雷蒙詹姆斯金融 (RJF) 2014 Q4 法說會逐字稿

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(Audio in progress) -- for your interest in Raymond James for (inaudible) so thank you. After reading the following disclosure I will turn the call over to Paul Reilly, our Chief Executive Officer, and Jeff Julien, our chief financial officer. Following their prepared remarks they will ask the operator to open the line for questions.

Certain statements made during this call may constitute forward-looking statements. Forward-looking statements include information concerning future strategic objectives, business prospects, anticipated savings, financial results, industry or market conditions, demands for our products, acquisitions, anticipated results of litigation and regulatory developments or general economic conditions.

In addition to words such as believes, expects, anticipates, plans, projects, forecast and future and conditional words such as will, may, could, should and would, as well as any other statements that necessarily depend on future events are intended to identify forward-looking statements.

There can be no assurance that actual results will not differ materially from those expressed in the forward-looking statements. We urge you to carefully consider the risks described in our most recent Form 10-K and subsequent Forms 10-Q which are available on the SEC's website at SEC.gov. So with that I will turn the call over to Paul Reilly, CEO of Raymond James Financial. Paul?

Thanks, Paul, and good morning. So it's always a little weird, a little scary releasing the day before Halloween. And even though the ghouls and goblins seem to come out in October I think we ended up with more of a treat than a trick for the quarter.

It's a great quarter to close out a great year, 33 records as we counted them. So we are not going to go through them all. Hopefully I will try not to use the word through the call. The fiscal year, again, great with $4.86 billion, 8% increase year over year, $480 million net income which is a 31% increase before all the adjustments, 15% after. EPS fully dilutive of $3.32 a share, those were all records for us.

And the September quarter, $1.29 billion of revenue, up 6% over last year, so sequentially. Net income $136.4 million, up 11% sequentially and $0.94 per fully diluted share.

So our record annual net revenue for all four segments -- I think that people focused on M&A but if you look across the firm we actually had a record year and revenue for all four segments at a record pretax in three of the four segments, except for the bank which had really a second-best year and very good performance. So 12.3% ROE to our shareholders on over 20% capital, I think a good return to the shareholders.

I want to pause here a second just to say how extremely grateful I am to all our advisors and associates who worked hard. I think this validates our combination with Morgan Keegan a few years ago which has been seamlessly integrated now. And based on the culture here that Bob and Tom James have built. Honestly it's kind of an easy firm to run. You get it pointed in the right direction and people have executed extremely well.

I'm going to talk for a few minutes about the segments and then Jeff -- Julien is going to go over some of the more detailed items that have affected the results.

In the Private Client Group for the September quarter net revenues of $861.1 million, which is 16% over the prior year quarter and up 5% sequentially. And the pretax of $100.2 million is up 55% over the prior year quarter and 23% sequentially. Annually $3.27 billion of net revenue, up 12% over the prior year and pretax income of $330 million, up 43% over the prior year.

Now these were all driven by a number of factors. Certainly market appreciation helped, but we had our second best recruiting year ever. Certainly a great recruiting is driving that, our client pricing initiatives all added.

And Jeff is going to add some commentary especially for the quarter on IT and fees which certainly help the numbers. IT may be a little bit more of a temporary help for the quarter as we are in transition between projects and our new fee schedules also had some adjustments on an ongoing basis.

Private Client Group assets of $450.6 billion is up 11.9% for the year, down slightly for the quarter and I'm going to address that a little bit later. Advisors now stand at 6,265. We are always proud when we have robust recruiting, but the key for our firm is retention. We focus every day on retention of our great advisors. That has been the key to our financial success.

We reached a 10.1% mark target -- we beat the 10% target margin for the segment. Both divisions, RJA and RJFS, our employee and independent advisors performed very well. And also our RIA division, which we have started to aggressively roll out, is showing promising recruiting results.

Capital Markets, big story for the quarter, $263.6 million, 9% over last year's quarter, 11% sequentially up. Record pretax profits. Pretax profits of $39.5 million for the quarter, down 2% really from last year's quarter which was very good, up 41% sequentially and they hit a 15% pretax margin for the quarter. Annually the $966.2 million, up 3% over the previous year pretax of $130.6 million, up 28% over the prior year.

This was really strong and investment banking results for the quarter of $115 million, $340 million for the year driven really by M&A. M&A was $150 million for the year, up 19%, but $57 million of that hit this quarter. Underwriting $100 million up 14%. Fixed income banking of $55 million, up 15% and tax credit funds at $34 million, up 40%.

So a lot of factors contributed across the board to a strong quarter in Capital Markets. Somewhat muted by the fixed income performance which we believe our fixed income team did an exceptional job in a very tough market. We had headwinds, fixed income institutional commissions were down 25% over last year over $80 million. But the trading profits doubled holding profitability very steady for the year. So great performance in a very tough market.

Public finance continue to grow and recruit and build their franchise and again we had a top 10 ranking on our way to another top 10 ranking in public finance this year.

Asset Management, similarly very, very good quarter and year. $94.9 million, up 17% over last year's quarter and 4% sequentially on the revenue side and record pretax of $35.3 million, up 15% over last year's quarter and 13% sequentially. Overall if you look at the year though with revenue at $369.7 million, up 28% year over year, and the pretax of $128.3 million, up 33% over last year, so very strong performance.

The AUM year over year is up 15.4% and down slightly this quarter. I know people had questions on flows, but we really look at the net flows were up 7.7% for the year of that 15.4%. If you look at the quarter, although the S&P was somewhat flat, the small cap and international segment was down about 5%, which had a little more drag on this segment given our concentration in the small cap space in our Eagle division.

RJ Bank revenues of 93.1% -- $93.1 for the quarter, up 4% over last year and 2% sequentially. Pretax of $64.1 million, down 12% over last year and 1% sequentially. Record revenues of $351.8 million for the year, up 1%, pretax down 9% at $242.8 million.

The story of the year was just great net loan growth. We ended up with record net loans of $10.96 billion, up 24% over last year and 5.7% sequentially. This is a great accomplishment given our conservative underwriting standards to be able to drive that loan growth. And the offset to that loan growth was NIM compression.

If you look at the through the year we almost had a 27% drop basis -- point drop in the NIM. The good news, it looks like that the NIM has improved this quarter and Jeff is going to comment on that a little bit. Credit metrics continue to be strong and improve. All in all quite a year, quite a quarter and I want to congratulate our team. And now I will turn it over to Jeff Julien. Jeff?

Thanks, Paul. Given that it can be a little bit difficult to map the segments to line items we have started the practice now of me actually walking through some of the line items and I will comment on some of the factors within those line items and kind of give you our take on our feel for those line items going forward as best we can.

Not a lot to say about securities commissions and fees. I think you all know the drivers there in PCG. I can tell you that the billings on October 1 were flat to slightly up from July 1 which is indicative of the Billings happening before we hit the low point here in this recent 9% mini correction.

In addition to that, for next year we are anticipating some continued good recruiting. We hope that continues to -- at roughly the rate that it has been going that would be wonderful. Also in the recent volatility actually both in interest rates and in the equity markets that will help on the institutional commission side. Although during the year it was pretty benign in terms of volatility, but we've certainly seen some to start this current fiscal year.

Paul has talked about the very strong investment banking revenues. This is probably our most difficult line item to budget in the revenue side. We averaged this year around $85 million per quarter. Perhaps that is a reasonable base line for looking forward and then whatever you're projecting for your pure investment banking clients in terms of change for next year. Maybe you assume something similar for that division within our Company.

Net interest income is interesting, it is nice to see it surpass $100 million for the quarter. The biggest driver there of course was the bank. We did see that 14 basis point net interest margin improvement. We've been talking at least the last couple quarters about how NIM was -- the NIM compression was slowing down and I guess I will go and stick my neck out a little bit and say it looks like it has bounced off the bottom at least for the very near term.

The 14 basis point improvement sequentially was really a combination of factors, some of it was additional corporate loan fees that were recognized because of some payoffs, but also we were able to put some of our cash or investments at the bank to work into loans.

But around all that there truly was some net interest margin improvement in the outstanding portfolio of about 4 basis points. And we made a comment in the press release that it appears that new production is being done at higher levels. And I can certainly attest to that as part of the loan committee. So looking what is in the pipeline it looks like we are off the bottom there.

Going forward we are not projecting a dramatic rebound in the net interest margin. We are projecting some pretty healthy loan growth and I will let Steve Raney, who is here with us, talk about that shortly. But we are just kind of projecting NIM to hold flat around 3% for this year. Again, we are not projecting any interest rate hikes either this year.

Accountant service fees I think caught everybody a little bit off guard in terms of the 10% sequential growth to add $112 million for the quarter. Some of that relates to I guess I will have to say some sort of some catch up entries as we negotiated some contracts, we brought in some outside assets into the billing process and things like that. Some of it actually related a little bit to the June quarter but we didn't have the numbers in time to record them there, didn't know what they were at that time.

So in terms of a run rate looking forward, probably about $108 million of that $112 million is probably about the true run rate of where we are at this point in time.

Talked about trading profits. The only thing I will remind you of is when you look at the year-over-year comparison remember that last year included that May/June muni market swoon that impacted trading profits quite negatively for the year. Other than that quarter they have been pretty steady at $14 million to $15 million per quarter rate. So that is -- again given the market environment that is a pretty good accomplishment.

Other revenues, as I think you know, the main driver in that line in the past has been private equity activity. We did have a lot less gain in that than we did in the preceding quarter. We also have other things hitting in there.

We talked about foreign currency gains and losses in the past at the bank. We did actually have a gain in the June quarter and a loss in the September quarter in that line item, so that was about a $4 million swing or $3.3 million swing quarter to quarter.

I'm happy to report that between maturities and us transferring the remaining Canadian denominated loans to our Canadian financing sub at the bank, we won't be talking about that factor going forward.

On the expense side, comp obviously gets a lot of discussion. We did achieve the run rate that we were hoping to by the end of the fiscal year. We got to 67.7% for the fourth quarter and we actually ended up at 68.1% for the entire fiscal year. I don't know that we are moving the benchmark a lot, but we -- if we can stay sub 68% for the coming year with some revenue growth I think that we will be -- see some margin improvement.

Paul mentioned data communications expenses. We did kind of take just a little bit of a hiatus this quarter this past quarter as we completed some projects and just decided not to launch right into a bunch of new ones for a couple months. So we did see -- and some of the projects we completed that we have been working on. I've hit the capitalization phase. That is a little bit hard to predict.

So while we think the mid-60% number we have been guiding to you to is probably still right on an annual basis it is a little bit lumpy. It's not always going to be a consistent number. So we are still sort of expecting that run rate, it's been -- it was $63 million per quarter this year and $64 million per quarter the year before that.

So I think that guidance wise we still think that will average that. We certainly are not going to abandon our investments we are making in technology to help support our financial advisors.

The bank loan loss returned to what I would call somewhat more normal levels. Still a little bit low relative to the 24% loan growth. But last year's was just abnormally low obviously at $2 million given all the credit enhancement.

We had we had some of that this year, some credit improvement which caused some declines in growth. But going forward we don't have -- as you can see, our criticized asset balances are coming down dramatically. So there is not a whole lot of additional credits to be gained from credit improvement, there is still some. But we would expect a more normal 130 to 140 basis point charge on loan growth for the next year.

The other expense line item that is -- many small items that come in that. The only one of any magnitude, and it wasn't particularly large, was some legal expenses that hit during the quarter bigger than the preceding quarter. That is another one that bounces around a little bit, but still at a very reasonable rate in terms of total expense.

I will talk about the tax rate just for a second. It came in at -- a little under 36% for the year. And a lot of that versus our 37% to 37.5% guidance for the year at the beginning of the year had to do with the strong equity market and the tax exempt gains realized on our corporate owned life insurance portfolio.

I guess guidance wise I would say that we are still probably a 37% to 37.5%, somewhere in that range, percent tax payer in a flat market environment given the various factors that we have that impact our rate. In an up market I think you can sort of assume that rate is going to be 100 to 150 basis points better with the corporate owned life insurance swing. And then in a poor market just the opposite. So what rate you use I guess would depend a little bit on your outlook for the market.

A couple other factors -- we did get a 13.4% ROE for the quarter and 12.3% for the year. I remind you that 12% is somewhat our target rate for this interest rate environment. We'll have a very different target when we get to -- if and when we get to more normal interest rate levels.

Shareholders equity got to $4.1 billion, that is up 13.1% over last year, notwithstanding the almost $100 million, etc., that went out in dividends. And I will lastly mention our leverage ratio which actually has improved. Just simple assets to equity leverage ratio was 6.3 a year ago and now it is down to 5.6 and those factors have continued to drive very positive regulatory capital ratios as well. So all looks very strong on that front.

Great, thanks, Jeff. Just -- outlook, Jeff kind of touched on our go forward PCG billing starting the quarter. I think the key for this quarter is volatility. And certainly if asset levels stay down -- they have recovered, who knows where they are heading now -- it will affect next quarter but the volatility has helped on some of the trading side. But, as you know, a big chunk of our Private Client Group is fee-based.

Recruiting pipeline is still very, very strong. We are hoping to surpass last year's recruiting. From a goal standpoint this last year was our second best year ever to 2009 when there was kind of a flight from certain players that were in the paper to certain that weren't and we were certainly beneficiaries of that.

But our recruiting pipeline stayed very strong and also for very high producing advisors both in terms of assets and revenue, multimillion dollar team visits are common every day here now. And we're continuing to focus recruiting throughout the country but we have expanded with particular focus out West in the Northeast where we gained progress.

Asset Management, again assets should grow as we recruit through PCG. Market volatility may create some headwinds in AUM. Certainly the market impacts that, but we think we are in good shape. As we have always said, we continue to look and are actively looking for niche acquisitions to grow that business.

The Capital Markets side, the equity side of the business certainly had a strong year and Jeff said $85 million average might be a number. But this was a record year for us and you never know with the market where that number goes, as he said. Probably the hardest one to predict.

And -- but we have expanded our tech practice starting a few years ago, brought in a consumer team and expanding into another SBU as we are looking. So we're continuing to make investments and very happy with our -- backlog is strong and with our people. But again the market is going to play a big factor in that.

Fixed income, the headwinds will continue, October started very volatile in the markets which was tougher on trading profits but it was positive on commission. So who knows where it will settle out as the market settles out, but we have a great team and they're well-positioned.

In public finance we continue to grow, we've done a great job in California and other states adding bankers and continue to stay a top 10 banker. And we'll use this downturn to recruit good people to build the platform.

Bank loan growth looks very strong, run off has dropped from 30% to 20% and productivity -- and production is up. We also have a contract to purchase [$]235 million of 5.1 adjustable resi loans that should close in December as we finish our due diligence and we expect that will close.

Now it will happen near the end of the quarter but I think you are going to see strong loan growth as a start in the quarter and, again, I think every time we've predicted loan growth the market changes and the next quarter may be different. But we look like we are in good shape there.

So all in all I think a strong quarter, a strong year. And Jeff has something to add before we turn it over to questions.

When you look at the year-to-year results, which are as shown in the press release, the GAAP results, I just want to remind you of some of the comparative factors that play into that.

You remember last year included about a $74 million in revenues from the sale of a private equity holding which a majority of which was not to our interest. On the expense side last year we are still showing $73.5 million of integration costs, which we are no longer showing as we're fully integrated. And last year we had that abnormally low loan loss provision despite some pretty strong loan growth in 2013.

So when you put some kind of reasonable adjustment on all of those out of the ordinary type factors I think that you would say that on an adjusted basis the revenue, which we reported an 8% increase, actually increased more than that on an operating basis.

But on the other hand, while we showed a 33% increase in pretax profits, as shown on the bottom of the segment page for the year, pretax income growth -- I think when you adjust for all those factors it probably wasn't quite that good, but it was still a very, very strong performance year over year.

Okay. And with that we will turn it back -- we will turn it over to the operator, Felicia, for questions.

(Operator Instructions). Bill Katz, Citi.

Hi, this is actually Ryan Bailey filling in for Bill. My question was regarding -- I know you mentioned it, but I was wondering what your outlook is for the investment banking business. We know M&A has been pretty good over the last couple quarters, do you have any color into that going forward?

I wish I did. As we said, it is the hardest one to predict. I would just say that we came off of kind of a record quarter for M&A and very strong for banking. Backlog is very good. The market in October certainly on -- the underwriting business pushed some deals back but they didn't cancel. We think the pipeline is strong.

But you have to remember this was a very, very strong quarter. So I wouldn't anticipate -- I hope we repeat it and grow from here. I wouldn't anticipate that though. And Jeff gave the average for the year, it might be good for the next quarter given where we were, but again the market changes by the week or by the day sometimes, sometimes by the hour.

Right. Sorry, if you don't mind, another question just kind of on I guess a different topic. I'm just wondering -- I know you mentioned it again, the Asset Management business, kind of bookings for tuck-in acquisitions there. Do you have anything that you are looking at in particular or anything in the pipeline?

We have been aggressively looking for two years and we are just very conservative and cautious. So we have talked to lots of firms and it is always a -- part of it is a timing issue, sometimes you like each other and it is not the right time, sometimes we don't agree on the price. If there is not a culture fit we just -- we won't even start.

We have been actively talking and we don't have anything to announce, but we are -- I'm proud of the effort they are making in the market and the due diligence when we do talk to people is pretty heavy. And if we find it we will close, if we won't we don't. The ones that have been nearer term more active have been a little smaller but that could change tomorrow too.

Got it. Thank you very much.

Jim Mitchell, Buckingham Research.

Can you talk a little bit about -- you have noted for the last couple quarters record recruiting, but it looks like this quarter the number of new FAs kind of slowed. Is it just sort of a timing issue (technical difficulty)? Because I think if we look at it sequentially it was up maybe 20 basis points in terms of growth. Do think we should expect that to pick up?

There's two pieces to it. First it is a net number when you see it.

Right.

And unfortunately it is not just regretted attrition. Some is regretted, we've had a number of deaths, we have a number of retirements with an older FA force. We do have occasional regretted attrition although that is low. And we do have times where people leave the industry just because at the lower end they are not making it.

So it is a hard net number, but if you looked at productivity per advisor part of that is market driven, but a lot of it is higher end FAs coming in. So the number is a little lumpy. Two quarters ago it was really large and that is timing. This quarter it looks flattish. But if you average it out I think it is pretty steady and where people sign -- when people join us can be lumpy.

And would you expect -- just on the flow side it looked like -- obviously it was a volatile quarter in terms of the markets, but if you kind of look at your fee-based assets, maybe not a lot of, if any, net inflows this quarter versus pretty strong flows the last few. Is that just market volatility or any other color on flows?

It is driven by both. Certainly the market impacts the flows, but recruiting and people bringing assets in impact the flows too. So again, given last year we got -- you're impacted by both. I don't know if I could break it out for the quarter how much was due to what.

But net-net we think we are having good flows and from advisors and from productivity of existing advisors and certainly the market has an impact so it is all of those that are impacting that number.

Right, okay. Fair. And last one for me. Just if I look at you guys have had very strong loan growth, you are now the last two quarters loans, your loan to deposit ratio is now over 100%. Do you -- with that dynamic do you start to -- I mean what I guess would constrain you in terms of growing the loan book and the balance sheet? Is it deposits or is that not an issue and you are just looking to keep growing?

Our only internal -- we have two internal constraints. One is we don't want more than half our cash -- client cash to be in the bank and that is not a constraint for the foreseeable future.

We are under a third right now.

It is under a third, we don't want it to be half. We have an internal guideline we don't want it to -- targeting around 35% of capital which we're at but not to exceed 40% but the bank is earning too. Right now the biggest constraint is just if we get good credits with acceptable spreads we can grow.

And the times we slowed the growth is when we felt we weren't getting good credits or the spreads for the risk weren't acceptable. And it looks like the environment right now looks promising. But again, even throughout last year I think every quarter the dynamics were a little different. But right now it looks in good shape.

So you still feel like you can get pretty good spreads funding it in the wholesale market without deposits?

Without deposits?

Client cash.

Yes. We have plenty of client cash to fund our deposits. The bank takes what it needs and then we sweep it out amongst other banks and we are not constrained on deposits.

Jim, I would also just offer up that we have ample liquidity still at the bank and we also have contingent funding sources, borrowing availability at the Federal Home Loan Bank and the Federal Reserve. So we manage that very conservatively in terms of making sure we've got plenty of cushion from liquidity for funding. And as Jeff and Paul mentioned, we do have about a third of the client cash balances currently deployed in the bank.

Right. And my two cents on that is we don't have a very good track record of predicting the bank's growth or spreads or anything else. But --.

Or interest rates.

We have generally been on the conservative side, but we -- that is what our feelings are today.

Okay, great. And if you can predict what rates are doing that would be also great. Thanks a lot.

Yes, if we could do that we wouldn't be working.

Douglas Sipkin, Susquehanna.

So just a couple of questions. A bit nitpicky on comp, I know you guys -- you came in a little bit here in the fourth quarter. Can you maybe refresh us a little bit? I just recall there are a couple of items which may start to ease in the comp ratio, maybe it starts in 2015, maybe it relates to a little bit lower payouts than some of the trading businesses I think fixed income. And maybe some RSUs which I think are done running through the system in 2015. Can you give us an update on that?

Yes, there were three pieces from the Morgan Keegan acquisition that were impacting the comp ratio, the first was the management piece which was adding about $6 million a year, that will end at the end of March 2015.

Then there is a five-year piece that is costing us about $6 million to $7 million a year that relates primarily to the fixed income Capital Markets Group that obviously runs to the end of March 2017. And then the third piece was the Private Client Group which was a seven year deal which was costing us $18 million to $20 million a year, which obviously has only run 2.5 years of that seven year life.

Got you. Okay, so there is probably a touch of relief in 2015 but nothing yet really major until we get a couple years further out?

That is probably accurate.

Okay, great.

And we put in place new retention along the way anyway so --.

Right, right. Okay, great. So a question for Paul, I mean obviously a shareholder can't complain 13.4% ROE in a practically zero interest rate environment very impressive. That being said, you guys, the balance sheet looks so strong. I mean what would it take for you guys to do something a little bit more I would call it unorthodox for you around capital return policy.

I know you guys have been looking to grow the acquisition small stuff and the asset managers, but it has been a while and the earnings continue to go up and the balance sheet continues to get stronger. So, I'm just curious if there is any change of thinking around the capital policy for you guys?

No, I think we are holding firm that we believe that first we are always going to be conservatively capitalized, I hope, unless something goes wrong. So we are going to be conservative. But we have been looking and working very hard at looking at acquisitions and niche acquisitions.

And I know for some investors a quarter is forever. For us our horizon is a little longer and we think we can deploy the capital. And if we can't we will do something else with it. But we think we can deploy the capital. But we are not going to close on a deal just to deploy the capital.

We have had those opportunities over the year. But if we don't think it is a good investment we are going to keep it on the balance sheet. So at this point we still believe we can deploy it and I know people aren't going to believe us until we do. And if we can't -- the other thing is we're not going to deploy it just to deploy it. If we can't do it then we will deal with the excess cash, but we don't believe we are in that position today.

Great. And I apologize if this has been hit on already. I know you guys obviously gave pretty clear interest rate guidance, obviously who knows if interest rates ever go up. But I mean how do we think about that now with the sense maybe the client asset levels are up maybe $20 billion, $30 billion or something like that from maybe the time you provided the guidance I'm thinking around like Analyst Day.

You have provided it before but I think you really articulated it well at the Analyst Day. So I mean does that -- can we think about that changing all that much as the client assets continue to go up meaning in terms of the actual impact on 100 basis points? Or is it too early to think about changing that guidance?

Yeah, I mean -- this is Paul Shoukry. While the asset levels -- per client asset levels are up since we gave that guidance. If you look at the cash balances a lot of it has been redeployed into the market and obviously they don't benefit from market appreciation like the other assets do.

So actually cash balances have been pretty steady and when we do our projections it is still pretty constant with what we told you at around $150 million pretax impact on an annual basis when interest rates rise, 100 basis point simultaneously.

Sure.

So it hasn't changed much, Doug.

Okay, perfect. All right, great, guys, thanks for taking my questions and congratulations.

Christian Bolu, Credit Suisse.

Just back to the M&A strength. You mentioned some of the investments you made in that business, and I appreciate it is hard to predict. But I would like some color on the backlog. I mean is it concentrated in certain industry verticals and how broad-based or lumpy is it?

Well, first, it is always lumpy by definition. And if you look across the industry it was a good quarter for M&A, so it certainly wasn't just us. And why deals all tend to close near the same period of time I don't know. Factors still seem good both with equity market outlook and certainly cheap financing costs for M&A. The backlog is good.

In fairness, a lot of the activity in the segment, both in underwritings and M&A, was in kind of the life science space issue, which we didn't participate in it since we are really not in that space. So it is pretty broad across our sectors, they've all kind of contributed.

And I can't say it is focused in one area. The backlog is still very strong and I don't think we are going to hit the level we hit this quarter every quarter, but I think we anticipate a reasonable quarter this year. And again, timing is everything on these deals. So we can't predict when any deal will close and it is lumpy.

Okay, okay. It is strong, so that is good. Just update on fixed income. You've spoken to one of your initiatives being growing the asset manager client base from your traditional kind of bank client base. So first just an update on that and how that is progressing.

And then secondly, when you think about some of the rules impacting banks going forward like the LCR, could it have any impact on the long-term demand say for munis from depositing institutions?

I think on both initiatives that the focus on expanding the client base, total return client base has been a focus of ours and we're making good progress, but as a percent of our revenue it is still small. So we are very focused on it.

And I think as we looked at some of the rules which they have changed for the banks and liquidity calculations for munis I think actually the new rules we're feeling very comfortable the demand will continue. I think at a period time there we wondered with some of the liquidity calculations. Based on the latest rules we think those businesses will be fine.

Now I can't tell you what is going to happen to regulation day to day because they keep changing. But we feel good about those spaces. The thing that is inhibiting that business the most right now is rates. And most of the bank deals really aren't muni deals. So there is a lot of tax -- they are holding a lot of taxable instruments in our bank franchise too.

Agencies.

Agencies particularly. So --.

Right.

So the muni distribution is really separate from the bank space.

Okay. And then just lastly from me I guess again on regulation. I know you are not formally -- I believe you are not formally subject to kind of the Fed liquidity rules at the bank or the Holdco. But just curious if you have a sense of where you would be on the LCR and if the regulators care at all about that number for you guys?

Every calculation we have seen and done as we have gone forward is, if you look at our capital and liquidity position, under any rules we are still well over. So --.

Even on liquidity?

Liquidity too, we are extremely liquid right now. So as the previous question said in excess capital is not just capital, it is in cash. So we are very liquid right now and it's kind of nice to be liquid when there's opportunities and day-to-day fluctuations, but we certainly have more cash than we need to operate this business.

Okay, great. Thanks very much and congratulations on a very strong quarter.

Steven Chubak, Nomura.

[Karen Long] for Steven. Just had a quick question. Some of the bigger banks that have reported earnings this quarter have noted that they have seen -- given the loosening Fed underwriting standards, they've seen some more aggressive pricing which has resulted in lower loan pricing. Just wondering what you have seen that has kind of given the opposite effect at RJ Bank?

Yes, we have not seen that, we've actually experienced a little bit of the opposite this last quarter. Actually I would say secondary prices on corporate loans have actually come down maybe 100 to 150 basis points. And I would say that marketplace, both banks and institutional investors that invest in commercial loans have been pushing back against this declining margin and we've seen improvement in that space -- not huge but some improvement, so --.

And in fairness we play in a small segment --

Yes, a smaller sector.

-- of C&I loans with a certain credit rating. And so they could be getting compression at the high --.

(multiple speakers) riskier -- the riskier (multiple speakers).

Or the risk (multiple speakers).

Or the very low (multiple speakers).

Less risk, there is no riskless. But, yes.

Okay, thanks.

Devin Ryan, JMP Securities.

I just want to dig in a bit more on the recruiting momentum and I guess the backlog. I mean I guess outside of contracts that have been rolling off of the wire houses, I wanted to get some perspective of what else has changed to make the recruiting backdrop so strong right now.

I know that you guys have done a great job upgrading your technology and advisor offering over the past handful of years. So I'm just trying to get some perspective around how much may be in the environment versus how much you guys think is Raymond James specific based on what you are seeing?

I thought you said they wanted to because of us, Devin, not because of --. I think honestly you get in the momentum plays in recruiting and there is a number of factors, it is not just one.

First, I do think that our culture has been very steady and a lot of advisors that grew up in regional firms like ours that are at the wire houses -- that went to the wire houses by waking up and there card changed, as deals have rolled off have [seeked] to find a place like ours and that has certainly been a big factor.

The second piece is I think that other people that even grew up at the wire houses is as many banks have tried to institutionalize their clients through credit relationships and also eliminating lower accounts and putting pressure on fees and teaming that people that like their semi-independence and have grown up they are looking for alternatives and we are certainly a very, very good alternative.

And I think the other two factors that have helped us certainly are technology which we believe is competitive with any of the big banks or custodial firms. It is never perfect but we think some areas we excel in, especially when it comes to the advisor's desktop, that our technology certainly is not a limiting factor, in many cases against even some of the bigger firms a positive.

And last but not least I think the Morgan Keegan combination added kind of renewed interest in us given our size and scope and just made us more -- people more market aware. So our surveys always say if you leave where do you go and we do blind surveys and we always finish on top. And other competitors are there to, but we are just a good destination. And all those factors plus good recruiting momentum has just added to it.

So our focus is windows don't stay open forever in recruiting. You can look at the market times where it gets very active and where it slows down. Right now it is an active time and we are just in a great position. So we are trying to take advantage of it by just getting as many good advisors as we can during this process.

We are also opening up in regions we didn't recruit in, California is so far away for us and now we have got boots on the ground there in terms of management, we're expanding it, we've increased the number of advisors by multiples, but we are still a small factor in that market and the same in the Northeast. We just really stayed out of New York and the employee side and surrounding areas and we have grown those businesses.

So we have opened up -- I think a stat I saw said there are more advisors between Philadelphia and Boston and the rest of the country. And we weren't active -- really active in those markets, we are now. So that has also opened up our recruiting availability. So it is a lot of things going on that are driving the number.

Okay. That is really helpful color. And then just staying on the maybe the technology side, I apologize if you addressed this. But the lull in technology investments within Private Client that you guys mentioned in the release, can you give any perspective around the magnitude of that, how much that helped? And then does that imply there's going to be some catch up, there could be a catch up quarter. I'm just trying to understand that comment in relation to the impact.

No, I think what happened and I will oversimplify it but it is human nature a little bit too. So we have been on a fast pace, we were a little ahead of budget in terms of spending and they slowed down, the fourth quarter's projects ended to come within budget. And our budget for next year, we think that range we are giving you of around $65 million-ish is the right -- it is our budget.

Technology people like to spend their budget, they usually don't want to give back dollars, they have always got 20 more projects to do that you cut from the budget. So we've increased our technology spend, we are focused, we got great delivery and I just think it was two factors. One was a little budget catch up.

Secondly, the projects rolled off so it's just a matter of did you buy the software in September or October or some of the products or do have a consultant show up September 15 or October 1. And it is not really much of a lull it was a budget catch up. It is not a deferral, I think they spent their budget through the year and I am sure they are going to do everything they can to spend their budget this year.

Got it, thanks a lot.

(Operator Instructions). Alex Blostein, Goldman Sachs.

First question on the trends you guys have seen in fixed income trading. And I think you guys have done a great job under Investor Day, a couple times now describing the nature of that business, who your clients are and the environment in which we could actually see some recovery there.

I was curious to get a better sense of whether or not you think it is the shape of the yield curve or more the level of interest rate that matters here. Because I think increasingly the consensus view has just become that, look, rates at the short end might go up but we'll actually end up with a flat yield curve. So just curious how you think your fixed-income trading business, aside from the trading profits piece, would perform in that environment?

Yes you know, it is a factor of everything. I think just gross interest rates. No one is just forgetting the yield curve, no one is rushing to buy 30-year bonds anywhere, that is where we get paid the best. So certainly a general rise in interest rates and if QE makes the long go up a little bit I think it is helpful.

Secondly, certainly the yield curve is a positive. So a flat yield curve would not be a positive across the total industry. And the third is and the biggest factor is volatility on commissions. I mean a lot of our trading profits are just a little piece on inventories returning quickly. If there is no volume it is harder to do and certainly if there is no volume there is commission.

So, in October we took -- the early weeks trading profits were down a little bit because we had good days and bad days. But I think well managed. But commission volume was way up as people looked whether it was the market or movements because of changes in PIMCO and other things there was activity. Who knows what is driving it, but volatility is a big help on the commission line. And if we manage our inventories well I think we will do fine. So it is multiple factors.

Got it. That was my follow up on the commissions and how the increased volatility in October has impacted the fixed income business. So it sounds like it has been a fairly good month on that front.

Yes, the front end was very, very good so we will see where it settles out whether it will continue. Now again if rates stay flattish and nothing moves and there is no market forces I think you're going to see us slow down in commissions where people are just waiting again.

So, they like volatility and the trading businesses, the sales businesses all like volatility same with equities, they like the volatility. It gets people picking up the phone and making calls and making bets. And without it people sit on the sidelines and just wait and watch. So a little volatility would be helpful. You look at last year, we really didn't have much.

Yes, makes sense. And my second question was around the asset management business. Just looks like you guys actually don't break out the net flows in that $60 billion-ish somewhat number. But it sounded like, it looked like just from backing out the market the flows were softer, maybe even a little bit of outflows over the course of the quarter. I guess, A, is that a fair assessment? And, B, maybe you could talk a little bit about the source and your outlook for flows in the asset management business.

Yes. So our flows for the year were good, I mean they were probably half our gains. So and we've had good flows. The only thing that impacted the fourth quarter in the asset management business, again even though the S&P was flattish, small caps were down 5% depending on how you measure it. We've got an eagle especially a large concentration of small caps and mid-cap good product. But in international those products weren't in favor.

So they probably got a little sequentially hit in that quarter and that segment. But I don't -- long-term I don't see any -- major issue. We tend to -- the segment is the whole outside of Eagle which had a good year in recruiting a little more outflows, not net but the normal.

The net flows were positive, the Asset Management segment, the internal part has been very strong because of recruiting. As we get more advisors those advisors choose to put some of their assets on our platforms and that grows. So we are not negative on it even though it was again choppy at the end there because of small caps.

Got it. That is helpful. Thanks, guys.

And there are no further questions at this time. Presenters, are there any closing remarks?

No. I just want to thank you all for joining and it is great to have a yearend -- you get about 5 minutes of celebration and then you go on to the next meeting to keep operating the Company. So thanks for your support. you know we're focused on our continued growth and appreciate you being (audio ends abruptly).