Deals & People March 24, 2009

Stifel Nicolaus to Acquire up to 55 Branches from UBS

Stifel, Nicolaus&Company, Incorporated, will acquire up to 55 branches of UBS Wealth Management Americas from UBS Financial Services Inc. for an upfront cash payment of about $27 million, the company announced.
Reported by

The acquisition means that Stifel Nicolaus, the brokerage subsidiary of Stifel Financial Corp., with the added UBS branches, will have a combined 1,650 financial advisers, with $65 billion in assets under management (AUM).

The 55 branches are located in 24 states and employ 500 associates, including nearly 320 financial advisers with approximately $15 billion in assets under management, according to a press release. In 2008, these branches generated estimated total revenue of approximately $116 million, including approximately $100 million in compensable adviser revenue. All financial conditions are variable and to be based on the actual number of branches and advisers acquired, to be determined in approximately 35 to 45 business days, Stifel Financial said.

The company will also acquire $215 million in Reg U and Reg T loans and $1.7 billion in money market and FDIC insured balances. Stifel Financial said it expects the deal to close during the third quarter.

In addition to the $27 million payment, additional financial aspects of the deal include annual performance-based earn-out payments for two years following the closing of the transaction and aggregate payments of up to approximately $19 million for net fixed assets and employee forgivable loans. In addition to the above payments, Stifel Nicolaus has agreed to acquire other client related assets, and assume certain liabilities, associated with the branches acquired.

“The addition of these UBS branches represents a unique strategic fit. The addition of this talented group of professionals furthers our efforts to meet our goal of expanding across the country and further build upon Stifel’s recent growth achieved through our successful acquisitions and integrations of the Legg Mason Capital Markets Group in 2005, Ryan Beck in 2007 and Butler Wick last year,’ Stifel Chairman and Chief Executive Officer Ronald J. Kruszewski commented.

Jamie Price, Head of UBS Wealth Management Advisor Group, Americas, added, “This transaction is beneficial for both firms. It positions UBS to continue to gain market share in strategic markets which are key to our long-term growth. We also believe these branches will be able to integrate smoothly onto Stifel’s platform and the financial advisers would continue to grow and assist their clients in meeting their financial goals.’

Compliance March 23, 2009

SEC Says Market Condition Changes 12b-1 Reform Plans

The Securities and Exchange Commission (SEC) said it is considering putting off rule 12b-1.
Reported by

Andrew J. Donohue, director of the Division of Investment Management at the SEC, said the change in the market over the past two years necessitates a change in the Commission’s regulatory agenda.

Specifically, in his speech at the Investment Company Institute’s 2009 Mutual Funds and Investment Management Conference, Donohue said the SEC is deferring “wholesale reconsideration of rule 12b-1.’

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Donohue noted that the basis for the SEC’s determination in 2007 that it was time to reconsider the rule (see “SEC: Stay Tuned for 12b-1 Changes’) was that when it was adopted in 1980, the fund industry was in a very different state than it was in 2007. “There had been a period of net redemptions, and there was a concern that if funds were not permitted to use a small portion of their assets to facilitate distribution, they might not survive. In 2007, fund assets were over $10 trillion and the industry had not been through a period of sustained net redemptions. Extinction certainly did not seem to be a threat,’ he said.

However, the market again has changed.

“Just as you are adjusting to the new market realities, we also need to adjust and reconsider our regulatory priorities to ensure that limited resources are employed where they can provide the greatest impact and benefit to fund investors. I believe that it would be wise in the current market environment, for us to defer consideration of rule 12b-1 reform for this year. We should address a few fundamental matters that directly impact investor protection concerns. For example, we urgently need to reconcile the diverse regulatory regimes governing investment advisers and broker/dealers, and alleviate the uncertainty in the industry emanating from this unresolved matter,’ Donohue said.

Saying the Commission is still committed to 12b-1 reform, Donohue noted that “the factors investment company boards must consider when approving or renewing a rule 12b-1 plan are outdated and may detract from effective board oversight.’ He suggested it may be useful to consider exploring other potential means of addressing issues associated with the rule, such as the possibility of providing guidance to fund directors to better assist them in this area.

Industry experts have predicted that the SEC might move to defer 12b-1 regulation. A survey by Cerulli Associates in October found that 36% of asset managers see fees and revenue-sharing concerns moving to the back burner as the SEC has “bigger fish to fry.’ (See “Cerulli: Courts Could Decide Fee Regulation.’)

The full text of Donohue’s speech is available here.

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