Q3 2021 Stifel Financial Corp Earnings Call
Good day and thank you for standing by welcome to the Stifel third quarter 2021 earnings conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
Be advised that today's call is being recorded if you require any further assistance. Please press star zero.
Now I'd like to turn the call over to Mr. Joel Jeffrey head of Investor Relations. Please go ahead.
Thank you operator, I'd like to welcome everyone to Stifel Financial's third quarter 2021 financial results Conference call I'm joined on the call today by our chairman and CEO Rocco Schatsky, our co presidents, Victor Niecy, and Jim <unk>, and our CFO Jim marriage.
Earlier. This morning, we issued an earnings release and posted a slide deck and financial supplement to our website, which can be found on the investor Relations page at Www Dot Stifel Dot com.
I would note that some of the numbers that we stay throughout our presentation are presented on a non-GAAP basis, and I would refer to our reconciliation of GAAP to non-GAAP as disclosed in our press release I would also remind listeners to refer to our earnings release financial supplement our slide presentation for information on forward looking statements and non-GAAP measures.
This audio cast is copyrighted material of Stifel 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 CEO Ron Kruszewski.
Thanks, Joel to our guests good morning, and thank you for taking the time to listen to our third quarter 2021 results.
I'll start the call with some highlights from our quarter and first nine months and Jim Ericsson, who will review our balance sheet and expenses and I'll wrap up with some concluding thoughts are.
Our third quarter represented our second highest net revenue and earnings per share as both operating segments global wealth and institutional generated strong results.
I've said before our success is driven by the continued reinvestment in our business and based on our investment banking, our recruiting pipelines organic bank growth and expertise in acquisitions Stifel remains well positioned to continue and build upon our decades long growth.
Revenue in the quarter totaled nearly 1.15 billion an increase of 30%, while certainly pleased with our quarterly revenue. It is noteworthy that we achieved this despite the fact that several large advisory assignments, which we had forecast to close in the third quarter has slipped into the fourth quarter for the nine month period, we generated.
Record revenue of more than $3 4 billion up 28% over the comparable period in 2020, the growth in revenue and lower expense ratios resulted in non-GAAP EPS of $1 65, which is up 56% year on year and $4.85 here today, which is up.
68%.
Strength of our results were driven by a combination of revenue growth and expense discipline, resulting in pre tax margins of nearly 24%. In addition, reflecting our focus on returns to investor capital. We earned nearly nearly 28% annualized return on tangible common equity.
Tangible book value per share also increased 27% in the last year.
Turning to the next slide our third quarter net revenue was driven by record global wealth management revenue and robust.
<unk> revenue.
As we forecasted compensation as a percentage of net revenue declined sequentially to 58, 2%. Our operating expense ratio was 17, 9% and excluding credit provision in investment banking gross ups totaled.
<unk> totaled 16, 9%, which was within the guidance range. We gave on last quarter's call taken together steepest quarterly pre tax income totaled $274 million, which increased 60% from the third quarter of 2020.
As I said on last quarter's call Stifel is and will continue to be a growth company and our results in the third quarter and year to date illustrate our impressive long term growth trajectory, our disciplined approach to capital deployment and acquisitions has resulted in diversified business model that has not only made us more relevant to our core.
Clients, but it also enabled us to grow during good and bad market environments.
Last quarter, we updated our full year 2021 revenue guidance to be in a range of $4 five to $4 7 billion. Our annualized nine month revenue is essentially in the middle of our guidance and would represent our 26th consecutive year of record net revenue and up over 20% from last year.
<unk>.
Our performance in 2021, and quite frankly over the past six years has been a testament to our focus on consistently reinvesting in our business and our people. We built a diversified business comprised of highly talented people that has enabled our firm could generate consistent growth regardless of the operating environment.
Which is something I believe gets overlooked by analysts and investors, we take a disciplined approach to capital deployment by focusing on where we can generate the best risk adjusted returns since the end of 2015. This approach has enabled us to consistently grow our assets from $13 billion to over $30 billion.
Execute and integrate 11 acquisitions had nearly 700 financial advisors initiate and consistently grow our dividend and repurchase approximately 20 million shares.
We accomplished all of this while improving our pre tax margins over that time period from 10% to nearly 24% and through the first nine months of 2021 generated an annualized annualized return on tangible equity of nearly 30%.
I would note. These results are against the backdrop of a zero rate environment and Stifel is very well positioned from a net interest income and margin perspective for an increase in interest rates.
Speaking of good acquisitions I am pleased to welcome our new partners from Vining Sparks, we expect this transaction to close at the end of October and I am excited about the strategic fit of this business.
As shown on this slide we are adding a highly complementary business to our already strong fixed income franchise, finding sparks focuses on providing institutional fixed income brokerage balance sheet management portfolio accounting and underwriting services to depository institutions, our analysis indicates that <unk>.
70% of Vining Sparks revenue is generated from depository with less than $2 billion in assets, while nearly 75% of steep of depository revenue comes from clients with greater than $2 billion in assets.
We believe that the combination of our two firms is not only highly complementary but cement steeples position as a leading investment bank for depository institutions in the United States.
Looking at the other way at the complementary profile of those combination there exists only a 5% revenue overlap within and clients of our combined client base. We also believe there exists solid synergy opportunities and debt offerings and M&A through K BW and correspondent banking.
Bank.
Moving on to our operating segments and starting with global wealth management again, we posted record quarterly and year to date revenue third quarter revenue totaled $656 million up 24% year on year and year to date revenue was approximately one 9 billion an increase of 19% this growth was driven.
By recruiting increased client activity and growth in interest, earning assets. The continued growth in our asset management revenue in the third quarter was buoyed by higher market valuations and increase and increase client assets in the second quarter as the majority of our fee based assets don't advance.
Despite muted growth in equity valuations during the third quarter as measured by the S&P 500, we finished the quarter with record client assets of 407 billion and fee based assets of approximately $150 billion I am pleased with both our loan growth and improvement in both net interest income which increased <unk>.
1% over last year, and a 10 basis point sequential improvement in our net interest margin.
Jim will provide a little more color later in this presentation.
Next slide highlights the strength of our recruiting and growth drivers of our platform for the quarter. We added 46 advisors advisors, including 41 experienced advisors with total trailing 12 month production of $35 million, our recruiting pipelines remain very robust and Furthermore, I expect that our independent channel.
We will begin to add to our recruiting success as the advisor channel is gaining traction and momentum.
Onto our institutional group, we posted our second highest revenue quarter as we continue to benefit from increased activity level.
And the scale of our business.
Our quarterly net revenue totaled $492 million, which was up 36% from the prior year nine month revenue increased 39% to over $1 5 billion.
<unk> quarterly advisory revenues of $208 million were up nearly a 160% while capital raising posted revenue of $153 million up 18% as expected trading revenue declined to $124 million, while year to date trading declined 10% to $455 million.
Our institutional pretax margin for the quarter was 25, 4%, which was our second highest trailing only the second quarter of this year for the first nine month pre tax margin was 25, 3% was up nearly 700 basis points as we continued to generate substantial topline growth.
Which drive operating leverage.
Looking at the revenue components of the institutional group, our equities business posted record nine month results of 533 million up 37%, while our third quarter revenue totaled $142 million up 7% year on year.
Our fixed income business posted year to date revenue of $428 million in quarterly revenue of $135 million, our quarterly fixed income business reflected strengthened capital raising offset by a decline in trading revenue.
I'll focus on the trading businesses of these segments and discuss capital raising on the next slide regarding investment banking.
With respect to our trading businesses quarterly equity revenue totaled $48 million down 21% sequentially.
As I stated earlier. This was the result of lower market activity level as volumes on the NYSE and NASDAQ declined 8% sequentially. Additionally, we incurred mark to Mark Mark to market losses attributed to warrants associated with certain investment banking transactions versus gains.
In the prior quarter.
For the first nine months equity trading revenue was $189 million up 1% from 2020 fixing.
Fixed income trading revenue of 76 million was down 17% sequentially as we saw lower activity levels and agencies corporates immunities as overall market activity declined a similar amount.
On slide nine investment banking quarterly revenue increased 71% to $372 million, which was just $5 million sure what have amounted to our fourth consecutive quarterly record year to date investment banking revenue totaled nearly $1 1 billion up 77%.
As both advisory and capital raising are having record years the two.
$208 million of advisory revenue was our second consecutive record quarter, driven primarily by the strength of our U S business, notably financials diversified services and technology.
All of our major protocols generated strong results. We also saw sequential gains in healthcare and industrials and in the fund placement business from Eaton partners with our pipeline is at record levels and barring a substantial change in the market or the economy, we expect another strong advisory.
Quarter to the fourth quarter of 2021.
Moving on to capital raising our equity underwriting business posted revenue of $104 million up 22%. We saw balanced in this business with contributions from healthcare technology financials, and industrials are fixed income underwriting business posted its second consecutive record quarter was $61 million in revenue.
<unk> up 6% sequentially.
<unk> finance business posted another great quarter as we lead managed 257 municipal issues.
The first nine months, our market share in terms of number of transactions increased year on year by 140 basis points to 12, 7% market share. In addition to the strength of our public finance business. We continue to see strong contributions for our debt capital markets business as we completed a record number of deals in the quarter.
While activity levels in equity capital raising.
Load from the robust levels earlier this year overall activity remains solid and with strong pipelines in our fixed income underwriting business.
Another strong quarter for the fourth quarter.
And with that let me turn the call over to our CFO, Jim Morrison, Thanks, Ron and good morning, everyone turning to slide 10.
For the quarter net interest income totaled $132 million, which was up 10% sequentially.
Our firm wide net interest margin increased to 210 basis points, primarily due to increases in leveraged finance fee income and our stock loan business, while our bank NIM remained at 240 basis points the.
The growth in our NII was driven by a 5% increase in our interest earning assets as well as the aforementioned increased leverage finance fee income and securities lending activities.
In terms of our fourth quarter expectations, we see net interest income in a range of $125 million to $135 million and with a similar NIM for the third quarter as we expect lower activity levels and some of the more episodic fee income opportunities to be offset by the growth in our balance sheet.
I'd also note that we've updated our asset sensitivity based on the increased size of our balance sheet.
Our first quarter earnings call, we estimated that we would generate an incremental $150 million to $175 million of pre tax income as a result of a 100 basis point increase in rates. However, given the nearly $3 billion increase in our balance sheet. Since the end of the first quarter. We are revising this forecast to a range of 175 million to two.
$200 million using the same market and deposit beta assumptions.
Okay.
Moving onto the next slide I'll go into more detail on the bank's loan and investment portfolios we.
We ended the quarter with total net loans of $13 6 billion, which was up approximately $730 million from the prior quarter and was primarily driven by growth in our consumer channel.
Our mortgage portfolio increased by $390 million sequentially as we continue to see demand for residential loans from our wealth management clients.
Our securities based loan portfolio increased by approximately $250 million.
Growth in these loans continues to be strong as FAA recruiting momentum continues to drive increased loan balances or.
Our commercial portfolio increased by nearly $100 million sequentially.
<unk> due to a 5% increase in C&I loans as increases in fund banking loans more than offset the expected reduction in PPP loans.
Moving to the investment portfolio, which increased by $330 million sequentially. The vast majority of the sequential growth was in our CLO portfolio. As we continue to see these securities is generating strong risk adjusted returns.
Turning to the allowance.
We had a modest reserve release of approximately $700000 is improvement in our economic projections was essentially offset by the additional reserves tied to loan growth.
As a result of the reserve release in the composition of our loan growth during the quarter our ratio of allowance to total loans declined to 91 basis points, excluding PPP loans.
Would reiterate that it is important to look at the level of reserves between our consumer and commercial portfolios given the relative levels of inherent risk.
At quarter end, the consumer allowance to total loans was 36 basis points. The commercial portfolio was 120 basis points.
We also continued to see strong credit metrics with non performing assets non performing loans declining to only four basis points.
Moving on to capital and liquidity.
Our risk based and leverage capital ratios increased to 26% and 12% respectively.
The increase in our capital ratios was the result of continued strength in our operating results and incremental $150 million of preferred equity and the decreasing impact of volatility associated with the pandemic on our trading portfolio.
We continued our share repurchase program in the third quarter by buying back 670000 shares that average price of $66 74.
Year to date, we've repurchased nearly one 5 million shares at an average cost of $66 34.
We have approximately 11 8 million shares remaining on our current share repurchase authorization.
We continue to feel good about our financial position as our liquidity remains strong. In addition to the $6 billion available on our sweep program. The bank has access to off balance sheet funding more than $5 billion.
On the next slide we go through expenses in the third quarter, our pre tax margin improved 450 basis points year on year to nearly 24%.
The increase was the result of strong revenue growth, a lower compensation ratio and our continued expense discipline.
Our comp to revenue ratio of 58, 2% was down 140 basis points from the prior year. It was down a 130 basis points from the prior quarter.
With the first nine months of this year, our comp ratio was 59, 5%, which was down 120 basis points from 2020, but I would note that our total year to date comp expense is more than $400 million above the comparable period in 2020.
Non compensation operating expenses, excluding the credit loss provision and expenses related to investment banking transactions totaled approximately $194 million and represented 16, 9% of our net revenue the.
The increase from the prior quarter was driven by increased comfort conference travel and entertainment expenses.
In the quarter, our non-GAAP after tax adjustments totaled $13 million or.
<unk> 11 per share.
As previously noted the difference between GAAP and non-GAAP results are mainly related to deal expenses, primarily include stock based compensation and intangible amortization.
The effective tax rate during the quarter came in at 25%.
Was that the midpoint of our guidance we gave for the second half of 2021 on our last earnings call.
We'd expect to see the effective rate to move lower in the fourth quarter, given the anticipated benefit related to the tax impact on stock based compensation.
In terms of our share count our average fully diluted share count declined by 125000 shares.
Roughly in line with our guidance on last quarter's call.
Absent any assumption for additional share repurchases and assuming a stable stock price, we'd expect the fourth quarter fully diluted share count to be $119 5 million shares.
This increase is largely attributable to the shares that will be issued in conjunction with vining Sparks transaction.
I'll turn the call back over to Ron.
Thanks, Jim 2021 has clearly been an outstanding year in the markets and our results. So far illustrate the power of the business, we've built and our ability to capitalize on this type of environment through the first nine months, we're not only on pace to surpass our full year record revenue by more than 20%, but our earnings per share.
Already eclipsed last year's full year record as our pre tax margin is up more than 400 basis points. Despite the headwinds of a zero interest rate environment.
Our ability to generate these type of returns is a direct result of both the acquisitions, we've made and the people. We've hired our acquisition strategy has focused on adding complementary businesses that are not only accretive but are a good cultural fit and at that point, let me again emphasize how happy we are to be adding a firm like.
Vining Sparks to the Stifel organization.
Our strategy for recruiting is similar.
In many ways to our approach to acquisition and we look not only for high quality advisors and bankers, but also individuals that are attracted to the culture. We've built at Stifel. Simply this growth strategy has increased the scale of our business and our relevance to our clients, while enabling us to capitalize on the strength of the operating environment.
In ways, we could not have seen just five years ago.
As I look forward the fundamentals of the current market remain positive as fiscal and monetary policies remain accommodative and low interest rates continue to benefit the equities markets.
Said there are a number of potential headwinds that include increased inflation the potential for tax law changes regulatory reforms as well as the ongoing impact of COVID-19. However, as we've proved over the past few years, our diversified business model is capable of generating strong results.
A variety of market conditions, and I believe we remain well positioned for the future fully understanding that market conditions can change quickly.
Operator, please open the line for questions.
As a reminder to ask a question you will need to press star one on your telephone keypad to withdraw your question press the pound key.
Standby, while we compile the Q&A roster.
Your first question comes from the line of Steven <unk> from Wolfe Research. Your line is now open.
Hi, Good morning, Ron and good morning, Jim.
So.
Ron on last quarter's call. The discussion was about the 18 month air pocket in terms of deal activity. So it's certainly nice to see you announced the Vining Sparks deal and we are starting to see a pickup in activity. Both for you and peers and just given the strength of your excess capital position, but still pretty full valuations for some potential tar.
So I was hoping you could just speak to your appetite to do additional deals and in which sector verticals do you see the most compelling opportunities to expand inorganically.
Well I think.
The Vining Sparks deal as is.
Hello.
Illustrative of the kind of deals we'd like to doing that we've done over time, it's highly complementary.
Yes, well, it's a strong cultural fit.
<unk>.
<unk> relevance to our clients and the depository space they bring a lot of great.
Additional capabilities to our firm.
And the transaction.
<unk> to be accretive to our shareholders.
And in line with the returns that we look at.
On one hand, I think that Thats, a great transaction on the other.
On the other hand.
We have catalog of an air pocket, that's a lot of a lot of it's driven by.
Asset values and how we look at it.
To give you a sense of how we look at things.
There's a number of transactions that.
Will be accretive to our earnings per share but.
Our are dilutive to our return on equity.
And thats kind of where the conundrum comes in.
So and that's true in many ways that's shown in the bank space today.
At least for us.
Earning high Twenty's return on tangible amongst banks today.
Our earnings.
10%.
Return on equity.
And.
So when we look at that.
So area for acquisition.
We conclude that we're better off.
Growing organically, we think returns are double by growing organically by first fulfilling an acquisition.
There is other sectors, where the valuation.
Just really dilute your return.
Capital.
That answer is the same answer we've been given for 25 years.
I expect that answer to stay the same.
No that's helpful Ron and.
Yes, you have been remarkably consistent in your messaging there certainly the the follow up I had is just on rate sensitivity and how youre thinking about managing some of your excess liquidity at the same time, just given the strength of your excess capital position I do believe your 12% tier one leverage is going to put you at the top of the heap of all the banks that we <unk>.
<unk>, how youre thinking about deploying some of the 6 billion of off balance sheet liquidity that you have today and whether there's any appetite to accelerate growth at the bank.
And I know you raised the rate sensitivity for the overall firm given better volume growth.
It looks like you didn't change your deposit beta assumptions and I just wanted to firm up what.
What deposit beta assumption do you have today and how does that compare to what you guys experienced in the last tightening cycle.
Ill, let Tim talk a minute about the.
Our beta assumptions.
He knows that more than I do but.
Assumptions, but in terms of.
Our strategy going forward.
In this environment and again always always with the caveat that we're going to we're going to deploy capital when we believe it.
Appropriately risk adjusted returns.
One of the things that I want to be communicating is our ability to consistently grow.
Our interest, earning assets and what that means.
As to both our earnings.
Our relevance to our clients.
And while basically.
Taking our capital levels back down so we do have some excess capital we have deposits that we can sweep to the bank and we have a lot of opportunities to organically grow interest earning assets.
So when you model that out over two or three years you Couldnt you can see just from that one line item net interest income.
That CAD.
Right size, our capital levels I agree with Bocom capsule here.
But.
Drive earnings.
Well.
That's just net interest income.
Those what we invest there and the way we do it in the sectors that we invest.
Our highly synergistic with what we're doing in wealth management, we do a lot of mortgages decline spa loans to clients on the institutional side.
We have been.
We've been building, our leveraged loan capabilities and we've been lending to our clients. So we see a lot of demand and so that excess capital is going to be recycled back into the growth of this company.
And maybe to pick up and pick it up from there in terms of the deposit beta our assumption was at 25% deposit beta and I think if you look back to the last cycle, we did a little bit better than that and I would also highlight that that is something that was really more back end weighted you didn't really see nearly that on the first.
Three or four rate hikes in the last cycle and then in terms of just additional commentary on our capital deployment, we've been talking about buying back shares to offset dilution. Obviously, we had some comments on some of the increase in the share count expected for <unk>. So would you expect the buyback to pick up to account for just normal dilution.
From stock based compensation as well as the impact from the.
The recently announced transaction.
That's very helpful color. Thank you both for taking my questions sure have a great day.
Your next question comes from the line of Devin Ryan from JMP Securities. Your line is now open.
Good morning, Greg Good morning, Good morning, Ron how are you and Jim.
Great.
First question just on the.
Financial adviser recruiting commentary so we saw a nice headline yesterday about.
Additionally, the independent contractor team, that's joining and obviously I heard your comments as well that youre seeing some some nice kind of recruiting momentum there should we think about kind of that channel I know, it's small today for the firm, but like that's going to be entirely incremental to what youre doing on the employee side or is that kind of budget. It.
And kind of.
Broader bucket, so it's kind of one or the other so how should we think about that.
Addition, or kind of momentum from here and then also how are you feeling about M&A in that channel I know there are a lot of different considerations.
Tenant side relative to the employee side, but also maybe some more opportunities just given the fragmentation there.
Look I think.
The simplest way to look at that as it is.
Advisor channel, but we had pretty.
Pretty much ignored.
Back when we when we thought about it Jim and I.
Z and I talked about it we concluded that having that option would actually help our recruiting on the employee side as people look forward and think at.
At some point they might want to be independent that Optionality certainly helps.
We're recruiting on the employee side, but overall the way you need to I think you need to look at it simply.
That is a channel that we haven't been recruiting in and we're going to be recruiting and I've been sitting in meetings with conference rooms full of.
Advisers that are interested independent advisors that are interested in joining Stifel and this is from a desk there I'll start so.
Well look again look at our track record and look at how we built vessel sales and I think that thats, what youre going to see in the independent channel I was just getting started we you're right. We just hired our first team.
I remember when I hired we hired our first adviser back in 97. So it does build from there I can promise you.
Okay.
Okay, Great and then just a follow up Ron you did touch on this but I just want to dig a little bit more around.
The opportunity to kind of scale up to the bank and just some additional thoughts maybe around how youre thinking about the size of the bank relative to the overall firm or the wealth management business and I. Appreciate you have excess capital today.
Those deposits.
<unk> generating 20% returns there so it's very attractive.
Just to kind of deploy capital to grow and it's also incremental to your customer base as well so.
You've been growing faster I think than you.
You alluded to heading into the year, because there's maybe more opportunity.
And as we look out maybe two years, how are you thinking about the potential size of the bank could it be much bigger relative to the overall Stifel franchise.
Well first of all the bank.
I have said is undersized to the Stifel.
Franchise, when you think about.
Total footings.
And the FERC of about $30 billion of banks call 25 of that.
22 actually of that.
And we have a large institutional business.
Over 400 billion of AUM and client.
Our ability to grow the bank.
Within our own client set is large alright.
I will say that and I think the way that.
We need to be communicating about that so maybe maybe I'm, saying I don't think I'm, saying this for the first time, but I'll answer. Your question. This way is you should think about.
Our ability were $30 billion.
Bank holding company today in three years from now.
I don't see why we are not a $40 billion bank.
Bank holding company and when you when you look backwards, how we've gone from $13 billion to $30 billion and I'll start applying that forward because I think past is prologue youll see the power of this organization and the power that.
That comes when you take that growth and do it organically.
Okay.
Trying to do it through acquisition and <unk>.
That's what I would tell you to think about and look at and I'll think you'll see I think youll see the power of some of some numbers that occur when you do that.
Yeah, Okay terrific I'll leave it there. Thank you Ron I appreciate it.
Your next question comes from the line of Alex <unk> from Goldman Sachs. Your line is now open.
Good morning, Hey, good morning, good morning, Jim.
I wanted to dig a little more into the organic growth trends in the wealth management business.
Obviously, recognizing that disclosure is not sort of consistent and the same farm by farm in the space, but curious how you guys are seeing the organic growth evolve maybe you could help us put some numbers around that I know, you're really focused on kind of recruiting revenues, which is probably frankly better indication organic growth in net new assets, but what is kind of the organic net new revenue growth in that business.
Over the last call. It 12 months, how do you see thats trended and given the sort of changes you're seeing in the business and your evolution. There how do you expect it to evolve over the next few years.
No I think Mark I see a lot of these numbers.
You talk about organic asset growth.
And.
Ours is in the 5% to 6% range.
When we look at it.
Look the lifeblood of the business is net new assets those net new assets.
<unk> also.
<unk> done per our recruiting and building the franchise.
So youre right, we tend to focus on adding adding the people and bringing new clients.
And looking at that but I believe that not believe I know that our organic growth and asset.
In that range that I, just said and that's obviously muted across the industry because of the low rate environment.
Hum.
So, but I would say that I don't know if I've answered your question, but thats.
That's certainly how we look at it I feel like that's in line with the growth.
Did I hear about I can never actually see how people calculate that right.
So rates dynamic aside if I kind of read your point about <unk>, 5% to 6% organic I guess net new asset growth that translates reasonably well to staples kind of organic revenue growth.
Recruited organic kind of.
Those are sort of interchangeable, but is that fair statement.
Yes, I think it is perfect great and then my quick follow up sorry, there were a couple of conflicting earnings call. This morning.
Sparks I don't know if I heard profitability revenue expense contribution you expect in 'twenty two or once the deal closes can you can you help us with that.
No.
Okay. Thanks for that.
No I hear as I've said.
It's accretive.
The revenues I mean look I think we've said somewhere that revenues averaged over the last 10 years about $150 million.
Better in the last few years.
But I think that.
So yes, so to give you some size.
We run it on our models that you could you could expect it.
To be accretive that's what we expect.
<unk>.
That's about all I'll say about that.
Alright, I will take it thank you alright.
Your next question comes from the line of Chris Allen from Compass Point. Your line is now open.
Good morning, Good morning, Chris.
<unk>.
I was wondering if you give a little bit more color on trading.
Maybe specifically what was the actual impact of the warrants. So we can get a kind of a run rate on the equity side and then how is the environment is shaping up so far in the fourth quarter.
Let me take the last part first because I was just looking at that this morning, our equity.
Trading businesses have started actually strong in the quarter.
I think thats, a seasonal thing for us anyway, if you look back over the year. So I think that that's the case.
So we didn't give a number as to what the warrant.
But it was a it was a mark there was a gain in the second quarter and a loss in the third quarter and then general rule that would explain substantially the difference between the market value declines in what we decline I'll say that a general alright. So we were down more than the market and that Delta is pretty much explained.
By the Delta in the Mark to market for the warrants.
And maybe the other thing when I look at the large firms I'll look at numbers.
I've tried to understand what goes in to those equity trading numbers and I have concluded that there are things I'm speaking to the large firms now there's things that they're doing on equity derivatives and prime brokerage and things that we're not doing so those numbers are not.
As comparable as you would think.
We will generally.
Be correlated to average daily volumes.
And.
So to answer your question is is that our our decline sequential on the equity side, both more than the average daily volume decline and.
The vast majority of that Delta is in the.
The mark to market of Orange.
Got it and then any color on just in terms of the environment.
Yes.
Yes.
I would say I would say that at all.
Also.
Improving from the summer, which is again seasonal so I would expect a strong quarter of course, youre going to see a nice uptick.
And in our fixed volumes, because we're closing a deal here thats. The nice deal so youre going to have to factor in.
The increase.
<unk>.
Okay. Thanks, Scott.
Okay.
I think Scott Great question.
Okay, operator, and very good questions from our analyst community and I appreciate that.
Reported to you in January as I said our outlook.
Remain very positively constructive both accommodative market conditions at our in our pipeline and our growth.
Bob leads me to believe that we will continue to deliver.
Excellent returns to our shareholders I look forward to reporting on the fourth quarter and the full year of 2021.
In.
<unk> private late January 2022, so with that thank you everyone for your time and attention and have a great day. Thank you.
This concludes today's conference call. Thank you everyone for participating you may now disconnect.
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