Good day, and welcome to the Stifel Financial Q3 2026 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Joel Jeffrey, Head of Investor Relations. Please go ahead.
Thank you, operator. Good morning and welcome to Stifel's third quarter 2026 earnings call. On behalf of Stifel Financial Corp., I will begin the call with the following information and disclaimers. This call is being recorded. During today's presentation, we will refer to our earnings release and financial supplement, copies of which are available at stifel.com. Today's presentation may include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. Stifel Financial Corp. does not undertake to update the forward-looking statements in this discussion. Please refer to our notices regarding forward-looking statements and non-GAAP measures that appear in the earnings release. I'll now turn the call over to our Chairman and Chief Executive Officer, Ron Kruszewski.
Thanks, Joel. Good morning, everyone, and thank you for joining us. Our results year to date and for the third quarter again underscore the strength of Stifel's diversified business model. We're on track for another record year. Year-to-date revenue of $4.3 billion, up 9%, earnings per share of $4.33, which is up 57%. If you exclude the impacts of last year's legal charge, EPS is up 22%, with return on tangible common equity up 24.1%. Revenue and pre-tax margins in both of our operating segments are up year to date as investments we've made in our efficiency initiatives continue to generate strong returns. The third quarter began with healthy client activity, but conditions got choppier in September as geopolitical tensions, rising energy prices, and renewed inflation concerns led to the Federal Reserve's first rate increase in three years.
It was the speed of the moving rates more than their absolute level that unsettled markets. Through it all, corporate earnings and employment stayed supportive, and the underlying U.S. economy continued to show real resilience. Against that backdrop, we delivered our highest ever third quarter earnings per share of $1.46, up 12% versus the prior year. Net revenue of $1.43 billion was in line with our guidance as another record quarter in our Global Wealth Management segment offset market-driven slowdown in our institutional business. Our bottom line growth was the result of improved operating leverage as we posted our lowest compensation ratio since the fourth quarter of 2022, which in turn drove a pre-tax margin of 22.5%. The strength of our business allowed us to continue to generate and deploy significant excess capital.
In the third quarter, we increased loans by $1.3 billion and net interest income exceeded our guidance, setting a third-quarter record that was essentially in line with our highest-ever quarterly total. Additionally, we repurchased 1.6 million shares as our strong capital position enables us to support clients, return capital to shareholders, and invest in growth even when markets are volatile. That brings me to our recent strategic investment in Meow Technologies, one of the leading business banking fintechs in the U.S. Along with our investment, we entered into a long-term licensing agreement with the company. Under this agreement, we will have access to all current and future capabilities of the Meow platform. This will provide our bank with a leading-edge white label treasury management platform for our venture fund banking and other commercial clients. This transaction accelerates the build of one of our fastest-growing businesses, our venture banking platform.
Additionally, this technology broadens our capabilities across our institutional and wealth segments, giving Stifel an AI platform and bringing family office capabilities into our wealth management platform. We believe it is a significant enhancement to our growing venture and fund banking platform. Slide two should look familiar since we used it about four years ago to point out that we saw the disconnect between our performance and our valuation compared with, in this case, Raymond James and Morgan Stanley, two firms I respect and whose business models look a lot like ours. Since the end of 2016, our earnings per share are up 406% and tangible book value is up 154%, which is better than either of these peers. Our return on tangible common equity over the last 12 months is more than 26% and is the highest of the three on this page.
Even so, we trade at nine times forward earnings compared to 10.2 for Raymond James and 13 for Morgan Stanley. Look, even through challenging times, we are growing and have an elite ROTCE. Simply, the numbers don't support the valuation gap that I see. With that, I'll turn it over to Jim.
Thanks, Ron, and good morning, everyone. Non-GAAP earnings per share of $1.46 came in ahead of consensus as stronger investment banking revenues, higher net interest income, and well-controlled expenses more than offset softer transactional revenue. Total non-GAAP revenues of $1.43 billion were flat with a year ago and 1% below consensus. Investment banking revenue exceeded expectations by $12 million or 4%, as both advisory and underwriting revenue surpassed street expectations. Net interest income of $302 million came in above the high end of our guidance and $4 million above consensus, primarily due to strong loan growth and higher loan fee income.
Transactional revenue came in 10% below expectations and decreased 17% from the prior year. I'll cover the components in more detail when we get to the institutional segment. Asset management revenue increased 14% from the prior year, driven by market appreciation and net new asset growth. It was essentially in line with consensus. Expenses were again well controlled, and we continue to see the benefits of the efficiency initiatives of the past few years. Our comp ratio of 56.6% was in line with consensus and improved from 57% in the second quarter. Non-compensation expense declined 4% sequentially and beat the street estimate by 3% as lower credit provisions, travel and entertainment, and non-bank reserve expenses contributed to the decline. The effective tax rate was 24.4%, which was slightly below consensus, but within our guidance. Turning to slide four.
Global Wealth Management generated record net revenue of $980 million, up 8% year-on-year. Results were driven by record asset management revenue and record third quarter net interest income, partially offset by a decline in transactional revenue. We ended the quarter with total client assets of $576 billion and fee-based assets of $240 billion, up 6% and 9% respectively, as we benefited from stronger equity markets and net new asset growth. Excluding the impact of the assets associated with SIA, total client assets and fee-based assets increased 8% and 12%, respectively. Net flows were slightly negative in the quarter, but our recruiting pipeline remains very strong, even with competition for advisors running high. Over the prior 12 months, we've added 90 total advisors, including 28 experienced advisors with trailing production of $19 million.
We increased our loan book meaningfully in the quarter as we generated nearly $1 billion in incremental fund banking loans and more than $200 million in residential mortgages. Based in part of this incremental growth and a stable NIM, in addition to the higher loan fee income in the third quarter, we expect fourth quarter net interest income to be in a range of $295 million-$305 million. As you can see on slide four, we have significantly grown our net interest income since the beginning of 2024 through balance sheet growth as our net interest margin has remained relatively consistent. For the year, we've already grown our loan book by roughly $3.6 billion, which is just shy of our full year guidance of $4 billion. Our strong deposit gathering capabilities continued as our combined deposit channels are up roughly $1.6 billion.
Given our mix of assets and liabilities, we are relatively rate agnostic, and we've been able to maintain a consistent NIM as our funding mix has shifted. As we look forward, our ability to fund further growth is supported by approximately $2.9 billion of deposits held off balance sheet and roughly $18 billion of money market funds and $7 billion in short-term treasuries. Turning to slide five. Through the first three quarters of 2026, institutional revenue is up 8%, driven by an increase of more than 23% in investment banking. In the third quarter, the segment generated $430 million in revenue, down 14% year-on-year. In the quarter, investment banking revenue in the segment totaled $300 million, down 6% year-on-year. Advisory revenue of $173 million increased 10% sequentially with continued strength in financials, industrials, consumer, and healthcare.
Equity capital raising revenue was $69 million, down 13% from a year ago, though issuer engagement is increasing, led by financials and healthcare. Fixed income underwriting revenue of $58 million was in line with last year's third quarter results. While higher interest rates weighed on new issue volume in the third quarter, fourth quarter activity is off to a strong start. We remain the number one negotiated issue manager in public finance by deal count, with more than 13% market share year to date. Overall, we are optimistic about investment banking as our pipelines remain very strong and we're seeing increased engagement from sponsors and improved expectations for depository M&A.
Fixed income transactional revenue of $80 million was down from approximately $123 million last year, primarily due to $9 million in trading marks in the quarter as a result of the sharp move in interest rates in September and $32 million in restructuring and aircraft gains in the prior year quarter. Equity transactional revenue was $41 million, down from $59 million a year ago, primarily due to our European restructuring, lower equity volumes, and approximately $7 million of trading marks in our equity facilitation inventory. Absent another rate move like September's, we'd expect fourth quarter institutional transactional revenue to be in a range of $145 million-$150 million. Year to date, our pre-tax margin of 18.9% is up 530 basis points from the same period a year ago as we've meaningfully reduced our comp and non-comp ratios primarily as a result of our international restructuring. Moving on to expenses.
Our improved operating efficiency showed up again in a lower comp ratio for the quarter, which was our lowest since the fourth quarter of 2022. For the full year, we are projecting our comp ratio to be at the low end of our full-year comp guidance. Non-compensation expenses total $298 million, flat with the same period a year ago, as lower provision and investment banking gross ups were offset by higher operating expenses. Our operating non-comp ratio of 19.4% was within our full-year guidance of 18%-20%. Further, assuming a stable stock price, we expect to see a fourth quarter effective tax rate in the range of 19%-22% based on the excess tax benefit related to stock-based compensation. Turning to slide seven. Our capital position remains strong and provides meaningful strategic flexibility.
The Tier 1 leverage ratio came in at 10.8%, while the Tier 1 risk-based capital ratio was 17%, reflecting the deliberate deployment of capital into loan growth. Based on a 10% Tier 1 leverage target, we ended the quarter with nearly $360 million of excess capital, and that is after funding $1.3 billion of loan growth and buying back 1.6 million shares during the quarter. Finally, we have 6.2 million shares remaining under the current buyback authorization. Assuming no additional repurchases and a stable stock price, our fully diluted share count for the fourth quarter is expected to be approximately 158.8 million shares. With that, Ron, back to you.
Thanks, Jim. Before I turn the call over to the operator for questions, let me comment on our outlook. In our Global Wealth Management segment, competition for advisors is running at elevated levels. While our recruiting pipelines remain robust, we are staying disciplined to make sure that our growth generates the appropriate return. We believe AI will make our advisors more productive, not replace them, because clients want experienced advisors and a broad set of investment options in uncertain times.
Global Wealth Management has been and will continue to be the foundation of Stifel's business, and its recurring revenue provides us consistent, predictable growth even in volatile markets. We are on track for another record year in this segment and remain on target to reach our goal of $1 trillion in client assets. A key component of our wealth segment is Stifel Bank & Trust, which supports our wealth and institutional clients.
We have significantly grown our loan and deposit gathering capabilities in recent years as we continue to execute on our long-term strategy to grow net interest income with a stable net interest margin without taking undue credit risk. Our institutional business is a meaningful driver of top and bottom-line growth in strong markets. In the third quarter, September's sharp move in rates produced trading marks in our securities inventory, which we do not expect to repeat in the fourth quarter. In advisory and capital raising, we have strong backlogs and improving client engagement. Going forward, we have seen increased activity levels across our diversified investment bank. Putting everything together, last year's fourth quarter was an all-time record at $1.56 billion in revenue, and we expect to match it this year, even with the volatility that slowed what was a very strong investment banking market in the first half.
We also expect earnings per share to be higher as we have kept our cost discipline and repurchased 6.8 million shares. Let me close by saying that as I look forward, I am optimistic. We are mindful of geopolitical risk, higher interest rates and energy prices, and elevated asset valuations. But healthy client engagement, strong wealth management fundamentals, and an active pipeline of strategic and sponsor-led transactions give us real reason for confidence. Stifel's diversified model, recurring revenue, disciplined capital management have us positioned to keep compounding value for shareholders regardless of market conditions. Operator, with that, please open the line for questions.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure the mute function is turned off to allow the signal to reach our equipment. In the interest of time, we ask that you please limit yourself to one question and one follow-up. Again, press star one to ask a question. We will pause for just a moment to assemble the queue. We will take our first question from Mike Brown with UBS.
Morning, Mike.
Great. Good morning. Thanks for taking my question. Ron, I guess you talked a little bit about the recruitment environment. As we look at the quarter here, it looks like to us the implied growth was a little bit softer this quarter. The environment remains very competitive. So maybe could you just touch on some of the recruitment trends you're seeing in the market today, and then maybe give us kind of an update on the near-term hiring activity? You talked about the pipeline as robust. Maybe how does that compare to recent quarters, and what's your kind of view on converting that pipeline as we look at the balance of the year and then into early 2027?
Yeah. I feel that a lot of the things, recruiting is strong and has been strong for us not only over quarters, over years. That's hard to look at quarter to quarter. It always has been. But when I look at our recruiting numbers, outlook, what we're hiring, and who we recruit, I feel very good about that business. That said, it's very competitive, coupled with that competition with the choppy market. That always slows people down. Clients get nervous. Markets become more volatile. We take a long-term view. So I get this question every quarter, and every quarter I say that we're a firm that we have net positive recruiting and we'll continue to do so. I'm optimistic about who we're talking to. I wouldn't say that there's a change over the years.
It's that we've probably lowered the absolute number of advisors that we talk to while increasing the trailing 12 coming in, meaning we're recruiting higher teams. I think that's very productive and good. Finally, as I've said for every quarter, I'm continually amazed at is, again, one question. AI's is going to replace all our advisors. On the second meeting I have, I talk about the recruiting competition packages are higher than they've ever been. But overall, it's a positive for us and positive for our growth rate going forward.
Great. Yes, certainly conflicting messages out in the market.
Yeah.
Ron Kruszewski, I guess I wanted to ask about the comp ratio and the pre-tax margins. Very strong results this quarter. And Jimmy gave a guide for the year. As we think about the shift in the business mix at Stifel, you've got really strong growth in the venture and the fund finance business. You've repositioned Europe. Should we view this as evidence that there's a structured lower comp ratio at Stifel and a higher margin profile going forward? Obviously, in a normalized environment, can you sustainably operate at this lower comp ratio level?
Well, look, first of all, we're going to pay our people competitively. We're going to provide Stifel as a place where you can do business, but you can also do well for our bankers and advisors and everyone else. The comp ratio is a result of, frankly, driving efficiency and not being inefficient on a number of things. As we grow our business and become more productive, one of the things that's going to happen is going to lower your comp ratio. Then finally, as you grow our net interest income, frankly,
that also drives the comp ratio. It's always at this time of year that I like to point out that we're pretty consistent of not only driving our comp ratios lower throughout the year. That's generally been conservative at the beginning of the year. And we're driving shareholder returns in margin. Whereas oftentimes you'll see what I always view as fourth quarter surprise. "Oops, our comp ratio in the quarter we have is going to be much higher because we under-recruited. But next year will be much better." This is very consistent with Stifel as you go over the years. You'll see comp ratios generally decline and reach their best levels in the fourth quarter, which often usually is our best quarter of the year.
We'll come back next quarter to provide some more granular detail on our 2027 outlook. But given our guide that we're going to get to the lower end of the range for 2026, and you think about some of the dynamics that play into 2027, we're generating a lot of deposits today. We're having a lot of loan demand. We're going to continue to grow the bank balance sheet. We're going to continue to grow net interest income. So that, going forward, is going to be the biggest driver of where the comp ratio could go. But I would say the jumping-off point of where we get to for 2026 is a good thought process of how you think about that going forward in 2027.
Okay, great. Thank you both.
Thanks for the question.
We will take our next question from Devin Ryan with Citizens Bank.
Great morning, Ron. Good morning, Jim. How are you?
Good.
Good. I want to ask a question on loan growth and the book broadly. Obviously, you guys are tracking really well relative to the $4 billion objective, and we all see the momentum in fund banking. I want to dig in just a little bit more on that component and talk a little bit about the growth there. How much is cyclical, just meaning it's a good environment, there's larger draws, and that can maybe bounce around versus structural with everything you're doing to bring in more clients? As we think bigger picture, how big are you comfortable this part of the book getting to as a percentage of the overall loan book? Maybe weave in the strategic benefits that maybe are outside of just NII that you're seeing from growing fund banking.
Fund and venture banking together. I feel we're. I hate to use a sports analogy, but we're early innings into this growth rate. I talked about some of the things we need to do overall. The overall market, especially in fund banking, I think the market's increased. There's a lot of money that's being raised and refined, the refine down. There's Henry Johns. I see that just structurally within the market as a growing pot. Within our focus has been, not only there, but on the venture side, is to be providing technology that gets us the business to begin. That's why we did this transaction that I mentioned with this Meow technology. If you want to look at something similar, you'll see where Valley acquired Bluevine, and I think Cresta acquired Capital One. We've taken a different approach in that we want to white label this.
But when we looked at our ability to generate significant, I'm talking about significant deposits to drive this business, we needed this technology to generate account opening, USD to stable and crypto back to USD, cross-border corporate credit cards, payroll, all of these things. We have what we believe is going to accelerate our ability to get clients and to build this business. I've talked about it in investor call. I've been saying we're going to be doing something on this front. Well, this is what I was talking about. I'm very optimistic about this business. It'll grow faster, at least in venture, certainly faster on the deposit side, 4 to 5 to 1 in deposits. Then we'll deploy some of that more in fund banking where the ratio is almost flipped. It loans to deposits.
But it's a business, and we track and measure referrals to wealth, referrals to banking, like mortgages that we're giving to founders, et cetera. So it is a business where we feel like we bring all the capabilities and people to this segment of banking.
The investments we've made here, and not just in technology, but in people, it's helped us take market share across both fund banking and on the venture space. When you think about a direct output of this, we've been talking about generating around $1 billion a quarter in deposit growth. With the technology investment in Meow and the capabilities that has to offer, we should see that number increase as that goes live and we have a more competitive treasury product. And I think that is a very scalable deposit generation channel as we look forward.
And it's across our business. AI, what we're talking about is being able to service clients. In this particular case, we're talking more of a narrow aspect of fund and venture banking. But when you think about what we're going to do and how we're going to grow this business, we're going to do that without opening a single branch or putting any bricks or mortar, none of it. This is all going to be incremental NII on top of what we've already built. And we've built the foundation. We just are putting some technology on it, and we're going to gain market share.
Okay. Appreciate all that background. As a follow-up, I want to dig in a little bit on the investment banking commentary. Sounded, I think, relatively constructive in fourth quarter off to a good start, which is good to hear. Can you talk a little bit more about what you're seeing in the specific businesses and like what For example, you mentioned depositories seeing additional activity. What's the catalyst for that? You talk about enthusiasm into 2027. And then obviously technology's been an area, particularly in software, that's been challenged. Are you seeing that stabilize? So any additional flavor for what's actually happening beneath the surface that's driving activity across your businesses, and then if you can just hit on some of the sectors that we all know you have strength in.
Look, I think what happened was we had a very strong quarter and a lot of engagement. A lot of things that people are talking about. Not just at Stifel, it is across the street. Not just at Stifel, but across the street, you ran into a quarter where rates, inflation rates, and geopolitical all converged late August into September. It slowed activity down significantly, which is to be expected. You throw that uncertainty into the mix. Add a little bit now that we are within a few weeks of an election that that may change some outlook in the short run. So we have seen a, what I view as a financial condition-induced pause, if you will, in activity.
But when we look at the fact that deals are getting canceled, and it is not that things are getting done because of financial conditions, I am optimistic about the businesses in specific areas. We have had a slowdown in some of the healthcare capital markets that we have seen. We expect that to pick up. Depository M&A I think is secular trends because of technology, deposit beta, creating the need for scale, and the political realities of being able to get something done between now and 2028. If there would be a change in administration.
That is going to drive activity, and we do not see that change. So I think this quarter will tell a little bit more. It is off to a good start as we see it. It felt like you had to turn the calendar page out of September. But that is how I would say it.
Yep. Okay, excellent. Thanks so much for the color.
We will take our next question from Steven Chubak with Wolfe Research.
Hi, guys. Good morning, Ron and Jim, and thanks for taking my questions.
Morning.
Wanted to start just on sweep cash. The growth had lagged some of the metrics we'd seen at your wirehouse peers. Just want to better understand what drove some of the more pronounced declines that we saw in the quarter and your outlook for the sweep cash trajectory and just customer behavior in general as we enter a higher rate backdrop with potentially multiple hikes from the Fed.
Right. So I'll touch on sweep cash. One item, we didn't touch on this in our prepared remarks, but one thing we'd highlight. With the sale of SIA, we still kept those assets on our platform and serviced them for a period of time. So that cash was still within our ecosystem and our balances of cash. That's probably a half a billion dollars that came out of our sweep balance in terms of activity in the third quarter. So I'd just highlight that when you're looking at the-
When we close
when we close and fully move those assets off our systems. The other thing I would say, just generally speaking, we typically see a seasonal uptick in deposits in the fourth quarter. We would expect that trend to continue. We have talked about other things that are going to drive deposit growth in the future. Obviously, Ron already touched on the investment in Meow and what we can do there in terms of generating additional deposits in that channel. But overall, we have nearly $3 billion of deposits available to fund future growth. We have $18 billion sitting in money market funds. We have $7 billion in short-term treasuries. We can go attack those and bring those. So those are all the cash and cash equivalents within our ecosystem.
Now, some of those things, the money funds, would be a little bit higher cost, but those are deposits in our ecosystem that we can go get. So we feel very comfortable overall where we are at from a deposit generation strategy and perspective. I think the other thing I would say is, as we have seen a remix of our deposits, our NIM has been relatively stable. We have grown NII and had a stable NIM, even though we have seen this kind of reshuffle, remix of deposits. I think that fact gets a little underappreciated at times.
Yeah, and I would underscore that. I feel that as there is a lot of focus on a small part of our funding base, we could fund this business. We see tremendous ability to generate deposits and deploy loans and maintain a NIM. Some of the repricing that is going to be going on as the deposit everyone knows this. It is economics. As the deposit base reprices, so is the asset side going to reprice. And you are seeing it through our stable NIM. And you are going to see that throughout the industry. Somehow there is this belief that if you reprice cash, the industry is just going to collapse because you cannot make any more net interest income. And I find that to be somewhat not consistent with economic theory. But that is for another day.
Understood. For my follow-up, did want to ask on the brokerage commentary. You spoke to the headwinds in the quarter. You were certainly not alone in experiencing that, especially on the muni side. You also indicated that we should see a recovery based on the guidance in transactional fees to $145 million-$150 million. Since equities is seasonally better in 4Q, it does imply continued softness in fixed income. I just wanted to better understand how much of it's structural versus cyclical, and whether we could see transaction fees get back to that $160 million legacy run rate even after adjusting for some of the business exits.
Look, I think you can. I think we've been trying to say that we have, at least in fixed income, we have transactions that are non-recurring, recurring. That's the way I say it. They just don't seem to recur quarterly, okay? So we, last quarter, had almost
$32 million.
$32 million in restructuring and aircraft. Both departments are up and running. They're doing business. The rate environment, as you can imagine, in any time you're restructuring doing aircraft, that impacts getting something done during that quarter. So that leaves fixed income $95 million-$100 million today at run rate. We're growing that business. We're growing business in equities around $50 million. I think equities tends to be more challenging. But I think we can grow it. You're seeing the decline because we completely restructured Europe. I don't to $160 million, I mean, that's a blink of an eye. That's nothing. $10 million or $40 million on a $6 billion revenue base. And we've got a lot of people. I find that to be rounding error.
Fair enough. Thanks so much, Ron, for taking my questions.
We will take our next question from Michael Cho with JP Morgan.
Hi, good morning. Thanks for taking my question, Ron and Jim. I just wanted to touch on the valuation slide that you put up and reminded us about. It feels like larger deployment of capital toward M&A is off the table for now. I guess one, is that fair? Then two, I think repurchases stepped down a touch quarter-to-quarter. I get the volatility in stock price, but is there maybe a more aggressive approach to buybacks that you might consider if the disconnect continues to persist?
Well, I think as it relates to your first question, yeah, we're going to be very thoughtful about paying market multiples that are significant multiples of ours in terms of EBITDA and capital required to run businesses. I just would think that that's shareholders when they want us to look at the acquisition landscape. We want to grow, but we want to grow and be the firm that has higher than 20% ROTCE, which isn't common in the bank. Certainly the bank only comes in margins that are robust. We're running this for shareholder value, not just for growth. As it relates to your second question, I think it's a good one in that when we are looking at acquisitions, there is an attractive one out there. It's called our own stock. Jim, in terms of how much we're doing, I'll leave that to you.
Right. The pace of buyback did decline some in the quarter. The thing I would highlight is we did grow loans of $1.3 billion in the quarter in addition to buying back 1.6 million shares. So we deployed a fair amount of capital. We brought our capital ratios down. Our excess capital still stands at a strong level of about $360 million. So we have flexibility to do both, to grow the loan book as well as buy back our shares. We've got plenty of authorization left on what we currently are authorized to buy back. So you'll continue to see us very active in that. You can just look at a share count on a year-to-date basis to get a sense of how many shares we've taken out, and it's been pretty meaningful to that number.
Yeah. That's a good point. Just looking at numbers, if you use a 10% leverage ratio, we could have not grown our loan book and bought back another-
A hundred million.
Yeah. 200-something million dollars. But our loan growth, we think, is adding to our franchise and our return on tangible and all of that. So that's a good use of capital. Dividends is a good use of capital. The investment we've made in technology, which isn't an acquisition, was investment. That's a great use of capital. But as an absolute acquisition of something, I just feel that if I came out and told you we're buying something at 15x-18x EBITDA, The Street wouldn't react well. So we're not. We're aligned there.
Fair enough. I appreciate the color. I guess just along the similar conversation around capital priorities. Ron, in the past, you talked about increasing allocation toward recruiting in terms of dollars and resources. Within this conversation around capital priorities, does that also impact how you're thinking about allocating toward advisor recruitment going forward?
Yeah. In a lot of ways, it's different math in advisor recruiting as it relates to capital and capital ratios are. We look at that more from a return on invested capital. We're hiring people, we're amortizing acquisition costs over 10 years, call it. Sometimes it's easy just to do that because you're kicking a lot of that expense down the road. If I'm coming up and saying, "Well, based on our recruiting, our comp ratio is going up," well, then, that might signal that we're either being aggressive in recruiting or maybe we're overpaying a little bit. That's hard to see in the short run. We have done this for nearly 30 years, and we've built this firm from $100 million in revenue and we're at $6 billion with a 24% ROTCE. That's because we're capital disciplined. I'm going to keep saying that.
If that means that we pass on things that don't meet our capital returns, well, then shareholders, that should be a premium, not a discount to shareholder valuation. My opinion.
Great. Thank you.
We will take our next question from Bill Katz with TD Cowen.
Great. Thank you very much. Just like to stay on the FA recruiting discussion, if we could. I think you mentioned in your prepared remarks you had negative growth in the quarter. I was wondering if you could maybe unpack that a little bit, maybe by channel, what you might be seeing. I think, Ron Kruszewski, you mentioned that competition is still pretty elevated. Underneath that, one of the things we're hearing is that these PE platforms are leveraging AI to really reduce the back office costs and then drive up the recruitment and TA packages. Where are you in terms of potentially including such technology in your own footprint, which may allow you to be more competitive on pricing if needed? Thank you.
Well, I think we are utilizing AI more productivity tools. I've got something on back office, me using AI tools to settle trades or something like that. I haven't seen that, but none of them are self-clearing, so that's not possible anyway. But in terms of tools and being able to help advisors maybe have less assistance, I guess, that's possible. We're not taking that approach. We're using AI as a tool to help us, and it's a powerful tool for preparatory meeting prep, meeting follow-up, analysis, discussion. There's a whole bunch of things. But we're combining that with humans, and I actually see the need for more people, not less.
Just not sure if I'm in a recruiting pitch and I say, "Hey, look, I can add a little bit more to your recruiting, but you can't have an assistant because you got to use this AI bot." I think I'm going to go down in my recruiting ability. I just do. But that's just, again, the private equity firms are dealing more in the independent and RIA space, so I don't really know. But AI is clearly a productivity enhancer. We're making significant investments. We're rethinking a lot of our tools. We're putting new tools in place, and I think it's a tailwind to what we're doing. We're not going to reduce people and up recruiting, but we're not doing that. Not now. Everything within our wealth business is also in the employee channel.
Other than sales of SIA, but we're no longer in the independent space at all.
Okay. Makes sense. Just maybe coming back to your guidance. Seems like you're going to be south of the $6 billion number for the full year on your top line net revenue number, and you guided to an NII bounce and rising a little bit more, and that you have a little bit of a recovery on the transactional side due to lack of mark to market. You talked to the better investment banking backlog. Can you talk a little bit about where the residual weakness might be relative to expectation at this point in time? Then how long is the lead lag between the pipeline and actually revenue recognition through the advisory line? Thank you.
Yeah. Well, look, like I said, we expect to have We had a record quarter, the fourth quarter. We expect that to be in that range. This is still not a hugely robust environment. That can change. Let's see how the elections go and what happens after that. There are going to be a lot of repositioning of things that'll happen post the election. But look, as it relates to the guide, there's a couple of things we did. Some of it's accounting. For instance, we were conservative on the sale of SIA. We reported a $50+ million gain on that, and we put it in non-core, because we just thought that probably shouldn't be in core. When we were doing it at the beginning of the year, that was in our thought process of revenue. Same with our restructuring of Europe, that we were doing off run rate revenues.
Both of those items increased our margins, increased our return on tangible equity, but probably took out of our run rate $70 million-$75 million revenue. If you add that in, you're back close to $6 billion of our range. Now, why weren't we above that range? I think we thought that fixed income would have a better year. The rate environment, everything that's happened, some of the marks we took muted those returns, but I'm optimistic about that business, too. So I feel we're at the low end of the range of what we said in January, and we could move out around me.
Okay. Thank you.
If you look at our GAAP numbers, our GAAP numbers, we reported some of those revenues in GAAP and we took them out of non-GAAP.
We will take our next question from Brennan Hawken with BMO Capital Markets.
Good morning. Thanks for taking my question. Ron, just to start with a follow-up. I believe when you were answering Steven Chubak's question on trading, you mentioned $50 million for revenues in equities in the fourth quarter. Normally, we see a seasonal pickup. Was the seasonality that you historically have seen tied to Europe, or is just the core operating environment softer and so therefore the seasonality is just not going to provide the same sort of uplift that we would normally see versus the typical run rate? Thanks.
Look, when I say, and I think this is good, and I'll let Jim go ahead, but I'll see if he disagrees with me, which would be good. But when we say $145 million- $150 million, that's kind of our run rate absent these marks on the inventory, absent Europe. We've tried to tell you isn't always recurring. That's not necessarily the fourth quarter. That's just trying to say, "Look, we've got a little bit of noise here, and this is what we see settling out." The fourth quarter generally is seasonally better. We'll see that seasonality often. It'll depend on the election. We also get checks for our old method-type thing where we get research checks. That always helps, too. That wasn't meant to be just a fourth quarter look.
That's just trying to reset your all's expectations of what the normal, if there is such a word, run rate in institutional transactional revenue is.
First of all, I agree with what Ron said, but I'd add to that. The European restructuring has an impact on this, on what is a normalized run rate. That probably took out $5 million or $6 million in a year-over-year comparison when you look at the fourth quarter. And so that's going to have an impact on that absolute number on what we did with those restructuring activities. So you have to take that into consideration when you're looking at these numbers year over year.
Okay. The transcript does say that you'd expect fourth quarter rev, but okay, fine. Got it. Follow-up question on the slide two point and some of the discussion around net new. So one thing I'd point out is that both of those comps do disclose net new assets. So that might be something to consider. You said that net new was helpful. Was that quarter over quarter and year over year? And if it was year over year, was it positive quarter over quarter? And then for maybe a sub-part of the consideration, one part that could result in this delta in the metrics could be scale. So would you consider looking to partner to be part of a larger, more powerful, more scaled organization, potentially, which might allow for that realization and valuation to be gapped or bridged?
Did you just ask me if I would sell?
That is a very indirect way of doing it, yes.
Right. I just give you a very direct clarification, okay? That's it. Hey, I don't mind. Look, that's a fair question. That's just a long way of asking it, but it's a very fair question. Look, where? Okay, so wherever it is, with those two, I don't want to say because I'm not doing anything, but most financial institutions, we're going to scale into someone that has a lower growth rate and a lower return on tangible equity because of scale. That doesn't make sense to me. If I'm going to scale, then I want to scale into someone that got higher margins, higher returns, higher growth rate. I understand a quarter can stand on its own, but we've put on that slide since 2016. Check those numbers. Who's growing faster? I hear you.
Now, if your question is do we get a higher multiple even though we combine with someone with lower financial metrics, the answer is no. But I understand the question. It's fair. I don't mean to suggest it's not a fair question.
Okay. Well, thanks for tolerating me.
No, that is all right. I am going to come on your call and ask the same question. So that will be fun. But no, that is fair. But what is it? I am just taking a moment here because most institutions that try to combine for scale in a people business and in a culture business, in a business that is as long and established as Stifel, with our growth rate, it is not like we are not growing, will find out that those lead to diseconomies of scale, not economies of scale. So I will leave you with that thought, okay?
Yep. Gotcha. Thanks, Ron.
There are no further questions at this time. I will turn the conference back to Mr. Kruszewski for any additional or closing remarks.
No. We appreciate everyone. I want to compliment all of our analysts. I like thought-provoking questions. I like questions that I want people to be comfortable asking. I want you also to be comfortable in my answers if you ask the questions, but I really do appreciate the fact that our analyst community takes the time to think about things that are outside the box. To our shareholders, what I would say is that our business model at Stifel really you can put almost in three buckets. First and foremost, we want to serve our clients, and we want to put all our resources to providing the best product, services, and advice that we can on the table. The benefit of serving our clients well falls under two buckets.
One, that our associates and partners can do well, and second is that our shareholders, not second, but equally, our shareholders do well. That is how we manage the place. We do not manage it to maximize employees at the expense of shareholders, and frankly, we are not going to maximize shareholders at the expense of employees. Both of those are not good long-term ways to run a human capital financial services firm. With that, I look forward to reporting in the fourth quarter, and thank you for your time.
This concludes today's call. Thank you for your participation. You may now disconnect.