“There’s this huge consolidation,” Kruszewski, 54, said in an interview in his office, referring to the once crowded field of U.S. regional and local brokerages that vied to serve mid-size companies. “What’s left is very few firms that ever were in the middle market. We’re one of them.”
About a dozen golf putters lean against a table. Nine floors down, the lobby is being remodeled with glass and white stone, while a bronze bull and bear statue is planned for outside. The way Kruszewski views it, St. Louis is now the No. 2 U.S. brokerage hub after New York. From his window he can see the Edward Jones Dome, the stadium named for the city’s other prominent securities firm and home field of the National Football League’s Rams.
Kruszewski is looking to U.S. brokerage-industry turmoil to provide yet more opportunities to grab market share and grow after a decade of acquisitions propelled Stifel ahead of peers. Smaller firms including Rodman & Renshaw LLC and WJB Capital Group Inc. are shuttering operations or selling themselves to larger companies as a drop in trading and lower commissions squeeze margins. Meanwhile, so-called bulge-bracket banks such as Citigroup Inc. and UBS AG are cutting employees and units as they retrench in the wake of the financial crisis.
Navigating that shakeup is key to reigniting Stifel’s stock, which snapped a nine-year ascent in 2011, as it fell 23 percent, and then ended last year little changed. Kruszewski says his mission is to simply build the firm into a larger version of its current self: a middle-market brokerage and investment bank. The stock is still up 10-fold since 2001.
When Kruszewski became CEO in 1997, Stifel employed 733 people and had annual revenue of $136 million. The company has since spent at least $1.7 billion on 24 acquisitions, according to data compiled by Bloomberg. There are now more than 5,000 employees and annual revenue exceeds $1.4 billion.
“I don’t think anybody in their wildest dreams would’ve predicted the enormity of his success,” said Stuart Greenbaum, former dean of Washington University’s Olin Business School in St. Louis and a member of Stifel’s board of directors when Kruszewski was hired. “Every growth opportunity is a failure opportunity at the same time. I think he’s done extraordinarily well.”
Other mid-size brokerages and investment banks have grappled with how to grow. Cantor Fitzgerald LP, which has become one of the largest independent U.S. brokerages, has also attempted to push into underwriting and advisory businesses. Moody’s Investors Service downgraded Cantor Fitzgerald’s credit rating to junk in October, saying the firm’s profitability has weakened even as it diversifies.
Jefferies Group Inc., the New York-based investment bank run by Richard Handler, has hired bankers and traders and expanded its balance sheet to take on larger transactions. Assets have grown from less than $15 billion in 2005 to about $36 billion at the end of 2012, with staff surging 86 percent in that period.
The firm agreed in November to sell itself to Leucadia National Corp., the investment firm that’s Jefferies’s biggest shareholder. The announcement came almost a year after Jefferies’s shares plunged following the October 2011 bankruptcy of MF Global Holdings Ltd. The deal will make Jefferies better able to weather market turmoil, the companies said at the time.
Stifel runs a wealth-management business and an institutional unit that includes investment banking, research, sales and trading, catering to companies with as much as $5 billion in market value. Kruszewski said he’s comfortable pulling between 55 percent and 65 percent of the firm’s revenue from wealth management.
Stifel has added to both units through hiring and acquisitions, he said. In 2009, the firm acquired about 55 brokerage branches from Zurich-based UBS for $46 million, according to data compiled by Bloomberg. It also purchased Ryan Beck Holdings Inc. in 2007 for about $100 million, the data show. The company is “always” looking to add to its wealth- management business, Kruszewski said.