Robert Walsh - Senior Managing Director and Chief Financial Officer Ralph Schlosstein - President and Chief Executive Officer Roger Altman - Founder and Executive Chairman

Alex Blostein - Goldman Sachs Vincent Hung - Autonomous Brennan Hawken - UBS Devin Ryan - JMP Securities Douglas Sipkin - Susquehanna Steven Chubak - Nomura Joel Jeffrey - KBW

Thank you. Good morning, and thank you for joining us today for Evercore's third quarter 2014 financial results conference call.

I'm Bob Walsh, Evercore's Chief Financial Officer. And joining me on the call today are Ralph Schlosstein, President and Chief Executive Officer; and Roger Altman, our Chairman.

After our prepared remarks, we will open up the call for questions. Earlier today, we issued a press release announcing Evercore's third quarter 2014 financial results.

The company's presentation today is complementary to that press release, which is available on our website at evercore.com. This conference call is being webcast live on the Investor Relations section of the website, and an archive of it will be available beginning approximately one hour after the conclusion of this call for 30 days.

I want to point out that during the course of this conference call, we may make a number of forward-looking statements. These forward-looking statements are subject to various risks and uncertainties, and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements.

These factors include, but are not limited to those discussed in Evercore's filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and current reports on Form 8-K. I want to remind you that the company assumes no duty to update any forward-looking statements.

In our presentation today, unless otherwise indicated, we will be discussing adjusted pro forma or non-GAAP financial measures that we believe are meaningful when evaluating the company's performance. For detailed disclosures on these measures and their GAAP reconciliations, refer to the financial data contained within our press release, which as previously mentioned is posted on our website.

We will refrain from repeating the information included in the press release, focus instead on the key opportunities, challenges and changes in our business. We continue to believe that it is important to evaluate Evercore's performance on an annual basis.

As we've noted previously, our results for any particular quarter are influenced by the timing of transaction closings. I'll now turn the call over to Ralph.

Thank you, Bob, and good morning, everyone. We're pleased with our third quarter operating results, as we generated record quarterly revenues, and the best third quarter revenues and earnings in our history.

Our results for the first nine months of the year also are a record. The third quarter was a very active quarter for Evercore.

We continued to benefit from the improving market environment, as M&A activity was significantly higher than 2013, causing our risked and unrisked backlogs to continue to be strong. Productivity improved, as revenue per advisory Senior Managing Director was $10.1 million on a trailing 12-months basis, reflecting both higher levels of activity and the contribution of advisory SMDs recruited in 2013.

Our capital markets advisory initiatives continued to gain traction, as we participated in two landmark IPOs. The largest IPO in history, Alibaba; and the largest U.S.

banking IPO, Citizens Financial. We announced the addition of two new Senior Managing Directors in our advisory business, Mark Hanson, who joined our healthcare practices from Barclays; and Greg Lee, who joined our tech and telecom practice, and Greg formerly was a partner of Goldman Sachs.

And we announced our plan to acquire ISI, which I will provide an update on later in this call. We continued to utilize our earnings to return meaningful capital to our shareholders.

We repurchased 843,000 shares in the quarter, increasing our year-to-date total share repurchases to nearly 2.6 million shares, more than offsetting the dilutive effect of bonus and new hire equity awards for the year. In fact, over the past five years, we have offset more than 100% of the dilution caused by both bonus and new hire equity awards through share repurchases.

As outlined in our earnings releases, our Board has approved a $0.03 per share increase to our quarterly dividend, which will now be $0.28 a share. Finally, our Board increased the aggregate value of our current share buyback program to $350 million for the repurchase of an aggregate 7 million shares.

This will provide the additional capacity needed to repurchase shares associated with the ISI acquisition over the next several years. Let me quickly go over the numbers.

First, the third quarter, we recorded record third quarter net revenues of $225 million, up 21% from the same period last year and up 3% from last quarter. Net income was $33 million for the quarter with earnings per share of $0.71.

These results are up 35% from the prior year and 7% in comparison to the second quarter of 2014. Operating margins were nearly 23% for the quarter and the compensation ratio was 60.5%.

As anticipated, commission revenues in our Institutional Equities business softened a bit after we announced our intention to acquire ISI. As a result, our Institutional Equities business reported a loss, which was a drag on operating margins and increased our compensation ratio.

If we exclude the Institutional Equities business from our third quarter results, our Investment Banking revenues would have increased by 24% in comparison with last year, instead of the 21% as reported in our adjusted pro forma financials. Our net income would have increased by more than 43% in comparison with last year to nearly $35 million rather than the 35% increase that we reported.

Our EPS would have been $0.74 rather than $0.71. Our operating margins would have been 26.3% rather than 23%.

And our compensation ratio would have been 57.4% instead of 60.5%. Now, for the year-to-date results.

Our revenues for the first nine months of 2014 were $591 million, up 8% from the first nine months of last year. Net income was $78.4 million for the first nine months, up 11% compared to the same period in 2013.

And operating margins were 21.9% for the first nine months compared to 22.6% for the first nine months last year. Our compensation ratio was 59.4% compared to 59.3% last year.

And non-comp costs were 18.7% of revenues compared to 18.1% last year. If we remove the Institutional Equity business from the nine-month numbers, our EPS would have been $0.07 higher; our compensation ratio would have been 57%; and our operating margins would have been 24.7%.

Let me now turn the call over to Roger, who will discuss our advisory results and the general M&A environment.

Good morning, everyone. In talking about our results, I'm going to pick up where Ralph just left off and reflect those, excluding our equities business, because, well, it's not true from an accounting point of view.

As a business matter, it's essentially a discontinued business in light of the ISI acquisition. So we had record third quarter Investment Banking revenue of $190 million on that basis, that was up from $161 million a year ago and $188 million in the second quarter.

As Ralph said, it's our best quarter rather ever. We had record pre-tax income of $52 million, up from $37 million a year ago and $44.5 million last quarter.

We had $188 million of advisory fees. A little over three-quarter of those were U.S.

generated. We had 50 fees, greater than $1 million in each case, that compares to 31 such fees a year ago and 40 such fees last quarter.

And for the nine months, we had 117 such fees as compared to 95 a year ago. We generated $25 million in fees related to our capital markets advisory businesses, 23 separate transactions.

So that $25 million in revenue obviously is away from our original businesses of M&A advisory and restructuring advisory. I do have a decent graph, that set graph of second grade arithmetic, so that's a $100 in annualized rate.

Don't know, if we'll generate that or not, but it's a rather strong statement on the broader platform that Evercore now has. Those fees by the way are beyond the underwriting revenue, that's just advisory fees on the capital market side.

And the underwriting revenue represented another $5.5 million. We had total fee paying clients in the quarter of 162, that's up from 136 a year ago and a 150 last quarter.

Ralph already referred to our productivity. Average revenue per SMD $10.1 million, same as last quarter, essentially the same as a year ago.

And that's a figure, which we pay a lot of attention to, and this is right in line with Evercore's very long-term historical productivity. Our backlog remains strong.

And in terms of the environment, the data is interesting and a little bit unusual. Global announced M&A volume for the first nine months, in dollar terms, is up strongly, 59% year-over-year increase in announced dollar amount.

That's a big change. It happens that in the past quarter, the total actually was down, but the more relevant trends in this category are always longer-term ones.

And quarter-to-quarter trends, I don't think are terribly meaningful rather. So strongly up on the dollar basis.

And the total announced volume for the first nine months was the biggest since before the 2008 credit market collapse. In fact, the second quarter, not this past one, but the one before, was the biggest single quarter around the world in many, many years.

Over these nine months the United States was the strongest market, up 64% year-over-year and accounting for about half of the total global volume, and showing the disparate trends within these global totals. For the third quarter, North American announced M&A was the biggest quarter, before the 2008 crisis.

And that's also true for the U.S. alone, but Europe and Asia were both down for this past quarter.

I think the main point here rather than totals is that all of these increases have occurred in category of larger transactions, deals of $5 billion or above. That's where the increase in total dollar volume has occurred.

And that becomes clear when you look at the total number of transactions, not the dollars amounts, but the number of transactions; because on that basis for the nine months, they are up 2%. In the U.S.

the total was up 5%, but globally 2%. Parenthetically, global completed deals in total dollars were up 6% year-over-year.

In the U.S. they were up 64%.

One footnote, I would remind everybody that when you look at announced deals per advisor and you compare firms based on how many deals they're aligned with on an announced basis. Keep in mind that those totals are always incomplete, because many deals are not disclosed or alternatively the advisors on those deals are not disclosed, and that's not really the best way to look at who's doing what business.

Finally, in terms of our headcount, total bankers at the end of the quarter were 608, up 25 compared to the end of the second quarter. We have 67 Senior Managing Directors at the end of the third quarter, up 3.

Reflecting the additions of Stuart Francis and Don Monson in Silicon Valley; and as Ralph said, Greg Lee, in Media and Entertainment. And so we've added our usual contingent of new SMDs for 2014, right in line with our historical trend of doing so, and I don't see any reason why that won't continue for the foreseeable future on the same steady basis, we've been doing it.

Ralph, back to you.

Thanks, Roger. Let me briefly just talk about our Institutional Equities business.

As I indicated earlier, we generated $8.2 million of revenues in that business, as commission revenues softened following the announcement of our plan to acquire ISI. Expenses were $13.8 million for the quarter, up 9% versus the prior quarter.

And the business reduced our quarterly EPS by about $0.03 a share in the third quarter. In our Investment Management business, assets under management were $14.5 billion, essentially flat from last quarter.

Investment performance was consistent with our benchmarks for most of our investment products. In the first nine months of the year, net revenues were $77.5 million, up 5% from last year.

Operating income for the first nine months was $14 million, up 19% from last year and operating margins were 18.1%. Operating income for the Investment Management business for the third quarter was $3.9 million on net revenues of $26.2 million.

Operating margins in the third quarter were 14.8%. Let me now give you a brief update on the ISI acquisition.

First, the ISI team and our team are working hard in preparation for closing and the launch of our combined business. We continue to expect that this will occur in this quarter and hopefully in the next few weeks, subject to regulatory approval in the U.S.

and the U.K. We have had great success in retaining from both ISI and our legacy business, virtually all of the research professionals and distribution professionals we have sought to retain, having lost only one research analyst on the macro side of the business, who we had hoped to keep.

Third, as you all know, the institutional investor research rankings were released earlier this month. ISI had an overall ranking of number five, up from number 10 in 2013 and 2012.

It is the first year that an independent firm has been in the top-five, since DLJ had that position in 2000. And ISI had the second largest number of number one ranked analyst after JPMorgan, and have the highest percentage of analysts ranked number one in this case ahead of JPMorgan.

After an initial fall off in revenues at ISI following the announcement of the transaction, ISI had record revenues in September and seems on path for record revenues in October as well. While we certainly are not able to forecast revenues and profits for next year, based on everything we know today, we remain optimistic that we will achieve the targets that we laid out, when we announced this acquisition, and that is; we will make progress in controlling non-comp expenses through the course of next year; that our compensation ratio will be consistent with the target of 55% compensation ratio, which is part of our purchase agreement; and that our operating margins in the secondary business alone, without ECM revenues, should reach the mid-teens next year, and including ECM should be higher than that.

So from everything we have seen today, we continue to expect this transaction to be modestly accretive to earnings per share in 2015 and meaningfully accretive in 2016, once some of the revenue synergies and the reductions in non-comp expense are more fully in affect. And our early indications are that the ISI acquisition also will have a positive effect on the growth rate of our advisory business, by increasing our ECM revenues and by helping us continue to recruit top investment banking talent.

So still early days, but very much on track. Bob will now give you some further comments on our non-comp cost and other financial matters.

Thank you, Ralph. You'll note in the earnings release that our adjusted results for the third quarter exclude certain costs that are directly related to our Institutional Equities business and the acquisition of ISI.

Specifically, in our U.S. GAAP results, we have reported $3.7 million in special charges, principally related to severance arrangements, facilities related write-offs; and $4.1 million in acquisition and transition costs, principally relating to professional fees associated with the acquisition.

We excluded the acquisition and transition costs in this quarter, given the size of the transition in comparison with any prior acquisitions we have made. Our core non-compensation costs were essentially flat in Q3 in comparison to the prior quarter.

Our cost per person for the 12 months ended September 2014, were approximately $129,000 per person, which is up slightly from prior periods. With respect to taxes, our adjusted pro forma tax rate for the first nine months is 37.2% compared to 38% for 2013.

Our tax rate increased slightly in the third quarter, reflecting the losses form the Institutional Equities business. As we have indicated before, changes in the effective tax rate are principally driven by the level of earnings and business with minority owners and earnings generated outside of the United States.

Moving on, our share count for adjusted earnings per share was 46.7 million shares, a decrease of approximately 200,000 shares from Q2. This decrease reflects the effect of our share repurchase activity, the normal increase in shares due to vesting overtime, and the effect that a changing share price has on both the Mizuho warrants and unvested RSUs.

Our average share price for the quarter was $51.80. And finally, our cash position remains strong, as we hold $270 million of cash and marketable securities with current assets exceeding current liabilities by approximately $264 million.

So with that, operator, if you would open the line for questions please?

So first question around the ECM opportunity, given the transaction, now that you guys had a little more time to spend with the team, your bankers and as well the corporate clients. Maybe give us some sense of what you guys think the opportunity could be for you?

And understand, that I'm not asking you to put a revenue number obviously out there, but maybe in terms of potential clients that you could have done business with over the last 12 months or so, but couldn't, because of the obviously a lack of distribution research capabilities versus now that potential could be on the table?

So first of all, we're not closed yet. So we're two separate businesses and we can operate as if we weren't.

So the interactions that we've had to date have been principally getting to know in social, in their nature. But I would say that those interactions are encouraging.

As somebody who's in the field a lot, it's impossible to know whether you would have done business six months ago or a year ago with X or Y or Z, if you had this and that capability. That's impossible to know.

But we all wouldn't be doing this, if we didn't think it was going to be synergistic and accelerate our growth rate, and we thought a lot about that. If you want to talk history, we did $6 million of underwriting revenues in 2012.

We did $25 million last year. We expect to do as well or better this year.

And this transaction overtime should lift that pretty significantly, both in by expanding the range of transactions that we could be involved in, because we have much broader research coverage, and because we have a much larger distribution organization, it should increase over time our participation in the transactions in which we're involved.

And then shifting gears to the M&A backdrop. I heard your comments on risk and risk backlog, still sounds like pretty strong levels.

But was hoping maybe you could opine on the recent volatility we've seen on the macro front, clearly softer data out of Europe. And whether or not you guys have noticed any sort of pause in the M&A deal appetite from the corporates.

Now, the answer to that is so far no, we have not. And I don't think the volatility and the turbulence of the past seven to 10 days has yet deepened to a level that would interrupt those trends that are causing this improved environment, at least in the large deal category.

But of course, none of us knows what global financial markets will bring five minutes from now, but so far no.

Just a few questions. First one is can you tell us the impact of announcement fees this quarter versus the prior quarters?

We have never broken out the different components of our fees, as you know. Success fees are the most significant driver of our results.

And as Roger I think indicated in his remarks, we are in 50 fees in excess of $1 million, which drives the strength of this quarter. Some number of those are announcement, most of those are success.

But we don't really focus on the different character and report it externally.

And Bob you've previously given an estimate of what you think the revenue attrition could be in the Evercore equities business. Given the weakness that we saw in third quarter, would you look to revise this estimate?

Yes, Vincent, I don't think we've given any estimate on what the attrition would be. I know a number of you, sort of speculated that it would be significant.

I think importantly, as Ralph noted, the ISI franchise, which is much larger has done quite well post-announcement.

Yes. And if I could say so, its Roger, and I am just speaking with myself here, Ralph can provide a different view.

We ourselves are not paying much attention to the disruption in our existing equities business, because we're on the verge of closing ISI and our equity business is going to be much bigger and more prosperous. So mean to be really honest, we care a lot about the people in that division but in terms of your question what difference does it make, it doesn't make any difference.

We're basically talking about a $2 million.

Well, and also next year we're going to have a much bigger, more products equities business. So it's kind of an irrelevant diversion.

And then, the last question is, I know you won't comment on specific deals. But when you have a deal, where you're advising a target on a take-out defense, you agree to sell, and then it falls through.

Do you guys just get the announcement fees?

Listen again we don't breakout what our composition of fees are. And somebody has been doing this a very long time.

Every single situation is different. And your compensation in every situation is different.

In some cases, if the deal doesn't happen, you still get compensated pretty well depending on the evolution of the deal. In other cases, you don't get compensated at all and there is no particular pattern.

So that's all we can say about it.

So quick question here, you guys talked about non-comp expenses in ISI, and the fact that you wanted to sort of bring that down. Can you give us a sense or I should say, is it your expectation that reducing clients oriented spend in that business is going to have any kind of impact on revenue?

What you might think that might be?

No. Basically, the reductions are -- first of all, there's some just bird's nest on the ground redundancies.

Two fixed connections, redundant information, and data systems, et cetera. So that's very easy, has no effect on anybody.

Then there are certain policies relating to travel, entertainment, et cetera. Last time I checked an institutional investor doesn't really care whether you flew from New York to Kansas City in first-class or coach.

So I don't expect that those will have a particular effect on revenues either. So we're highly cognizant of things that touch the client and are going to be very careful and protective of this.

And are there any plans for cost cuts in the legacy Evercore business beyond what we reported today or what you report today or should we think about this as the right sort of jumping off level from here.

I think, as a general matter, we made the decision as we've gone through the integration to be a little less stringent on the headcount at the outset and we're watching that extremely carefully. And we have an agreement among all of us that we will monitor that very carefully in the first two months or three months of our joint operation, and this has been primarily on the distribution side of the business.

We have a lot of clients, and we have a lot of research product that's being added to the platform. So we've made a judgment to error, if we are erring, a teeny bit on the side of maintaining a little bit more distribution than we thought at the outset.

That can obviously be a good thing if revenues are consistent with that level of staffing. And if they're not, we'll adjust it.

It's that simple.

And then I know that senior management is often really critical in hiring and bringing in bankers, recruiting bankers. Do you guys think that next year given the focus that's going to have to be brought on integrating ISI and working out all those subsequent questions, distribution and the like, that we just went through might cause the MD hiring in 2016 to be lower than your typical run rate.

Do you have any reason to believe that?

Absolutely not. No.

Evercore has a -- and I got to give Ralph a lot of credit on this. He is really good at it.

Evercore has a very meticulous systematic approach to SMD recruiting. And if you look back at how many new SMDs we have added over the past four, six, eight years, you can see how steady that has been.

And the system that's in place and the amount of time that Ralph spends on it, lot of other people, including me, spend on it is essentially fixed, because it's like planning your fields, you have to do it or you won't have a harvest and you won't have growth. So the answer is a resounding no.

Just to give you a piece of tiny piece of color, tomorrow afternoon Roger and I are sitting down with the external people we use to help us with this, and we're laying out the entire plan for next year and we've already made some progress on it.

And then last one. Of the revenues, the trailing 12 months revenues from ISI, what portion of those are from macro or macro-related or tied to the macro theme, do you have sense of that?

I think we do have a little bit of a sense of that and I think we'll have to make a decision once we're one firm, the granularity that we want to disclose with respect to the specifics revenues associated with specific research products. And next quarter I think we'll have an answer to that.

Maybe just coming back to the Shire AbbVie deal, which now is formally off, you don't have to speak to that, but just inversions clearly represented the small percentage of overall deals, but if the broader theme of government going out of it's way to stop certain types of transactions concerning to your clients? Are you hearing that, meaning has sentiment changed at all around the willingness to maybe move forward on some other type of large transaction and are you seeing any other ripple through the broader M&A markets as a result?

Well, let me kind of try to unpack your question. If I understand it, my answer would be no, because I interpret the question to mean, has the turbulence, so to speak, over inversions impacted the broader deal environment and the outlook for deals for the rest of the year.

If that's the correct interpretation of your question, I think the answer is no.

And with respect to ISI, one potential risk that at least I've heard is that the business actually hits its targets over the next five years, but they do so by running, maybe what you would call, artificially low comp ratios, because essentially that the upside from the earn-out is much greater longer-term, and so essentially all of the shares vest, but the earnings run rate after five years is not as sustainable as maybe it looked in the five years preceding. So just wanted to get your thought on that, is that just a risk that is not reasonable or is there any way to protect against that, if in fact that could happen?

I would say it's a silly assumption to be honest. When we are looking at our planning in terms of what the comp ratio will be, we are assuming that comp is, as it has been historically both for the legacy ISI people and for the legacy Evercore people, and in fact, we're probably assuming some amount of upward drift consistent with growth in revenues.

So in anything that we do, we are always cognizant of adjusting compensation upward or downward to be what is the market level of compensation for someone of comparable talent and skill, because if that person is in there, we need to replace them and we want to be able to do that without any impact on our earnings. So you should assume that in 2015 and beyond everyone in this business will be paid a market rate.

And then just lastly, within asset management the earnings profile there continues to improve. You've had some really nice progress.

But you haven't done any deals there I guess more recently. Are you content with kind of where that business is now relative to the rest of the firm, and kind of how it's growing relative to the rest of firm, or should we maybe look at the slower expansion more recently more just a reflection of how you guys view the current opportunities and the business for the market?

I know I've said this a fair number of times over the last couple of years, any business should be looking to deploy its capital and deploy its effort, time in our case, on businesses where we have a true competitive advantage and where we have significant growth opportunities for us; the most obvious and consequential of those are in the investment banking business. And here as you can see we have done a pretty good job of investing in that business maintaining a very strong operating results, while we are making investments.

So I would say, we clearly have been, I don't know if the word would be, singularly, but it's certainly close to singularly focused on taking advantage of the very consequential opportunities that we believe that we have in our advisory business and now in the equity business as well. The money management business, particularly wealth management, will continue to grow organically.

We're pleased with those businesses. But as I've said before in terms of making additional acquisitions, the only thing that we've looked at in the last couple of years are again the lift out type of things that would be added to our wealth management business.

Two questions, one, on M&A and then balance sheet. First, with respect to M&A.

Given you guys maintain a real leadership position in energy, I'm just curious for your perspective. The recent decline in the price of oil, do you guys see that as being positive for energy related advisory fees, negative or too hard to call?

Too hard to call. Seriously, we've been talking about that a lot.

But there are so many cross currents that it's just too difficult to know, including, of course, where prices go; the most basic of all. So it's just too difficult to know.

This is a very good year generally in energy related transactions around the world and for Evercore. And so far we haven't seen any changes in that environment and as I said to a broader question earlier, but it's just too hard to know.

And then a question maybe for, Bob, around the balance sheet. So the buyback is great, I mean I'm just wondering given all the news releases last quarter with ISI and everything, were there more blackout windows for you guys or you pretty much free to buyback along the same patterns you have every quarter.

I'm just wondering if the deal maybe prevented you from buying at certain points given other disclosures and rules and stuff like that.

The windows were sort of fundamentally normal. I think that there was perhaps a slightly extended period of time until we got the transaction announced.

But it's normally our practice, Doug, when the windows are closed to run a program with another broker and to have products in the market.

Bob, I appreciate the color that you gave, the detail on the non-personnel expense. And I recall last quarter, you had guided to a normalization of that non-personnel cost.

And every single quarter I was pleasantly surprise to see the ratio coming closure to lower end of the target range of 16% to 20%. And was wondering given the positive commentary on the backlog as we head into yearend, should we expect the non-personnel ratio to stay at that lower end of the target range, or should we maybe expect the step-up given some of the increased activity.

Well, again, Steven, when I look at costs, I tend to look at costs in the absolute, not relative to revenue, because that's what we really have to manage. And as I said, we were pleased that it came in essentially flat quarter-over-quarter per person, that the performance relative to the range was a function of very strong revenues and we'll wait and see what revenues look like in Q4.

And I suppose taking into the expense topic, we're coming onto comp, Ralph, I did appreciate the detail you had given on the comp ratio adjusting or excluding the Institutional Equities business. I was wondering if you could update us on what the comp ratio x equities was in the year ago quarter, just so we could gauge whether we're seeing any improvement in comp leverage in the advisory segment as revenues have grown?

As I have said before, the way I believe that our investors should judge our progress on the comp ratio is by looking at consecutive trailing 12 month periods, because one quarter is, as Bob suggested, highly driven by the volatility and the topline rather than by necessarily by our comp commitments. Having said that, Bob, can give you specific numbers if he has them.

We are in the business x equities, the trailing 12 months comp ratio would be better than it was either a year ago or a quarter ago.

It would be slightly better and the delta evident in the numbers that Ralph articulated is entirely consistent with our discussion over the last several years, which is the higher comp ratio was largely driven by our early stage businesses, the equities business in particular. So when you exclude that, naturally you're going to get a significant reduction and the difference between the 57% that Ralph articulated, and our target of 55% is principally our investment in new SMDs.

And I would just add to that, that if you look at, what I did say in my remarks is that for the first nine months of the year, our compensation ratio x equities was 57%. I think we have consistently said that we expect to make steady progress towards a firm-wide compensation ratio that's in the mid-to-high 50s.

We've been doing that. And we've been making significant investments, which obviously flow right through the income statement, and we've still been able to achieve that steady progress.

And we intend to continue to do that with the one caveat, which I have always made that, if we did find in any particular year, an out of proportion opportunity to hire a larger number of SMDs than we normally do, and they were all of the quality that we are accustomed to hiring, we would take advantage of that, and that might provide a slight bump in the road on that steady path. If we did do that, which we haven't yet, but if we did do that, we would do that with a view that it had a material positive effect on the two to three year value of the company.

And just one more from me on capital management. Regarding the commentary of the increase in the buyback as well as the dividend, I am just wondering on the buyback specifically whether the increase in the authorization is exclusively a function of your objective to help mitigate the dilution tied to the ISI deal or whether a more attractive valuation on multiple has made the buyback a more attractive source of capital deployment.

First of all, we had plenty of authority to take advantage of the second. So I think you should look at it as a forward looking recognition by our Board that we have said publicly, that we said in our proxy, that we will always buyback enough shares to offset RSUs issued during the bonus process.

We've succeeded as I indicated in my comments on average over the last five years in buying back not only enough shares to offset bonus equity, but to offset all these shares issued for new hires as well. When we announced the ISI transaction, we said we would expect that we will be able as a result of the increased cash flow to repurchase over the five-year period of the deal, roughly half, and obviously this is roughly, because we don't what our earnings are going to be from the -- incremental earnings are going to be from ISI, we don't know what our share price is going to be, so we're certainly not going to be very specific on this.

But it looks to us that give or take that kind of activity over the five-year period is something that's doable. So this decision by our Board was a forward-looking reflection of that expectation.

Just a question on the capital markets advisory business, I think you said it was around $25 million in the quarter. I'm just wondering, is the business dependent on having an ECM capability or is this something you guys feel like you could have done as a pure advisory firm?

I guess, I'm just trying to see, if this business has significant expansion capabilities, given the ISI deal, or if it was really more independent [Multiple Speakers].

I think the answer to your question is, yes. It does depend on having an ECM capability.

I mean our partner Jim Birle, who runs ECM here and who ran ECM for Merrill Lynch for about 10 years, is one of the best people in the world at this. And our team, our whole team, Jordan Webb and so forth are of that same caliber.

So yes, that is integral to our advisory business on the ECM and DCM and so forth.

Is this an area of potential expansion as well with the ISI deal?

I would say, modestly, I think it's an area that we focused on, if you look at the six advisory Senior Managing Director hires that we made this year, one was Swag Ganguly who joined us from Rothschild, which was to start a debt advisory business in London, which by the way is a pretty big business for the more longstanding independent advisory firms in Europe. And so I think the principal impact of the ISI acquisition on our capital markets activities will be on ECM, although obviously having greater intellectual capital and depth in the firm allows us to be a bit more relevant across our advisory business to our clients.

And then just lastly from me, I'm thinking about the fourth quarter's comp ratio. I mean, given the slightly higher number we saw due to the Institutional Equities business this quarter, should we expect a slightly higher than expected and higher than usual comp ratio in the fourth quarter, at least until the ISI deal closes?

Let me give you a very general answer, and then Bob can supplement it. The answer is, until we know when we close the ISI transaction, we're really not going to have a really strong sense of the answer to your question.

And I think I've said to you that it could close as early as the beginning of November, and probably as late as the end of November. And if you think about that, that means that we could have as much as two months of ISI in our fourth quarter numbers or as little as one month.

And also we obviously don't know what that the revenues of ISI are going to be and whether they're going to be for two months or one month. So it's a bit murky looking forward, and although we know exactly or pretty clearly what's going to happen depending upon when we close, but it's very difficult to provide guidance without knowing is the answer to that.

And Joel, to repeat what Ralph said, the fourth quarter in the aggregate will undoubtedly continue to be a bit noisy, as a result of the ultimate closing of the ISI acquisition. The underlying compensation for the advisory and the Investment Management business, which is really what drives earnings, I would expect to evolve in a way that's fundamentally similar to every prior year.

Whereas we get a final look at revenues for the year, we'll tighten up our comp ratio to the appropriate full year level. So for the vast majority of our business, it will behave just like prior years.

We'll tighten it up in the fourth quarter, equities will introduce noise.

And you should expect that we will as we hopefully did this quarter provide enough supplemental information, so that you can look through that noise to see how the core large business is doing.

Thank you very much for your time and we look forward to speaking with you after the end of the year.

Thanks everyone.