Keefe Bruyette & Woods ( KBW ) shares surged 16% Tuesday after the boutique investment bank said profit tripled in its first quarter as a public company. In the fourth quarter, the firm made $25.4 million, or 87 cents a share, compared with $7.3 million, or 26 cents a share, in the year-earlier period. Revenue rose 32% to $120.2 million. Analysts were predicting the firm would make 35 cents a share on revenue of $96 million. Investment-banking revenue rose 69% from a year earlier to $67.2 million. Equity commissions rose 14% to $30.6 million. "Revenue growth was driven by a record year in investment banking. Investment banking experienced very strong growth in our structured products area ... and our equity capital markets area," says John Duffy, Keefe Bruyette's chairman and CEO, during a conference call. Keefe Bruyette also made big bucks from advising on M&A deals. Keefe advised North Fork Bancorp when it was acquired by Capital One ( COF) for $13.2 billion in December, and advised Texas Regional Bancshares when it was acquired by BBVA for $2.1 billion. "Our substantial improvement in profitability in 2006 was a function of our growth in revenues and the operating leverage we have created through controlling compensation and other expenses," Duffy said. Keefe Bruyette's compensation expenses fell 8.1% in the quarter to $49.6 million. During the quarter, the firm implemented noncash compensation for the first time, which has not yet hit the expense line, Duffy said.
The New York boutique investment firm had a busy year. In November, Keefe Bruyette finally completed its longtime dream of an initial public offering in which it raised $143 million. The stock was in such high demand that the firm upped the ante of the offering, selling an additional 278,000 shares, bringing the total offering to 6.8 million. After pricing its shares at $21 -- the upper end of the expected range -- shares jumped 28% from the offer price during their first day of trading on the New York Stock Exchange. Keefe Bruyette's path to an IPO was marked by a number of setbacks. Most notably, the firm, which used to be housed in the World Trade Center, lost 67 of its employees in the Sept. 11, 2001, terrorist attacks. Many doubted whether it could rebuild itself. But Keefe Bruyette now employs twice as many people as it did before the terror attacks. Years before those attacks, Keefe Bruyette was gearing up for its first try at an IPO. But the offering was canceled in 1999, shortly before the firm's then-CEO, James McDermott, was charged with giving his girlfriend, a former porn star, insider trading tips. He was later sentenced to eight months in jail. Last week, yet another boutique firm, JMP Group, said it intends to come public. The San Francisco investment bank could raise up to $100 million in the offering. Shares rose $5.06 Tuesday to $36.86.