Raymond James Financial (RJF)

Q1 2012 Earnings Call

January 26, 2012 8:15 am ET


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

Jennifer C. Ackart - Chief Accounting Officer, Senior Vice President and Controller

Paul C. Reilly - Chief Executive Officer and Director

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


Devin Ryan - Sandler O'Neill + Partners, L.P., Research Division

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

Hugh M. Miller - Sidoti & Company, LLC

Daniel F. Harris - Goldman Sachs Group Inc., Research Division



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Good morning. My name is Brooke, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Raymond James Quarterly Analyst Conference Call. [Operator Instructions]

To the extent that Raymond James makes forward-looking statements regarding management expectations, strategic objectives, business prospects, anticipated expense savings, financial results, anticipated results of litigation and regulatory proceedings and other similar matters, a variety of factors, many of which are beyond Raymond James' control, could cause actual results and experiences to differ materially from the expectations and objectives expressed in these statements. These factors are described in Raymond James' 2011 annual report on Form 10-K, which is available on raymondjames.com and sec.gov.

In addition to those factors, in connection with the Morgan Keegan transaction, the following factors, among others, could cause actual results to differ materially from forward-looking or historical performance. The possibility that regulatory and other approvals and conditions to the transaction are not received or satisfied on a timely basis or at all. The possibility that modifications to the terms of the transaction may be required to obtain or satisfy such approvals or conditions; changes in the anticipated timing for closings -- closing the transaction; difficulty integrating Raymond James and Morgan Keegan's businesses or realizing the projected benefits of the transaction; the inability to sustain revenue in earnings growth; the changes in capital markets; and diversion of management time on transaction related issues.

Thank you. Mr. Reilly, you may begin.

Paul C. Reilly

Great. Well, good morning, and thank you. And now that Brooke has explained that we can't forecast the future, we'd like to talk about really the first quarter of this year and what I would call kind of a difficult quarter for the capital markets overall in our industry. But I think solid results given where we are.

As we said, we reported net income of $67,325,000 or $0.53 per diluted share. Again, as compared to a record quarter a year ago, obviously down but fairly flattish with the last quarter, as we put in our release.

We go through the business, different business units, I think you could see where kind of the headwinds were. Starting with the Private Client Group, our wrap fee assets were down 6% coming into the quarter. And as you know, we bill in advance on our retail accounts and those fees, and that gave us a headwind. In the PCG group, we just weren't able to make that up on the commission volume. But if you look at this quarter, with the S&P up 11%, we'd estimate we'll reverse that and be up 6% or 7% this quarter as a starting point. So although we had a -- not over robust because of our beginnings, we could make it up in the commission's area.

In the Private Client Group, we should be up, reversed to a better start this quarter. As you can see, our Financial Advisor account was up slightly in all of our segments as we continue to recruit. So I think going into the quarter, we'll get a better start there.

Probably really the story of the quarter was the Equity Capital Markets business. As you know, the industry didn't have the best quarter in the world, and we weren't any different. We kind of had a lot of pieces going against us. This isn't really reflective of backlog, which is, I think, of a more uncertain market last quarter. Underwriting fees in the U.S. were down slightly but down more significantly in Canada. We had -- last year, our commission volumes were down, and ECM is a little down in the market.

And M&A was down. It was down really because it's just a lumpier business for us. I don't think, again, in backlog, anything really stands out. But the quarter -- they were down for the quarter.

And our Tax Credit Funds last quarter had a very big quarter, and not as good of a quarter this month -- this quarter. So if you add that all together, we had a lot of headwinds into the Equity Capital Markets segment. But again, not backlog related, but I do think market related.

Fixed income kind of started to recover from a poor quarter, the previous quarter, as it was in the industry. And especially, December was pretty strong, and January was off to a good start also. So -- but -- so most of that Capital Markets numbers you see are really focused on the Equity Capital Markets segment.

On the Asset Management business, again we had a slight down draft because of our billings. But you can see that the assets under management are up 9%. So a reasonable quarter given the start, we do, as you can see from the earnings from the segment, do have leverage in that segment. So as the revenue's up, we get a leverage up or down on the pretax profits from there. So I think, again, we should bode well a good start on the Asset Management business.

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