Star then the number one on your telephone keypad, we'll pause for just a lot of the compiler couponing roster.
Our first question has a lot of Alex Blostein of Goldman Sachs. Your line is open.
Hey, good morning, guys. Thanks for taking the question. So maybe we'll just started with attacking some of the guidance. Thanks for the and I are and I call or $2 billion to $3 billion growth now says three tenthreetwenty name at the bank.
Maybe talk a little bit above the rate assumptions that you guys have baked into this guidance for 2020.
Sources, all the $2 billion to $3 billion of incremental answer girl do you anticipate at the bank and how much capital you expect that girls to consume for the company overall.
The first assumption is that we are assuming no changes in fed policy or rates.
Our purpose of doing this guidance Alex.
I mean, they pick capital requirements that are 7% to 8% of of the incremental asset growth.
So that you can understand where some of our excess capital would go we pursued a strategy.
On the bank.
Right and just in terms of the sources of funding sources, where are you guys expect it to come is that essentially sweep from brokerage on the global side, that's kind of come into that or something else.
Yes. So this is chip it would be a mixture of both the sweet sweep deposits and some of the other deposits initiatives that we have been working through really over the past year. So combination of both our great.
Second question around just a the operating leverage in the business. Obviously good margins for you guys. This year, but I guess, if I go through the guidance.
You know the pretax margin implied in your 2020 is around 20%, which is call. It flattish with what you guys have done this year. Despite the fact that and I are is forecast to grow at 10% on your fee business are grown quite nicely as well. So I guess why would we see better operating leverage if your revenue assumptions are correct and.
Well as or wiggle room, I guess in those numbers.
You know I've said I've said over the years, Alex that I feel that 20% margins are.
Our place that that are good margins in good markets and we take.
We continue we will continue to make investments in people and products from things that we do and so we reinvest profit and we anticipate continuing to do so I mean, if we could we stood still and didn't do any of that than I do think we'd have a margin expansion for sure but we.
Continue.
To want to add capabilities.
Which usually means adding people deferred product line different verticals.
As we continue to grow Stifel. So net net we see stability in our margins, which are which are pretty good at 20%.
Another thing to think about there as it were resuming growth in the bank of $2 billion to $3 billion, just the normal provision of growing the loan portfolio is going to add to Noncomp opex, where that was a relatively nominal number in 2019.
Yes, not only sounds great. Thanks, guys.
Thanks, Alex.
[laughter].
Our next question comes the line as Steven Chubak of Wolfe Research. Your line is open.
Hi, Good morning, good morning, Steven.
So Ron I, just wanted to try and understand or Unpacks. What you spoke of in terms of capital management priorities I think everyone on the call recognizes the attractiveness of growing the bank.
You also start off the call talking about the fact that despite the really strong revenue growth you've produced over the last five years, you're not really getting credit for that in the valuation I'm. Just wondering why not lead in in terms of share repurchase and focus more of the excess capital generation, the 500 million plus on buyback in lieu of growing them.
Bank, just given the attractiveness of the returns and where your shares are currently trading.
You know, it's always a question of capital allocation, Stephen and when we look at best we always.
Now on.
The of returns that we can get.
Buying our stock.
Growing the bank or making acquisitions and you know.
They're all they all have can be attractive I personally believe and I've said this a long time that given our choice as we've gone back five years ago, and just had been buying back our stock.
I do not believe that we would be where we are today as well as a company buying back stock.
As you know is.
Not a growth strategy per se and.
And building the bank and adding people as a growth strategy. So we're a growth company and were not as focused on buying back our stock that said, our sockets, a certain level or buying it back and we will be buying it back but as a primary strategy.
No that's not.
The way we're thinking.
Got it and in terms of the the excess capital that you're generating and how that's going to be deployed on one of the things that you didn't know Jim was the fact that the total capital ratio has been contracting I know that in the past you've alluded to 10% tier one leverage 20% total capital targets or those had been.
Admitted will be moving targets, how should we think about how you're managing to those targets going forward or you're going to look to build back to 20% or do you feel comfortable with where you're currently operating and may even look to reduce those targets further.
I would say that you're probably going to see a little bit of the build into tier one risk based capital ratio that 19% to 18% range as we look out over this year based on kind of what we're seeing from a balance sheet growth perspective, I will say, though you do see some compression between the risk based ratio in the tier one leverage ratio as we continue to build the loan portfolio kind of grow the.
Overall balance sheet.
And any explicit targets that you guys might look to manage to or how we should think about it just as we start to build out the model.
I would say they've been relatively consistent over the past two years and I'd say they could continue along those lines.
Yes, they won often plays against the other.
But.
As Jim said, 10% on leverage.
18 to 19, new we can be below 17, they have to 19 on risk based is is within a range that you can model with it.
Great. Thanks for taking my questions sure.
Our next question comes line of Chris Allen of Compass point Your line is open.
Morning.
Again dig into the guidance a little bit.
Market improvements over the gun recruiting.
What kind of market assumptions, you building in it and on the recruiting from.
What's the competitive environment right now for recruiting.
Opportunities.
Your first question our market assumptions saw is not to have a recession in the year. We're not we think the equity markets in terms of our modeling is single digits.
So not not.
A tremendous increase in equity valuation topic that drives asset management, so in terms of assumptions.
Yes, just.
Modest increases in equity valuations.
Continued activity and banking.
A relatively.
Generally up you know up tick in overall economic activity.
The share comp are asked to our economic backdrop and forecast.
Recruiting look recruiting as is.
Competitive business than it has been for ill for as long as I can remember being in this business and it just.
Today as ever the deferred says is that we.
What we've done and our as we've grown the company in growing the products in the best and technology. We're just wanting a lot of recruiting.
Whatever you want to call up but lot of people coming in the door as much as I've ever seen and importantly, a lot of enthusiasm for the the model that we're putting on the table, which of the advisor centric we continue to.
Good luck importance of advisors and that there are central to our model and that's resonating and we're we're doing well and the recording fraud.
And and I expect the and I expect that to continue.
Just a quick one in institutional segment you noted pressure.
From Europe on the comp ratio.
Some of that so some of the recent deals any color would it would have looked like adjusting for that.
Maybe more normal environment and what was the revenue contribution during the quarter from those European segment.
Deals.
We haven't we don't disclose the revenue at least we haven't so I'm reluctant to do that on this call I mean, I guess I can look at doing that for you what I wouldn't say is that as we've looked at.
Building out our practice both.
In Europe and now in Canada.
Like every deals that we've done over the past those businesses.
Margins are below.
What we were doing in the domestic markets.
Certainly on a consolidated basis, but also our institutional business as margins are compressed by the investment so far making in Europe .
And again goes to an earlier question what setup, we werent, making investments our margins would be expanding but we believe the investments that we're making.
In the markets in Europe in particular are going to pay dividends. It was a very very tough year with all the Brexit.
Patter and speculation that went on it was a very difficult year, but but we.
We we've got a nice business over there I said, if you look at our UK rankings.
Ill from non Existant to number two and the way we measure to.
At against a very difficult market.
Where we're optimistic about what we're doing over there that said right now to drag on margins as most of our investments initially start out to be.
So if anything.
I believe that international will lead to overall margin expansion as as those investments begin to pay dividends.
Thanks, guys.
Our next question comes wanted Devin Ryan JMP Securities. Your line is open.
Great Good morning, guys.
Morning, Devon.
Just to come back on.
Recruiting and some of the inputs.
Year, 2019, and good to hear that.
The outlook there is still very good.
So just roll forward view that you're going to have a strong.
Here is here for recruiting moving forward.
Does that have an uplift on the comp ratio or.
Near term downward pressure on margins because it seems like you're absorbing it very well at the moment.
I know, sometimes there can be step functions of the increased infrastructure for few years investment compound. So I'm just trying to think about if if that view is four basis, you're going to look more like 2019 for advisor recruiting what are the puts and takes on the margins.
You know, it's a great question Devon and.
In General I'm Gonna give me a general comment I've looked at us, but what the recruiting that we're doing today.
Is replacing the roll off of some significant recruiting we did 10 years ago. If you remember we added.
400 people 10 years ago, we went from 700 people to 1100 people during that big recruiting push that we had.
Back to back that and as those.
Sort of roll off their replaced by by new ones. The net net I would not see pressure on margins.
Just because.
Of the there is there some roll off as well so.
That's the easiest way to just to try to tell you.
We've been recruiting a lot for a long number of years.
Okay. Thanks, Ron maybe just a quick one for Jim.
The oral weigh on fee based assets has been coming down private client and I know there is little bit noise last quarter. The push it down so we look at this quarter.
Is that decline just.
Which is the mix shifting as you know the market or the higher equity markets you pushed a certain pockets higher or are there other pricing applications.
Moving parts.
We just how we should think about modeling.
A lot of that is mix of product within that group. We saw an influx of lot of fixed income short fixed income type product, which carries lower rate I think specific to that that was driving now that down somewhat I think on a go forward basis, it's going to be in that range Award kind of you know that 83 586 basis point range is kind of what we're anticipate.
Meeting.
Some of that again, we driven by the allocation in mix of products.
Okay. Thanks, guys.
Sure.
Our next question comes line of Chris Harris from Wells Fargo. Your line is open.
Thanks, guys.
First question on net interest margin.
No really good result for 2019, and you talked about the benefit from the remixing of assets and liabilities.
Is there more opportunity to do incremental remixing as we think about a 2020 and beyond.
Yes is the short answer there there is still around 500 million of Cds on our balance sheet today, and so thats an opportunity to remix on the liability side and then on the asset side. When you look at the bond portfolio was about 6 billion.
Total about 2 billion to that is outside the siloed portfolio.
So you have of about 2 billion there that you three mix right into higher yielding loan product that's baked into our NIM guidance. So three kind of pre 20, I mean, new and that's why.
We're able to maintain that where you're seeing a number of other institutions in general lowering their NIM.
Guys that's true.
Okay.
I know this isn't part of your forecast, but you know any any thoughts on what the impact would be if we were to see another 25 basis point reduction of fed funds rate.
You talked about.
60% deposit beta I imagine it would be potentially lower for the next one but.
Any color you can share that'd be great.
Yes kind of base to where we're at today and you can I mean are the pricing is out there its publicly available there's not going to be much left in terms of reducing.
The cost of funds, so youre going to see the deposit beta adjust accordingly.
That means that would be a slight negative.
Yes.
[laughter].
Alright, Thank you guys.
Yep.
Thank you very much at this time I turn the call back to the presenter for any closing remarks.
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Well as we close out 2019 it was a.
Very good you're back to one for the record books I.
On a close by again thanking my partners.
At Stifel for their dedication.
And certainly.
Effort. So we have a great group of people here want to thank our shareholders for their continued investment and confidence in Stifel and we look forward to continuing.
To build.
The Premier diversified financial services wealth management investment banking firm and look forward to reporting to you in the first quarter of 2020 have a good day, everyone and thank you.
And this concludes today's conference call you may now disconnect.
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