Stifel's acquisition of Barclays' U.S. wealth management unit closes in early December, but the firm may end up with a lot more empty desks than it originally expected.
Just under half of Barclays' U.S. advisors have left for other firms since the deal was announced in June, Stifel said when announcing earnings this week.
The firm expects that 95 to 105 Barclays advisors overseeing $25 billion in assets will transition to Stifel. When the deal was announced, Stifel said that the Barclays unit had about 180 advisors overseeing $57.9 billion in client assets.
Terms of the deal have not been disclosed – making it difficult to judge whether the firm is paying a good price for the unit, insider observers say. Yet by one measure, the Barclays unit will contribute less to Stifel's revenue. The St. Louis-based firm said it now expects the unit to add $210 million to $230 million in revenue, compared to $332 million when the acquisition was first announced.
After the deal was announced, Stifel offered Barclays advisors up to 150% of their annual production, according to people familiar with the matter. However, a number of advisors passed up on the offer and jumped to other firms. The lion's share went to Merrill Lynch and Morgan Stanley, while UBS and J.P. Morgan also benefited from departing Barclays advisors.
Many of the moves have involved teams overseeing hundreds of millions in client assets – several teams had AUMs in excess of $1 billion. Notably, one group of advisors overseeing more than $3 billion in client assets went independent with help from Dynasty Financial, the firm said.
Recruiters say that it wasn't a good fit for some advisors.
"Stifel is an up-and-comer. I think they're a good firm, but it gets to opinions here," recruiter Bill Willis says. "If you went to work for Barclays, do you want to work for Stifel? A lot of the Barclays guys were legacy Lehman. Did that seem like an uptick? And then there are other folks who used this to get a better offer. These were two really different firms."
In a recent interview with On Wall Street, Stifel CEO Ronald Kruszewski said that some of these advisors were already on their way out before Stifel inked the deal to acquire the unit. "If you talk to the advisors who have left, they wouldn't say they rejected Stifel. They were already well on their way onto their own plans," he said.
And, speaking during the firm's earnings call, Kruszewski reminded analysts that the firm expected some attrition and that the purchase price would adjust accordingly, though he did not say what the total price would be.
Kruszewski remained upbeat about the deal, noting the quality of the advisors as well as a syndicate deal to be the U.S. domestic partner for Barclays new issues. "I could not be more positive about the quality of the business and each part will bring to Stifel. This is a fantastic transaction. We are excited about the value that it will create," he said.
Danny Sarch, a recruiter, says that Kruszewski is considered a tough negotiator. "He's bought a bunch of firms over the years, it's not like he's a beginner at this. And I don't think they would be that naïve," Sarch says.
In fact, Barclays isn't even Stifel's first acquisition this year, having first bought Sterne Agee, a Birmingham, Ala.-based independent broker-dealer, in February. That deal closed in June and boosted Stifel's advisor force by 35% to over 2,800 employee and independent advisors.
Though the Barclays deal is set to close in a few weeks, there could still be more departures, recruiters say.
"The only true deadline for an advisor is the planned conversion date in systems, because then you're putting your client through a hassle. So the only thing you can do is leave before the closing and avoid your client [going through] two transitions," Sarch says.
Stifel also said that pretax income for its wealth management unit rose 3.5% year-over-year to $97 million for the third quarter. Revenues rose 4.1% to $357 million while total non-interest expenses increased 4.3% to $260 million.
Overall, the company reported that net income dropped 17% year-over-year to $17 million, hurt in part by a drop in investment banking revenues.
Earnings per share fell to 25 cents from 60 cents for the year-ago period.
In a statement, Kruszewski said the firm is still on track to build a premier wealth management and institutional services company.
"Our operating model provides us tremendous leverage to invest in the future while at the same time providing shareholders a strong return. We are well positioned to take advantage of opportunities as they arrive and offer our clients excellent advice and services," he said.
--With additional reporting from Ralph R. Ortega.
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