EUR 850.00 For Business Accounts Only

Morningstar | Raymond James Reported Record Revenue Again, but Results Are Likely To Remain Choppy

Raymond James' fiscal first-quarter results showed many of the signs plaguing other investment bank and investment service firms. The company continued its streak of record revenue, with a modest 2% sequential increase in revenue to $1.93 billion from the company's seasonally strong September quarter. Despite seeing an 8% decline in client assets under administration to $725 billion during the December quarter, most of the revenue impact won't show up until the March quarter, as much of the asset management fees from the company's wealth management business are based on beginning of quarter assets. Meanwhile, the company's capital markets business only had an operating margin of around 11%, based on our calculations after backing out $15 million of expenses related to the company exiting its European equity research business. The company had been aiming for a midteens operating margin for its capital markets business, but fixed income trading has been challenging across the industry. There was also a substantial decline in the profitability of Raymond James' bank, but much of it was due to somewhat unusual circumstances. The bank's operating margin decreased to 54% from 67% the previous quarter and 69% a year ago. About 7-percentage points of the sequential decline was from the company changing its internal sharing of revenue and expenses between the bank and its wealth management segment and another 5-percentage points was from a $10 million increase in loan loss provisions. At the moment, the increase in loan loss provisions seems to be an aberration, as there hasn't been a large increase in provisions at other banks and the economy is still in a growth mode. That said, we still believe loan loss provisions will eventually normalize higher. At this point, we don't anticipate making a significant change in our $100 fair value estimate for no-moat Raymond James.