Raymond James CEO Paul Reilly

Raymond James Financial (RJF) said it had net income of $106.3 million, or $0.73 per share, in the period ending Dec. 31, down 16% from the year-ago period. Net revenues of $1.27 billion improved 2% from the prior year. Both results, however, missed analysts’ estimates.

Weakness in the most-recent results, the company says, was mainly due to lower assets in fee-based accounts at the start of the quarter as a result of earlier equity market declines, along with “an extremely challenging environment for equity investment banking.” Also affecting net income were expenses related to growth, as well as higher increased reserves for legal and regulatory matters in the Private Client Group.

“While we continue to benefit from very strong financial advisor recruiting and retention results, several factors impaired our financial results in the December quarter,” said CEO Paul Reilly, in a statement. “Nonetheless, our long-term results should benefit from the recent rise in short-term interest rates as well as the quarter-end records we achieved for client assets under administration and net loans at Raymond James Bank.”

Private Client Results

Quarterly net revenues for the group were $872.3 million, up 3% from a year earlier. Quarterly pre-tax income of $69.1 million, however, was down 25% year over year.

Private Client Group assets under administration topped $473 billion, up 3% from December 2014.

The number of financial advisors affiliated with or employed by Raymond James hit 6,687 in the United States and overseas, increases of 351 over December 2014 and 91 over September 2015. The number of independent reps is 3,916, with the remainder being employee advisors.

“The segment’s pretax income in the quarter was negatively impacted by the sequential decline in revenues and by expenses associated with strengthening the technology platform and recruiting financial advisors,” the company said in a press release.

Assets in fee-based accounts grew 9% year over year and now represent more than 40% of the group’s total client assets, or about $190 billion.

During the quarter, Raymond James announced that it is acquiring the U.S. Private Client Services unit of Deutsche Asset & Wealth Management. The unit includes some 200 advisors with $50 billion of client assets. The transaction is expected to close by Sept. 30, and the advisors are set to do business as the Alex. Brown division of Raymond James.

“Our continued success recruiting and retaining financial advisors reinforces the appeal of our unique, client-focused culture and our robust platform,” Reilly explained. Raymond James executives “have already met with the vast majority of the advisors and are extremely impressed by their professionalism, experience and similar values, including their commitment to putting clients first.”

Other News

The company’s capital-markets group had quarterly net revenues of $226.5 million and quarterly pre-tax income of $25.2 million.

It also reported “strong fixed income results in a difficult market environment;” institutional fixed income commissions of $71.6 million increased 12% from the prior year and 3% from the earlier quarter.

Net trading profits expanded 150% over the prior year’s results and 36% over the preceding quarter. On the other hand, the unit experienced weakness in both equity underwriting and M&A revenues of 47% and 35%, respectively.

“Due to various market factors that negatively affected equity investment banking activity, the firm’s investment banking revenues in the quarter dropped to $57.6 million, which represented the weakest result since the March 2013 quarter,” the company explained in a press release. “The challenging new issue environment also contributed to a 15% annual decline in institutional equity commissions during the quarter.”

Asset-management revenues were $100.2 million with quarterly pre-tax income of $33.4 million, down 16% year over year. Financial assets under management of $67.9 billion, though,jumped 2%.

Raymond James Bank had net revenues of $108.4 million, an increase of 8%, and quarterly pre-tax income of $65.9 million, a jump of 2%. Net loans grew 16% year over year to $13.7 billion.

“Although our financial results in the December quarter were negatively impacted by several factors, we continue to be pleased with the growth of our key business drivers,” said Reilly. “Unfortunately, our financial results are expected to continue to be adversely impacted in the March quarter by recent equity market declines coupled with seasonal factors that are expected in the first calendar quarter. However, our future results should be augmented by the recent increase in short-term interest rates along with the continued increases in client assets, financial advisors and loan balances at Raymond James Bank.”