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Raymond James Financial (RJF)

Q1 2011 Earnings Call

January 20, 2011 8:15 am ET


Paul Reilly - Chief Executive Officer and Director

Jeffrey Julien - Chief Financial Officer, Executive Vice President of Finance and Chairman of Raymond James Bank

Steven Raney - Chief Executive Officer of Raymond James Bank and President of Raymond James Bank


Devin Ryan - Sandler O'Neill

Steve Stelmach - FBR Capital Markets & Co.

Douglas Sipkin - Ticonderoga Securities LLC

Joel Jeffrey - Keefe, Bruyette, & Woods, Inc.

Daniel Harris - Goldman Sachs Group Inc.

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Hugh Miller - Sidoti & Company, LLC



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Good morning. My name is Lakesha and I will be your conference operator today. At this time, I would like to welcome everyone to the Quarterly Analyst Conference Call. [Operator Instructions] Mr. Paul Reilly, CEO, you may begin your call.

Paul Reilly

Thank you, Lakesha, and we're calling here from St. Petersburg. I hope today is reflective of the earnings. We are bright, sunny and 74, as I'm sure most of you are sitting in right now. I have in the room with me Jeff Julien, who will be presenting our CFO; Jennifer Ackert; Steve Raney; and Paul Matecki, and we'll get to your questions.

I'm going to start with kind of a brief overview and go through the segments on an overview basis and then turn it over to Jeff who will go into some of the more detailed numbers. Then we'll open it up for questions. I think the overall message is this is a strong quarter even after maybe some one-time adjustments. We had record net revenue and a record net income even without the historic non-bank earnings that our industry has enjoyed. And I think if you really look at it, there's really two factors that are driving that. First is the firm is well-positioned and even in the downturn, we continue to recruit and grow and add to our team. And the second factor is we've had a positive market and because of that growth in positioning, we are able to really take advantage of the market and drive these results. In all the business units really participated, and I'd like to cover kind of the highlights of those, the business units, and then turn it to Jeff.

First on our Private Client Group, we had record Assets under Administration of $262 billion. This is a result of both market improvement and the historic recruiting we've done to continue to bring more financial advisors into the firm. Productivity, the average productivity of advisors depending on the channel is up 3% to 4% just versus the preceding quarter, and with a good cost control, our margins expanded where we're double digit in both of those segments. So on a 5% revenue increase, we had a pretax contribution increase of 18%.

Our advisor count was slightly down, essentially flat. The backlog of recruiting inquiries are going back up again, as you, I'm sure, saw that Registered Rep rated us as number one in advisor satisfaction, which again, I think, is giving much more inquiries into the firm and people looking to move calling Raymond James.

The next section I'd like to touch is Capital Markets, a little bit of good news and hearin some, I guess, noise flowing through the segment. Revenue was up 12% but you saw a decrease in the contribution. Deal volume was very good. Now some of the deal volumes, we always have a hard time trying to give you apples-to-apples as indicators. You could see that we showed in the U.S. going from 12% lead manage to 5%. One of the issue of that is just size because even though we may be a lead manage deal, what's our participation? So it may reflect direction, but you can't really use it as a multiple. Canada also had a very, very strong quarter at 14% versus 6%, and the M&A activity, not just the underwriting, but the M&A activity continues to be very, very strong, that's on the positive side.

On the negative side, we had a decrease in trading profits really as a result of fixed income, with some municipal inventory that kind of went the wrong way in November and December, brought our trading profits down for the quarter but that's pretty much seemed to have corrected in January. We also had some comp accrual reversals. Overall for the firm, they weren't out of line, but the equity capital markets had actually went the other way. And we also had a product, which we call Best Picks, which is sold heavily in Europe where the commissions are higher so that drove expense, with our independent contractors, that drove the expense line a little up. So the first quarter has some numbers, I think, flowing through that make the quarter a little more difficult to read for capital markets.

Of course, we also announced the Howe Barnes acquisition, which we think is a great fit for our firm, it was about 120 associates. This acquisition really fit Raymond James very well. First, with Dan and Bill on the team is a great cultural fit, with our financial institution's equity capital market practice. We think it'll help us to continue to penetrate our Financial Institutions business and be synergistic to our existing business. CEO [ph] , who heads our Financial Institution practice there, is going to co-head it with Dan, was a big advocate of the acquisition. We office near each other in Chicago. I would say on both sides, people are excited about the addition to the team.

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