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Hovde jumping into specialty finance vertical with industry vet

Hovde Group LLC is doing what some of its bank clients might do as well: diversifying into the specialty finance business in an effort to help fuel growth.

Founded in 1987, Hovde has historically focused solely on the bank and thrift sector. But the company announced Oct. 5 that veteran investment banker Tim Stute would lead a newly launched specialty finance vertical.

Stute said the move was logical because some banks have looked to add specialty finance companies in an effort to boost loan growth. Specialty finance companies have reason to pursue such deals because banks can offer them stable and low-cost deposit funding.

Stute has advised many specialty finance clients on sales to banks or thrifts. He said that by joining Hovde, he can connect with a team of co-workers who cover depositories and help develop ideas on business combinations that make sense for banks or specialty finance companies.

"Having a bench of colleagues that all they do all day is talk banks is not something I've ever had before," he said.

The specialty finance vertical can also help Hovde's depository investment bankers serve their clients, Head of Investment Banking Kirk Hovde said. The banking sector has been consolidating for years; as the number of depositories dwindle, it becomes more challenging for i-bankers to find growth opportunities for their clients.

"We're going to need to provide additional services to clients and opportunities for them to look at," Hovde said in an interview. "This was the perfect marriage."

Other investment banks that are focused on the bank and thrift space have made similar moves in recent years. For instance, Sandler O'Neill & Partners LP established a specialty finance vertical with the 2012 hire of Christopher Donohoe. Keefe Bruyette & Woods Inc. has also made investments to build specialty finance coverage.

Before moving to Hovde, Stute spent nearly five years with Houlihan Lokey Inc., joining the company after it purchased Milestone Advisors LLC in 2012. Stute had been a principal at Milestone, which he joined in 2001. He said Hovde has an entrepreneurial environment that reminds him of Milestone.

"Having the flexibility to manage a practice and client base was attractive to me," Stute said.

Stute's main coverage focus is on the commercial specialty finance area. He is expected to lead a team of four that includes T.J. Humes, who also joined Hovde from Houlihan. Humes' coverage includes mortgage companies, online lenders and merchant cash advance companies.

"Between the two of us we really cover most of the overall specialty finance sector," Stute said.

The companies in Stute's client base tend to produce annual net income ranging from about $3 million to $30 million, he said. Buyers of these companies are often looking for asset generators and are not always seeking targets that have the most robust bottom lines.

"You could have a small finance company that generates a few million dollars in annual earnings, and we would know bank and non-bank buyers where that would be accretive transactions for them," Stute said.

On the depository side, Hovde's core clients have assets in the range of $1 billion to $10 billion, but the investment bank does work with smaller institutions, Hovde said. He added that Hovde's core clients, whether they are public or private, have the size and access to capital to make acquisitions.

"[They] are looking for other ways to diversify and bring in other sources of income," he said.