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Raymond James Financial
A Stock and a Hard Place
St. Petersburg brokerage Raymond James had virtually no exposure to the subprime mortgage market. Try explaining that to investors.
James may get the last word yet on the subprime debacle — he’s currently chairman of the Financial Services Roundtable, a trade group that represents 100 of the nation’s largest integrated financial services companies, which gives him a powerful pulpit for his views.
James wants a change in regulatory oversight of U.S. financial institutions — a move he says is key to maintaining the safety and soundness of the system. Among his suggested reforms: A central regulator that would monitor financial services firms the way the Federal Reserve monitors U.S. banks. “It needs to have access to the financial condition at all times of these vast financial services companies ... to see that they’re adequately capitalized and in good shape, and if they’re not, they need to take appropriate action just as they would with the bank.”
He also favors regulating the kind of leverage banks may have — not necessarily just in terms of quantity, but also by type — and developing a working group composed of regulators, financial experts and representatives of the industry who would have open discussions about risk and conduct strategic planning to head off potential problems in the financial system. He realizes that such changes may be big pills to swallow for some in his industry but suggests that the stakes are higher than a failed brokerage or two. Ultimately, he says, it’s a question of whether the U.S. wants to remain globally competitive. “The marketplaces here have traditionally been the largest in the world, but they won’t be if they don’t stay state-of-the-art.”
The U.K. markets, he notes, have attracted “a lot” of the recent international stock listings amid the economic turmoil in the U.S. “God forbid that the standard currency for the world is the yuan or the euro. There’s no excuse for us ... that will mean we have lost the position as the strongest economy in the world. Unless we do these things, we’re going to lose it.”
Raymond James’ stock price, meanwhile, has rebounded in recent weeks to nearly $30, a development that James feels is beginning to vindicate his strategy. “We’ve been fortunate,” he says. “For the first time in 15 years, we are rewarded for having a conservative business approach.”
Old School |
Bank loans comprise
a small percentage
of Raymond James’
overall financial activities
— most of the 5,810
loans in the company’s residential loan
portfolio today were purchased from a
variety of outside institutions. Even so,
the company requires the same strict
underwriting criteria that Raymond
James uses when it originates loans. In
addition to requiring full documentation,
Raymond James abides by a maximum
debt-to-income ratio of 45%. With
jumbo loans — mortgages valued
above $417,000 — the firm examines
the applicant’s cash reserves and ability
to make payments. Raymond James’
borrowers have good credit: Around
80% have a credit score above 700, with
its average score being 749. The firm
counts very few of the riskiest mortgage
borrowers — investors — in its portfolio.
Owner-occupied homes, as well as a
small number of vacation homes, make
up the vast majority of loans.
