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    Raymond James Financial Inc (RJF)

    Q2 2024 Earnings Summary

    Reported on Jan 10, 2025 (After Market Close)
    Pre-Earnings Price$127.54Last close (Apr 24, 2024)
    Post-Earnings Price$123.00Open (Apr 25, 2024)
    Price Change
    $-4.54(-3.56%)

    What went well

    • Strong investment in growth and technology to enhance advisor efficiency and productivity: Raymond James is consistently investing in all its businesses, especially the Private Client Group, to enhance service levels and create more efficiencies for advisors, enabling them to spend more time with clients and drive growth.
    • Significant upside potential in Capital Markets margins as activity recovers: As capital markets activity picks up, there's a lot of upside to margins in the Capital Markets segment, which could return to mid-20% levels, significantly improving profitability.
    • Optimistic outlook on loan growth and well-positioned for future demand: Despite current muted loan demand due to higher rates, Raymond James is maintaining strong capital and funding positions to capitalize on loan growth when it resumes, expecting demand to recover as clients get comfortable with current rate levels.

    What went wrong

    • Fixed Income brokerage revenues are under pressure due to depository clients experiencing flat to declining deposit balances and having less cash available for investing in securities, putting pressure on brokerage activity.
    • The Capital Markets segment reported a pretax loss of $17 million, and recovery is uncertain as closings are difficult to predict in the current market environment.
    • Loan growth has stalled, particularly in securities-based lending (SBLs), due to clients adjusting to higher interest rates, leading to uncertainty about when demand will resume.

    Q&A Summary

    1. Compensation Ratio Outlook
      Q: Will the annual comp ratio be below 65%?
      A: Management targets a 65% comp ratio for the year but noted it may depend on the Capital Markets segment's performance. Despite challenges, they achieved a 65.2% adjusted comp ratio this quarter. Seasonal factors added $30–$35 million in expenses.

    2. Recruiting Activity and Net New Asset Growth
      Q: What's pressuring net new assets and adviser headcount?
      A: Organic growth is at the lower end historically, but they are hiring larger teams bringing in more assets. Movement to the RIA channel reduces licensed headcount, though assets remain. Recruiting remains strong, and asset onboarding takes time.

    3. Cash Sweep Balances
      Q: Are cash sweep balances stabilizing and growing?
      A: Cash sweep balances are down $1.3 billion in April due to tax season and fee billings but are expected to stabilize. Historically, balances build throughout the quarter after fee payments.

    4. DOL Fiduciary Rule Impact
      Q: How does the final DOL rule affect you?
      A: The rule appears manageable with no significant issues. Concerns center on the Department of Labor's authority and the need for additional rules beyond the best interest standard, but nothing problematic stands out.

    5. M&A Outlook and Capital Deployment
      Q: Any plans for M&A or capital returns?
      A: Management is actively seeking M&A opportunities across businesses and geographies but cannot predict timing. They prioritize investing in the business, including recruiting and acquisitions, and are considering managing high capital levels through buybacks or other means.

    6. Capital Markets Margins
      Q: What margins are expected as activity picks up?
      A: Capital Markets margins have room to improve, having peaked at around 25–26% previously. The business is leveraged, and as revenues grow, margins are expected to rebound significantly. Deferred compensation amortization of $20 million will reduce over the next 12–18 months.

    7. Loan Growth Outlook
      Q: What's the outlook for loan growth and NII?
      A: Loan growth is currently tepid due to higher rates and client cash levels. Management is optimistic about future loan demand but can't predict timing. They are maintaining strong capital positions to be ready when growth resumes.

    8. Adviser Movement and Competition
      Q: What's driving adviser movement and competition?
      A: Adviser movement is competitive, with private equity investment in the RIA space increasing departures from traditional broker-dealers. The firm focuses on platform and culture to attract advisers, maintaining lower transition assistance than peers.

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