Stifel's fast growing wealth management unit hit a snag this quarter, as profits dipped 5.6% year-over-year in the face of growing pains and soaring costs.
Over the past year, the St. Louis-based firm boosted its adviser ranks to nearly 2,900 from 2,000 through its acquisitions of Sterne Agree and Barclays' U.S. wealth management unit.
Meanwhile, the wealth management unit's expenses mushroomed to $286 million for the quarter, up 24.2% from $230 million for the year ago period.
Compensation costs increased 20.8% to $221 million while non-comp expenses soared 37.5% to $65 million, the firm reported on Monday.
Quote"The Barclays business is a nice high-net-worth advisory business, but it's also a transaction business and syndicate," Stifel CEO Ronald Kruszewski told analysts Monday during an earnings call.
Those rising costs outpaced growth in the firm's revenue, which increased 15.3% to $379 million for the quarter.
Stifel CEO Ronald Kruszewski said the firm is beginning to see a revenue boost from its recent acquisitions, but he added that recent market headwinds have held back some of that growth.
"The Barclays business is a nice high-net-worth advisory business but it's also a transaction business and syndicate," he told analysts Monday during an earnings call.
Wirehouse and other broker-dealer firms have also reported tepid AUM and revenue growth due to market volatility and muted client activity. For example, Merrill Lynch reported a 2.7% drop in revenue for the first quarter.
On Stifel's earnings call, Kruszewski also said that the firm anticipates additional costs this year related to its acquisitions. For the second quarter, Stifel estimates that its bills will add another $65.5 million in costs related to its Barclays deal and $10 million related to Sterne Agee.
Companywide, net income plummeted 37.2% to $27 million. Earnings per share dropped to 40 cents from 62 cents for the year-ago period.
Total revenue rose 10.5% to $634 million while non-interest expenses increased 17.3% to $576 million.
The company's stock was trading around $31 per share in afterhours trading on Monday, down from a high of nearly $60 in June 2015. Stifel's chief executive told analysts that he believed that the stock was undervalued. But he added that he understood concerns about the direction the stock price has moved in.
"No one understands the frustrations with our stock as we deal with market valuations [more] than I do," Kruszewski said.