UPDATE 2-Stifel CEO says FINRA suit won’t derail Weisel buy

* Kruszewski says Weisel Partners deal still on track

* Stifel eyes asset management, investment bank expansion

* CEO says employee stock-unit changes to hit book value
(Adds detail from CEO presentation)

By Joseph A. Giannone

NEW YORK, May 18 (BestGrowthStock) – A regulator’s lawsuit filed
against Thomas Weisel Partners Group Inc (TWPG.O: ) will not
derail the boutique bank’s pending sale to Stifel Financial
Corp (SF.N: ), Stifel Chief Executive Ron Kruszewski told
analysts on Tuesday.

Kruszewski also told analysts at an industry conference
that Stifel was modifying previously awarded stock units, part
of a broader trend by Wall Street firms to extend terms and
introduce claw-back provisions to recover payments or benefits
under certain circumstances. These changes are expected to
reduce Stifel’s book value by 7.5 percent to $27.30 a share.

In a civil complaint filed last month in San Francisco, the
Financial Industry Regulatory Authority accused Weisel Partners
and a former fixed-income head, Stephen “Henry” Brinck, of
“stuffing” $15.7 million of auction-rate securities from the
firm’s own books into three client accounts.

About $360 billion of auction-rate debt, touted by Wall
Street firms as offering cash-like liquidity, became impossible
for clients to sell after markets locked up in 2007.

The complaint alleged Weisel made the sales in early 2008
though it privately harbored concerns about the auction-rate
market and did so without the clients’ approval. Indeed, FINRA
said two of the clients expressly asked that their auction rate
holdings be sold.

Weisel then used the proceeds to help pay corporate
bonuses, the regulatory body said in its complaint.

Speaking at an investor conference in New York, Kruszewski
said Stifel learned of the situation before Stifel agreed to
acquire Weisel Partners for $300 million in stock.

Kruszewski said he did not condone such behavior, but
dismissed press accounts of the suit as “sensational” and said
the lawsuit will not scuttle the deal.

“We were fully aware of the situation,” Kruszewski told a
small gathering of investors at a Macquarie Capital conference
in Manhattan. “There will be no impact on our deal.”

Kruszewski said Weisel Partners moved to recoup its
clients’ losses as soon as they were made aware of the
situation. “The matter is resolved, from my perspective.”

Weisel in a filing said it will contest FINRA’s charges.

Barry Goldsmith, Brinck’s Washington-based attorney, was
not immediately available for comment. Brinck left Weisel
Partners in July 2008 to join First Republic Securities Co,
which he departed last month, according to FINRA.

U.S. and state regulators have pursued auction-rate cases
against dozens of brokerages and banks, securing settlements
that have forced firms to repurchase billions of dollars of
still-illiquid securities from their clients.

FINRA puts a dent into what has been an otherwise rosy
period for St. Louis-based Stifel, which for the past decade
has been the fastest-growing brokerage. Kruszewski on Tuesday
reiterated his ambitions to fill the vacuum left by the demise
of Bear Stearns and Lehman Brothers as well as a retreat by
other firms.

Kruszewski said he intends to expand Stifel’s asset
management capabilities, stock and debt trading on both sides
of the Atlantic, well as a bank unit that extends loans to

The firm ranks seventh among U.S. brokerages, with about
$100 billion in client assets and roughly 1,900 financial
advisers, a nearly four-fold increase in its brokerage force in
just five years.

Weisel Partners will double Stifel’s investment banking and
institutional trading businesses, areas that Kruszewski said he
will continue to expand. Institutional securities could in time
generate $800 million of revenue a year, up from a combined
$650 million of annualized first-quarter income, he said.

Stifel also expects its $1 billion bank unit will grow to
become a “significant” profit driver, using brokerage deposits
to fund mortgages and loans to clients.

Investment Tools

(Reporting by Joe Giannone; Editing by Gerald E. McCormick,
Phil Berlowitz and Richard Chang)

UPDATE 2-Stifel CEO says FINRA suit won’t derail Weisel buy