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Glimpse Into The Future

Friday, 26 Sep 2008 | 7:30 PM ET

With Wall Street's fate in Washington's hands, we ask Stifel Financial CEO Ron Kruszewski what he thinks the future holds.

Following is a synopsis of the main points made by Kruszewski during his interview on Fast Money. For the entire interview please watch the video.

Streets' Losing Streak
Wall Street and Main Street losing today, with Ron Kruszewski, Stifel Financial CEO and the Fast Money team.

Ratigan: What are your interpretations of the bailout?

Kruszewski: I think of it as a restructuring not a bailout. Everyone was involved in this from mortgage brokers to people who bought homes with really no credit. So (I would say) we need a restructuring of our financial system. And on the political front I’m from Missouri, the Show Me state and we need to see a bill here. Otherwise we can write down all the Congressmen and Senators names because they’ll go down in history like Smoot-Hawley did in the Depression. This has to be done and the politics has to be put aside.

Ratigan: Do you see opportunity with so many competitors now fallen?

Kruszewski: It’s difficult with what’s happened with our industry but it’s simply excess leverage. And as others deleverage, their business models will move back to the business models that we have employed for years and years and it’s not that much leverage. That coupled with the fact that most of these financial institutions are going to be bank holding companies and you’re not going to have the 30-1 leverage any longer. For smaller firms like us that means we’ll be better able to compete.

Ratigan: How high do you lever?

Kruszewski: Three to one. And we’ve averaged 18% return on equity. The high service business model works. You don’t need to have all the leverage.

Seymour: Does it limit you in underwriting new deal flow?

Kruszewski: You need capital but you don’t need to put it on your balance sheet to underwrite new deal flow. And you don’t need to put it on your balance sheet to do M&A and you don’t need it to provide research and help clients. This business is going back to the future. We got away from regulation. The holding companies were able to put on a lot of leverage whether it be AIG or the large investment banks. And we got away, as an industry, from what we've done historically which is provide advice and provide service. We’ll have less proprietary trading and more of the traditional investment banking and that model works. I'm a testament to that.

Ratigan: What’s the future?

Kruszewski: Wall Street had a big carry trade and they levered up and they added a lot of people. And our industry is going to shrink because you’re not going to have that leverage anymore. But if you look at a lot of the firms and you take away the leverage you will see very good business models.

There’s more interview than you see here. To hear the whole thing please watch the video.

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Trader disclosure: On Sept. 26, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (MSFT), (WMT); Seymour Owns (AAPL), (EEM), (MER), (MSFT); Seygem Asset Management Owns (VIP); Seygem Asset Management Is Short (RSX); Finerman Owns (GS); Finerman's Firm Owns (MSFT), (MO), (PM), (RAI) ; Finerman's Firm Is Short (IYR), (IJR), (MDY), (SPY), (IWM); Terranova Owns (AAPL), (EOG), (FCX), (FTO), (GS), (KOL), (NOV), (POT), (X), (YHOO); Terranova Is Long Mini S&P Futures; Terranova Owns (AIG) And Owns (AIG) Puts; Terranova Owns (MS) And Owns (MS) Puts; Terranova Is Long Crude Oil

Terranova Is Chief Alternatives Strategist Of Phoenix Investment Partners, Ltd.
Phoenix Investment Partners Owns More Than 1% Of (ABD), (ARE), (BIG), (BRE), (CNTY), (CNW), (CLB), (OFC), (DLM), (DRH), (DLR), (EPR), (ESS), (EXR), (AGM), (FL), (GBL), (GNET), (IGE), (LNET), (MAC), (OIIM), (PSPT), (DBC), (DBV), (SLB), (GWX), (SSYS), (SKT), (UA), (BIV), (VV), (BLV)
Phoenix Investment Partners Owns More Than 1% Of Goldman Sachs Financial Square Fund - Money Market Fund
Phoenix Investment Partners Owns More Than 1% Of Seagate Technology Tax Refund Rights

Terranova Is Co-Portfolio Manager Of The Phoenix Diversifier PHOLIO; Phoenix Diversifier PHOLIO Owns (IGE), (DBC), (DBV)


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