ST. LOUIS ( TheStreet) -- "Principal transactions" are a common line on investment banks' income statements. Revenue from that category is the result of banks trading from their own account for profit. It's usually in this business where obscene amounts of money can be made, or lost, on Wall Street. Take Goldman Sachs ( GS), for example. Some smaller companies around the country are doing the same thing. Stifel Financial ( SF), based 900 miles from lower Manhattan in St. Louis, is a perfect example of that. Stifel's revenue from principal transactions have soared 70% this year as the small shop rides the stock markets to heady profits. Big banks like Goldman Sachs and JPMorgan ( JPM) have been resurrected this year, thanks to improvements in principal transactions. Goldman generated more than $8.8 billion in revenue from those activities in the third quarter. While good bets can bring in loads of cash for financial companies, bad ones can leave them teetering on the brink of insolvency if the securities markets moves against their positions. Luckily for Stifel, it avoided most of the toxic assets that destroyed profits at many bigger institutions, including Citigroup ( C) and AIG ( AIG). With the upheaval in the markets last year, many seasoned Wall Street pros found themselves out of work and desperate for another shot in trading. The big banks' loss was Stifel's gain. It bulked up with castoffs and has found a new profit center in proprietary trading. Principal transactions overtook commissions as the top-earning unit in the third quarter on its way to earning $123.3 million in only three months.
Stifel's stock has risen 42% over the past year, compared with a loss of 2.4% for the industry. Analysts are predicting revenue growth of 37.4% in the fourth quarter and 25.9% for next year. The financial collapse gave Stifel the chance to gain a foothold in big-time trading. At the very least, its advisory and brokerage businesses should remain robust. -- Reported by David MacDougall in Boston.