Investment banks continue roller-coaster year

By Yung Kim

NEW YORK, Nov 3 (Reuters) - An up and down year for investment bank initial public offerings is clouding the outlook for the imminent flotation of KBW Inc., parent of financial services firm Keefe, Bruyette & Woods.

Despite a surge in mergers and acquisitions that brought large investment banks big gains this year, smaller firms trying to cash in have failed to log consistent IPO success.

"I think there are a lot of investors that are not quite sure what to make of this (KBW) stock," said David Menlow, president of IPOfinancial.com.

IPOs by other investment banks and brokerages this year have seen mixed results.

Shares of Thomas Weisel Partners Group Inc. (TWPG.O: Quote, Profile, Research), a firm specializing in technology stocks, soared 33 percent in its February debut, but the success was short lived. Its shares tumbled amid a summer lull that depressed the market at large. An autumn rebound has shares back above its $15 offering price, closing Friday at $17.25.

Cowen Group Inc. (COWN.O: Quote, Profile, Research), which was spun off from French bank Societe Generale (SOGN.PA: Quote, Profile, Research), followed in July, but has remained below its $16 offering price. Its shares closed Friday at $14.60.

Also in July, BankAtlantic Bancorp Inc. (BBX.N: Quote, Profile, Research) delayed the IPO of its brokerage unit Ryan Beck Holdings Inc.

Not all brokerage IPOs have been flops, though.

Boutique investment bank Evercore Partners Inc. (EVR.N: Quote, Profile, Research), whose co-chief executive is former U.S. deputy Treasury Secretary Roger Altman, saw its shares surge over 18 percent in its August debut.

Shares have continued to rise, closing Friday at $35.50, up almost 70 percent from its $21 offering price.

Analysts said Evercore's business model set it apart from the other small investment banks.

The company does not underwrite offerings, a crucial distinction at a time when commissions are declining for institutional equities firms due to increased automation and competition.

While in the same "financial services" category, Evercore is not a reliable comparison to KBW, said Francis Gaskins, an independent IPO analyst and president of IPO Desktop.

KBW is a leading underwriter and market-maker to the financial services industry. But last year, the company also advised on 50 mergers and its analysts cover more than 460 banks, insurers, brokers and exchanges in the United States and in Europe.

The company's position as a leader in its market, brand recognition and strong ties with clients offers some shelter from commissions, which have held steady for the company, Gaskins said.

"KBW cannot compete with the bigger firms, but they have carved out a credible reputation in an important niche, the financial services industry," Gaskins added.

The company is scheduled to float 6.52 million shares Wednesday with an initial public offering that could raise more than $157.5 million.

At the midpoint of its pricing range, KBW would debut with a valuation of 16 times annualized earnings, while Thomas Weisel, fetches almost 25 times its 2006 earnings and Cowen trades at about 9 times annualized earnings, according to Gaskins.

Evercore trades at about 35 times annualized earnings.

LONG ROAD

The IPO is KBW's third attempt to go public and would mark another chapter for the 44-year-old company, which has endured difficult circumstances of late.

The firm postponed plans for an IPO in 1998, when the collapse of hedge fund Long-Term Capital Management roiled markets.

Nine months later, then-Chief Executive James McDermott told KBW a "friend" was being investigated by the SEC just as shares were about to be priced. The friend turned out to be a porn star who traded on McDermott's tips about KBW deals and the firm canceled the offering.

The firm expanded under CEO John Duffy, but its World Trade Center headquarters were destroyed in the attacks of Sept. 11, 2001. KBW lost 67 of 170 New York employees, including its co-CEO, five of nine board members and Duffy's son.