For its part, Raymond James confirms that it has received unsolicited offers - it won't say from whom - as takeovers and rumors of takeovers sweep the financial services industry. Last April, Bankers Trust agreed to buy Baltimore's Alex Brown Inc. and is itself now said to be a takeover target. Morgan Stanley merged with Dean Witter. First Union Corp. is acquiring Richmond's Wheat First Butcher Singer Inc. and Fleet Financial has just agreed to buy Palm Beach-based discount broker Quick and Reilly, after the latter put itself up for sale. And perhaps reflective of Wall Street's lusting, when Travelers Group's acquisition of Salomon Bros. was announced on Sept. 24, Raymond James' stock rose $2 in a down market.
The big question the rumor mill seems to overlook is where a would-be acquirer might find Raymond James stock. The firm went public in 1983, and about half the shares are controlled by 55-year-old James, his family, and the firm's officers and employees. So a takeover or merger seems highly unlikely unless insiders consent to it. And that's not about to happen until, and if, James, who according to the most recent proxy beneficially owns 25% of the company (worth about $178.5 million), gives the nod.
James says he is obliged to weigh offers he receives for the firm as a matter of duty to its employees and stockholders. He has also said all along that Raymond James is "committed to pursuing an independent course."
"I guess every human being has goals that are transcendent," says James, who prides himself on his firm's concern for customer satisfaction. "From my perspective you reach them in business by creating a place to work with a unique culture and response to whatever needs are being served. That has always been my goal here. And it transcends economic considerations because along the road you can either run a business and have more money than you need, or you can sell the business and recognize a lot of capital. For some time, selling the business has not been an issue with me."
What really charms hard-boiled Wall Street, though, is not how Raymond James mollycoddles its customers, but how it kicks butt in the investment world. The company estimates revenues at $850 million for fiscal 1997, which ended on the last Friday in September. That's just under one-third the estimated 1997 revenues of San Francisco's giant Charles Schwab, the biggest independent U.S. brokerage outside New York, and the 24th largest securities firm in the world, according to Dow Jones. Raymond James' revenues were only $286 million when Florida Trend profiled the firm in 1991.
Of all places, St. Petersburg
Since then, profits have grown more than threefold to an estimated $85 million for fiscal 1997, fueled by a tremendous expansion of the firm's marketing of stocks and bonds, mutual funds, variable annuities, investment partnerships, insurance and a host of asset management, financial planning and banking services, including, most recently, mortgage loans. "We've done three times as much business in the past six years as we did in the entire first 29," says Francis S. "Bo" Godbold, the firm's president, shaking his head in wonderment.
How do you build something like that in - of all places - St. Petersburg? This isn't Miami or Orlando, and it certainly isn't Jacksonville. And it's hardly the dream destination of hotshot Harvard Business School MBAs.
At least it wasn't until Robert James, HBS class of 1941 and Thomas James, HBS class of 1966, willed it to be. By all reports, Bob James was charming, affable and driven to succeed. Son Tom was abrupt, intense and driven to succeed. Both men shared a passion for the securities business and, it turns out, both had the wit and gumption to make the most of opportunities that came their way.
The elder James, who died in 1983, started the firm as Robert A. James Investments, selling mutual funds. His pitch, if that's what you'd call it, was to pepper clients with questions whose answers were as edifying to them as they were to James. "What are your financial goals?" he'd ask, "what are your plans for your estate?"
Realizing that mutual funds didn't fill the bill for all of his clients, Bob James joined the old Philadelphia-Baltimore-Washington Stock Exchange to execute orders for stocks and bonds (the firm was to join the New York Stock Exchange in 1973). In 1964 he expanded into the Bradenton-Sarasota area by acquiring Raymond and Associates when its owner retired, renaming his firm Raymond James & Associates.
In 1966, Raymond James embarked on the path that would take it to the big time. Tom, then 24, joined the firm, bringing to the table his fascination with corporate finance and the business of raising capital for companies. Soon, the firm was handling private placements of debt and equity offerings for small local businesses. And Tom, who became CEO in 1969 when his dad moved himself up to chairman, was beginning to attract fellow Harvard MBAs into the firm.
One of James' early recruits was a self-confident South Carolinian, Bo Godbold, HBS class of 1969, who wanted no part of New York and was seeking to work in the Southeast. He was later to manage the firm's first public underwritings and has been its president since 1987. "I was attracted to Tom by his intellect and his drive," recalls Godbold. "I was attracted to the person. And I was full of piss and vinegar. I thought we could build a business purely on energy and intellect."
Kept his cool
They suffered their share of setbacks, particularly in the 1970s when Wall Street back-office problems followed by a market downturn destroyed hundreds of less-determined companies. More recently, there was the departure in 1994 of Herbert E. Ehlers, former president of the firm's Eagle Asset Management subsidiary, who left to set up his own firm. As is typical when good money managers leave, he took plenty of customers with him, and Eagle lost $4.3 billion in assets. "But they've done okay by Ehlers," says Michael A. Flanagan, of Philadelphia's Financial Service Analytics, an expert on publicly traded brokerages. "The original deal with him was set up with the possibility of his exit in mind."
Ehlers' departure terms provided for Eagle to receive 50% of the revenues from its former accounts for five years without bearing any of the expenses. When Ehlers sold his firm to Goldman Sachs earlier this year, Eagle received a $30 million settlement for its remaining interest in his revenue, and by then it had replaced most of the business it lost. Through everything, it seems, Tom James has kept his cool. And he has also kept alive the idea of Raymond James as a corporate family in which kids who are brought up right, do right. It is a background that has infused the entire company with a conservatism virtually unique to the securities business. For example, Raymond James may go head-to-head with the top guns of the financial world, but still refuses to peddle to retail customers products the firm feels aren't suitable for the proverbial purple-haired little old lady. Among things Raymond James won't sell to small investors are commodities and futures trading contracts, blind pools, in which money managers gather funds before knowing what they will invest in, and low-priced, thinly traded over-the-counter stocks.
To reach his goal, James says, "you've got to walk the talk." His customer-first message gets out when the firm fires salespeople who are doing lots of business for the firm, but not making their customers any money. The message also gets out when its employees spend hundreds of hours and thousands of dollars on something as mundane as trying to create the industry's best customer account statement. That project has been so successful that the firm's brokers now use the statement as part of their sales pitches to prospective clients.
It all amounts to a business model unique among large firms and one that might make a fascinating case study for Tom James' alma mater. "Raymond James," says Flanagan, "marches to its own drum in an industry that can be characterized by lemmings."
Much of this is probably news to people who don't follow the securities business. Partly that's because Wall Street persists in labeling Raymond James a "regional firm." This jargon, ever so subtly evocative of hayseeds and cow pastures, was invented long ago as a put-down of New York's competitors beyond the Hudson River. (Nobody ever heard a Wall Street-based firm, even a small one, dubbed a "regional broker.") Many Floridians would probably be surprised to learn that Raymond James does a nationwide securities business through 1,100 offices, far more than most other firms. Mighty Merrill Lynch has 680, and Charles Schwab just 250.
At the core of Raymond James Financial are three brokerage subsidiaries, Raymond James & Associates (RJA), Investment Management & Research (IM&R) and Robert Thomas Securities. RJA is the direct descendant of Robert James' original firm. The firm managed the largest equity underwriting done outside of New York this year, a $475 million offering of the stock of CHS Electronics of Miami. No country bumpkin, RJA sold nearly 20% of the shares to big institutional investors overseas through Raymond James Financial's European offices. Backing up the firm's investment bankers is one of the largest and best research departments in the country, one that perennially places at or near the top of the lists in the Zacks Investment Research - Wall Street Journal survey of brokers' stock-picking prowess.
Distinctions begin to blur
Unlike RJA, or most other firms in the securities industry, IM&R and Robert Thomas Securities (named for Tom James and his father) do not employ brokers. They sell brokerage and other financial services to local independent stock brokers and financial planners around the country who run their own businesses. These customers, some 2,300 in all, include broker-employees at other firms, as well as former RJA employees who have decided to go out on their own. Among the services IM&R and Robert Thomas sell to their clients are execution of securities trades through RJA, the preparation of customer statements, investment research, participation in RJA underwritings and much, much more.
Traditionally, IM&R's business has been to sign up financial planners while Robert Thomas went after stock and bond brokers. But now distinctions between the two firms are beginning to blur as brokers and financial planners become more alike.
For example, Robert Thomas has developed an innovative method of selling brokerage services to banks using financial planners. The idea is to provide a turnkey securities business to smaller banks in the $100 million to $1 billion asset range. Since the banks themselves may have no expertise in the business, Robert Thomas finds suitable financial planners for the banks to hire, and the planners, in turn, steer client business to Robert Thomas. Thanks to such referrals, Robert Thomas now does business with 145 banks, and counting.
Success in marketing services to its independent broker-customers is literally the life's blood of Raymond James. It has enabled the firm to acquire a tremendous distribution network for its many financial products, and all of it with virtually no capital outlay. The ability to expand using someone else's capital has been a major factor in keeping the firm's overhead costs down and profits high.
One of the questions that all the takeover speculation brings to mind is what provision Tom James has made for succession. The question of his immediate backup was settled long ago by making Godbold president. Godbold says matter-of-factly that his appointment, "really was to cut short any speculation as to what happens if Tom dies or gets run over by the proverbial truck."
James' designation of his backup was a matter of good management, but there is another consideration, as well. He makes no secret of his history of diabetes, and while he carefully watches his diet, he shows no outward signs of the illness and proudly says he's never missed a day of work. An avid tennis player and golfer, the lean, trim James could be a poster boy for his company's stated ethic of "work, work, play" in contrast to the "work, work, work" philosophy at other companies.
As to who will succeed James on his retirement, there appears to be no heir apparent, and no immediate need for one. "I'm still having fun doing this," James says, "and as long as I'm still having fun, I'm going to continue doing it." Still, several of the firm's key managers are, like James, in their 50s, and the transition to a younger management team has already begun. Godbold, 54, who long led investment banking, has turned over those reins to 38-year-old Jeffrey E. Trocin, who heads up the firms newly formed equity capital markets group. James has two sons, Courtland, 23, and Huntington, 29, both of whom are in the securities business. Huntington, a member of Raymond James' board of directors, works in the firm's syndicate department. Court is with Montgomery Securities in San Francisco. But whether either of them ever succeeds his father is an open question.
"As a practical matter," says James, "if I am directing (the selection of my successor) I am going to choose somebody that I think can run the company in a way that is best for its employees and clients. And neither of my sons is old enough or seasoned enough to be ready to take on a responsibility like that."
He acknowledges that after he is gone, his sons, through their inherited stock, will be in a position to name anyone they want as president. But, as a practical matter, they might not choose one of themselves. "I don't know that I would be the one to run it," says Hunt James. "If I felt I was the absolute right person for the job, I'd do it, but we've got some great people here." Adds Court: "I think about being chairman and I don't want to say it's never going to be me. But I am a young person and my experience is nowhere near what would qualify me for that position. And I don't know that it ever will be."
Clearly, regardless of who ultimately succeeds James, the firm will never be the same from that day forward. James seems not so much a father figure as an admired older and wiser brother, one who is ahead of everyone else in maturity and intellect, but who, nonetheless, remains a friend, bullying no one and trying to lead by example. At a recent Monday morning department head meeting, James delivered a three-minute talk on cost control, going over company policies well-known to everyone in the room. "It sounded like a general reminder," James said later, "but one of our managers is opening an office someplace, and they are trying to open it in too expensive a fashion. I was telling that person, ?I better not have to come to you and talk about this, because then I don't think you will be doing your job.'"
A visible reminder of James' restless intellect is his collection of paintings, graphics and sculpture at the corporate headquarters. Begun in the late 1950s, it is extremely eclectic and includes more than 800 pieces, requiring the oversight of a curator. James personally owns 90% of the collection, which ranges from Miro, Dali, Calder, Lichtenstein and Warhol to Southwestern art and works by local St. Petersburg artists.
One thing Tom James hopes to do before he retires is to complete a bit of unfinished business going back to the birth of Robert Thomas Securities in 1981. Robert Thomas is often described as Raymond James Financial's discount brokerage subsidiary. It isn't. But given the huge popularity of discounting today, James sure wishes it were. Why it isn't is the story of one of James' biggest goofs.
Back in 1981, when the charging of cut-rate commissions on securities trades was still relatively new, a broker approached James with the idea of opening a discount office in Milwaukee. "We opened it," says James, "and it was very successful." So successful, in fact, that James decided to create a discount subsidiary and expand the business. That subsidiary was Robert Thomas Securities. By a quirk of fate, which seemed lucky at the time, several brokers shortly joined Robert Thomas from another discounter. The crew James took on were really salesmen at heart. "What happened," says James, "was as you put these salespeople in a situation where they were paying their own costs they gravitated away from discounting."
Embarrassment of riches
Having come to a fork in the road, Robert Thomas followed the lead of the salesmen and abandoned its discount approach. The end of this story, however, is yet to be written. "I often say, ?Gee whiz, maybe we could have become a Quick & Reilly or a Charles Schwab,' because we had the technology and were early in the game," says James. "I still think we could go into this business. Because I'm so curious and have experimented with new forms of distribution, I've always been tempted to do this."
If the firm does try to get back into discounting, it likely will not be in the U.S., according to James. "You may find us actually doing this first in India or South Africa or Europe or someplace where we have no retail sales force that would be impacted by it." In addition to its European offices, the company presently has joint ventures with institutional brokers in India and South Africa.
Discounting may not be the only form of expansion in the cards for the firm. "Our geographic distribution in Raymond James & Associates is certainly not complete," James says. And he has Godbold out scouting for potential acquisitions. This is good news for Jeffrey P. Julien, the firm's vice president for finance, who is almost embarrassed by the huge hoard of the firm's ready cash, about $100 million, he has sitting in low-return, short-term money market instruments. Julien has one consolation, however. Raymond James is so filthy rich it is able to finance out of pocket change the construction costs of a huge expansion now under way that will almost double the square footage of its office complex on St. Petersburg's Carillon Parkway.
"The only reason we haven't made acquisitions," says James, "is that we are very conservative on pricing. We want to make sure the chemistry is right. And," he adds, "until the banks get out of the way overpaying for everything, it's unlikely that we'll be buying anything substantial."
Then the hunted becomes the hunter.