Raymond James Financial Inc.’s top executive believes the movement of financial advisors from wirehouses to independent channels to be “stabilizing” after a wild 2009.
“I don’t think we are going to be, as an industry, seeing the kind of movement in terms of advisors that we saw last year,” Thomas A. James, the St. Petersburg, Fla., company’s chairman and chief executive officer said during the company’s quarterly earnings conference call on Thursday. “We need more trainees in the system and that would require us to ramp up on our current activity levels there.”
Raymond James Financial reported late Wednesday that fourth quarter profits declined 20% from a year earlier to $49 million, or 39 cents a share. KBW said last week that though it remains cautious on Raymond James's bank unit, it thinks that there are growth opportunities in other business segments, including its asset and wealth management businesses.
A majority of the company's businesses posted revenue declines from a year earlier, though its largest segment, the private client group, increased revenue 10%.
Total assets decreased 19% to $14.7 billion from a year earlier, but client assets under administration rose 36%.
James said that productivity per advisor is down 16% to 17% from a year earlier, but assets are recovering and “we have a great opportunity to see that difference recovered here in the next 12 months.”
Chet Helck, the company’s chief operating officer, said that productivity has been hampered by fears among retail investors about the possibility of a recessionary double dip.
“People are gaining confidence but there are still concerns,” he said. “There are still fears out there and consequently there are large cash reserves. People are waiting to see what happens.”
Raymond James Financial also wants to increase lending in its banking unit, but after spending the first half of last year cutting loans to improve credit quality, James compared ramping up to “turning around an aircraft carrier.”
“This is not an easy thing to do,” James said. “You can give instructions and turn the wheel, but you don’t notice a change for some period of time.”
The company’s loan portfolio declined $140 million in the fourth quarter, but Steven Raney, the president and chief executive officer of Raymond James Bank, said during the conference call that this comes after two quarters in which the loan portfolio declined by $500 million. He said the effort to increase lending began in September and it is already experiencing growth in its corporate loan portfolio, where it had 18 transactions in the fourth quarter.
The residential loan portfolio remains “a bit more challenging,” Raney said. “We have moved from an environment where there were a lot more sellers than buyers and that has changed,” he said. “We are actively looking for channels to make new residential loans,” he said. “We are not going to sacrifice credit quality just for the sake of new loans.”
Raymond James is in the process of converting from a thrift charter to a national banking charter so that it can shift its loan mix towards commercial loans. Analysts said it is unusual to see a financial institution, especially one that is based in Florida, talking about increasing lending.
Jeff Julien, Raymond James’ chief financial officer, said during an interview in October that the Office of the Comptroller of the Currency has evaluated the company and the Federal Reserve has completed its inspection. He said in October that he expected to find out within 30 days if the conversion would be approved. But Raymond James is still waiting.
James said Thursday that the “government has chosen to move slowly” on the company’s application. Regulators “have no problem with the quality of the bank activity or the financial stability of the holding company,” he said. “There is just no incentive to approve anything with any risk associated with it. … It is frustrating from our standpoint.”
Raymond James Bank reported a $30 million decline in profit in the fourth quarter from a year earlier. James said that last year’s profit “emanated from higher loan balances, slower loan growth … and a benign quarter for loan losses.” In contrast, the bank increased its profit contribution over the immediately preceding quarter by $14 million, “reflecting a lower level of loan loss provisions as the status of some of its existing problem loans improved, offsetting a lower level of new loan loss provisions,” he said.
James, who is set to become executive chairman on May 1 when Paul Reilly will become chief executive officer, said he doesn’t expect major changes at Raymond James when he departs, but expects further growth. “There is a tremendous opportunity in our core businesses not just to restore rates or improve return on equity, but to capture share,” he said. “We would like to return to a normal banking environment so that people can think about adding new loans rather than protecting the value of our existing ones.”
The company will have the capital for foreign expansion or small acquisitions, James said. “We are going to be tough. We have to be careful about how we deploy capital. Even when we see opportunities, we aren’t going to be rushing off of a cliff.”