Good morning, and welcome to the Earnings Call for Raymond James Financial Fiscal Fourth Quarter and Fiscal Year 2014. My name is Felicia, and I will be your conference facilitator today. This call is being recorded and would be available on the company's website. Now I would like to turn the conference over to Mr.

Paul Shoukry, Vice President of Finance and Investor Relations at Raymond James Financial..

Good morning, and thank you for taking time out of your busy schedules to join us this morning. We certainly do not take your time or interest in Raymond James for granted, so thank you. After reading the following disclosure, I'll 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 & regulatory developments or general economic conditions.

In addition to words such as believe, expect, anticipate, intends, plans, projects, forecasts and future and conditional verbs such as will, may, could, should and would as well as any other statements that necessarily depends on future events or intended to identify forward-looking statements.

There can be no assurance that actual results will not differ materially from those expressed in 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, 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're not going to go through them all. Hopefully, I'll try not to use the word through them all. 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 of fully diluted, $3.32 a share.

Those are all records for us. And the September quarter, $1.29 billion of revenue, up 6% over last year. I mean, sequentially. Net income, $136.4 million, up 11% sequentially and $0.94 per fully diluted share.

So our record annual net revenue for all 4 segments, we all -- 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 4 segments and a record pretax in 3 of the 4 segments, except for the bank, which had really a second best year and very good performance.

So 12.3% ROE to our shareholders on an 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 advisers 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 an easy firm to run and hit -- point it in the right direction as people have executed extremely well. I'm going to talk for a few minutes about the segment and then Jeff Julien is going to go over 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, our great recruiting is driving that, and our client-pricing initiatives all at it. And Jeff is going to add some commentary especially for the quarter on IT and fees, which certainly helped the numbers.

IT may well be a little bit more temporary help for the quarter as we're in transition between projects, and our new fee schedules also would have some adjustments on an ongoing basis. Private Client Group asset is up $450.6 billion. It's up 11.9% for the year, down slightly for the quarter. And I'm going to address that a little bit later.

Advisers now stand at 6,265. We're always proud when we have robust recruiting, but the key for our firm is retention, as we focus every day on retention of our great advisers. That's been the key to our financial success. We reached the 10.1% marked target -- we beat the 10% target margin for this segment.

Both divisions, RJA and RJFS, our employee and independent advisers, performed very well; and also our IRA division, which we've started to aggressively roll out is showing promising recruiting results. Capital Markets, a big story for the quarter, $263.6 million, 9% over last year's quarter, 11% sequentially up.

Our record pretax profits of 39.5% for the quarter, down 2% really from last year's quarter, which is 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 is really strong in 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 that brought 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 margin. 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 on a very tough market. Public finance continue to grow in recruitment builder 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. It's a very strong performance. The AUM year-over-year is up 15.4% and down slightly this quarter.

I know people that had questions on flows, but when you really look at the net flows, we're up 7.7% for the year. That's 15.4%.

If you look at the quarter, although the S&P was somewhat flat, the small-cap in 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. RJA Bank. Revenues are $93.1 million 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 a 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 through the year, we almost had a 27% drop basis -- point drop in the NIM.

The good news, it looks like the NIM has improved this quarter, and Jeff's going to comment on that a little bit. Credit metrics continue to be strong and improved. All in all, quite a year, quite a quarter, and I want to congratulate our team. And now I'll turn it over to Jeff Julien.

Jeff?.

Thanks, Paul. Given that it can be a little bit difficult from that segments to line items, we started the practice now of me actually walking through some of the line items, and I'll comment on some of the factors within those line items and kind of give you our take on or feel for those line items going forward as best as 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's been going, that would be wonderful. Also, the recent volatility, actually both in interest rate 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 certainly seen some to start this current fiscal year. Paul has talked about the very, 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's a reasonable baseline for looking forward and 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's nice to see it surpassed $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 of quarters about how NIM was -- the NIM compression was slowing down and, I guess, I'll go and stick my neck out a little bit and say it looks like it's 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 for our investments of the bank to work in the loans, and -- but around all that, there truly was some net interest margin improvement in the outstanding portfolio of about 4 basis points, and we have made a comment in the press release that it appears that new productions being done at higher levels, and I can certainly attest to that as part of the Loan Committee.

So looking what's in the pipeline, it looks like we're off the bottom there. Going forward, we're not projecting a dramatic rebound in net interest margin. We are projecting some pretty healthy loan growth, and I'll let Steve Raney, who's 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're not projecting any interest rate hikes either this year. Account and service fees, I think caught everybody a little bit offguard in terms of the 10% sequential growth throughout $112 million for the quarter.

Some of that relates to, I guess, I'll have to say some sort of some catch-up entries as we negotiated some contracts, we brought in some outside assets under the billing process and things like that.

Some of it actually relate 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 the time. So in terms of our 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.

We talked about trading profits. The only thing I'll 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've been pretty steady at that $14 million, $15 million per quarter rate.

So that's, again, given the market environment, that's a pretty good accomplishment. Other revenues, 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 hit the 67.7% for the fourth quarter, and we actually end up with 68.1% for the entire fiscal year. I don't know that we're 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'll be -- see some margin improvement. Paul mentioned the 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 of months. So we did see -- and some of the projects we completed that we've been working on now hit the capitalization phase. That's a little bit hard to predict.

So while we think the mid-60s number we've been guiding you to is probably still right on an annual basis. It's a little bit lumpy.

It's not always going to be a consistent number, so we're still sort of expecting that run rate spend -- it was $63 million per quarter this year and $64 million for the quarter the year before that, so I think that, guidance-wise, we still think that we'll average that.

We certainly are not going to abandon our investments we're making in technology to help support our financial advisers. The bank loan loss returned to what I'd 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's not a whole lot of additional credits to be gained from credit improvement. There's still some but we're -- we would expect a more normal 130 to 140 basis point charge on loan growth for the next year.

The other expense line item, there's 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's 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'd say that we're still probably at 37% to 37.5-somewhere-in-that-range percent taxpayer in a flat market environment given the various factors that we have that impact our rate.

In an upmarket, I think you can sort of assume that rate's going to be 100 to 150 basis points better with the corporate-owned life insurance swing; and that 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 of other factors, we did, did a 13.4% ROE for the quarter and 12.3% for the year. I'll 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 a more normal interest rate levels. Shareholders' equity got to $4.1 billion.

That's up 13.1% over last year, notwithstanding the almost $100 million et cetera that went out in dividends. And I will lastly mention our leverage ratio, which actually has improved, as simple assets to equity leverage ratio was 6.3 a year ago, and now it's down to 5.6.

And those factors have continued to drive a very positive regulatory capital ratios as well. So all looks very strong on that front..

Okay. Thanks, Jeff. Just the outlook Jeff kind of touched on our go-forward PCG building starting in the quarter. I think the key for this quarter is volatility, and certainly, as asset levels stayed down, they've recovered and that's where they're heading now.

It'll affect next quarter, but the volatility has opened some of the trading side, as you know, a big chunk of our Private Client Group is fee-based. The recruiting pipeline is still very, very strong. We're hoping to surpass last year's recruiting.

From a goal standpoint, this last year was our second best year ever to '09 when there's kind of a slight -- some, yes, certain players that were in the paper, certain that weren't and we were certainly beneficiaries of that.

But our recruiting pipeline stays very strong, and also for a very high producing advisers both in terms of assets and revenue, with multi-million dollar team visits are common every day here now.

And we'll continue to focus recruiting throughout the country, but we've expanded with particular focus out West and in the Northeast where we gained progress. Asset management. Again, assets should grow as we recruit to PCG. Market volatility may create some headwinds in AUM. Certainly, the market impacts that but we think we're in good shape.

As we've always said, we continue to look and our 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 just that $85 million average might be a number, but this was a record year for us, and you never know what 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 broaden our consumer team and expanding into another SDU as we're looking, so we're continuing to make investments and very happy with our backlog. It's strong and with our people.

But again, the market's 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 was positive on commissions, so who knows where it'll 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. Runoff has dropped from 30% to 20% and production's 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, and that'll happen near the end of the quarter. But I think you're going to see strong loan growth as a start in the quarter.

And again, I think, every time we predicted loan growth, we're -- the market changes, and the next quarter may be different, but we look like we're 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..

Yes, 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 some of the comparative factors that play into that.

If you remember, last year included about a $74 million in revenues from the sale of a private equity holding, which -- majority of which was not to our interest, which obviously impacted noncontrolling interest, but that was an item that drove that other revenues last year.

Secondly, we had that May-June muni swoon I talked about in trading profits last year, which certainly impacted that comparison. And on the expense side last year, we were still showing $73.5 million of integration costs, which we're 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, all of those out of the ordinary type factors, I think that you would say that on adjusted basis, the revenue, which we recorded an 8% increase actually increased more than that on 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 that 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'll turn it back -- we'll turn it over to you operator, Felicia, for question..

[Operator Instructions] And your first question comes from the line of Bill Katz with Citi..

This is actually Ryan Bailey filling in for Bill. My question was regarding -- I know you mentioned it. I was wondering what your outlook is for the investment banking business. We know M&A has been pretty good over the last couple of quarters.

Do you have any color into that going forward?.

I wish I did. As we said, it's the hardest one to predict. I would just say that we came off of a 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 you the average for the year.

That 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..

Sorry, if you don't mind, another question just kind of on, I guess, a different topic. Just wondering -- I know you mentioned again the asset management business kind of looking for tuck-in acquisitions there.

Do you have -- anything that you're looking at in particular? Or anything on the pipeline?.

We've been aggressively looking for 2 years, and we're just very conservative and cautious, so we've talked to lots of firms, and it's always a -- part of it's a timing issue sometimes. You like each other, and it's not the right time. Sometimes, we don't agree on the price. And if there's not a culture fit, we won't even start.

So we've been actively talking, and we don't have anything to announce. But we're -- I'm proud of the effort they're making in the market and the due diligence. When we do talk to people, it's pretty heavy. And if we find it, we'll close. If we won't, we don't.

And the ones that have been nearer term were more active than a little smaller, but that could change tomorrow, too, so....

And your next question comes from the line of Jim Mitchell with Buckingham Research..

Can you talk a little bit about -- you've noted for the last couple of quarters record recruiting, but it looks like this quarter, the number of new updates kind of slowed. Is it just sort of a timing issue? How should we think about that? Because I think as we looked at it sequentially, it was up couple -- maybe 20 basis points in terms of growth.

Do you think we should expect that to pick up?.

Yes, there's 2 pieces to it. First is it's a net number when you see it. And unfortunately, it's not just regretted attrition. I mean, some is regretted. We've had a number of deaths. We have a number of retirements as an over FA force. We do have occasional regretted attrition, although, that's low.

And we do have times where people leave the industry just because at the lower end, they're not making it, so it's a hard net number. But if you look at productivity per adviser, part of that is market driven, but a lot of it is a higher end FAs coming in. So the number is a little lumpy.

It was -- 2 quarters ago, it was really large [indiscernible] This quarter, it looks flattish. But if you average it out, I think it's pretty steady. And where people sign -- when people join us, it can be lumpy..

And would you expect, I mean, just on the flow side, it looks like obviously it's a volatile quarter in terms of the market, but if you kind of look at your fee-based assets, they did not a lot of -- it's any net inflows this quarter versus a pretty strong flows in the last few.

Is that just market volatility? Or any other color on flows?.

It's 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, you -- we got -- we'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're having good flows.

And from advisers and from productivity of existing advisers, and certainly, the market has an impact. So it's all of those that were impacting that number..

Great. Okay. All right. That's Fair. And last one for me. Just if I look at -- you guys have had very strong loan growth. You're now over the last 2 quarters, loans -- your loan-to-deposit ratio is now over 100%.

Do you -- with that dynamic, do you start to -- I guess what could strain you in terms of growing the loan book in the balance sheet? Is it deposits? Or is that not an issue? And you're just listing to keep growing?.

Our only internal -- we have 2 internal constraints. One is we don't want more than half our cash, client cash, to be in the bank, and that's not a constraint for the foreseeable future..

It's under 1/3 right now..

Which is under 1/3. We don't want to be half. We have an internal guideline, and we don't want it to be -- we're targeting them around 35% of capital, which we're at but not to exceed 40%, but the bank's earnings, 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 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, that's even throughout last year. I think every quarter the dynamics are a little different. But right now, it's in good shape..

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

Without deposits, we're....

Client cash..

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

Jim, I would also -- would just offer up that we have ample liquidity still at the bank, and we also have contingent funding sources, borrowing availability at 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 1/3 of client cash balances currently deployed in the bank..

And my 2 cents on that is we don't have a very good track record of predicting the bank growth or spreads or anything else..

For interest rates..

We've generally been on the conservative side, but we've -- that's why we -- that's where our feelings are today..

Okay. Great. And if you can predict what rates are doing, and that would be also great..

Yes. If we could do that we wouldn't be working now..

And your next question comes from the line of Douglas Sipkin with 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 were a couple of items which may start to ease in the comp ratio. Maybe it starts in '15.

Maybe it relates to a little bit lower payouts and some of the trading businesses, I mean, Fixed Income. And maybe some RSUs, which I think are done running through the system in '15.

Can you give us an update on that?.

Yes, there were 3 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's a 5-year piece that's costing us about $6 million to $7 million a year that relates primarily to the Fixed Income Capital Markets group that obviously runs through the end of March 17.

And then the third piece was the Private Client Group, which was a 7-year deal, which was costing us $18 million to $20 million a year, which obviously has only run 2.5 years of that 7-year life..

Got you. Okay.

So there's probably a touch of relief in '15 but nothing yet really major until we get a couple of years further out?.

That's probably accurate..

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

Right. Right. Okay. Great. So a question for Paul, I mean, obviously, shareholder can't complain, a 13.4% ROE and practically 0 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 acquisitions, small stuff and the asset managers, but it's 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's any change of thinking around the capital policy for you guys..

I think we're holding firm that we believe that first, we're always going to be conservatively capitalized, I hope, if something goes wrong, but that's -- so we're going to be conservative. But we have been looking and working very hard and 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. If we can't, we'll do something else with it. But we think we can deploy the capital, and -- but we're not going to close on a deal just to deploy the capital.

We've had those opportunities over the years, but if we don't think it's a good investment, we're 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'll deal with excess cash, but we don't believe we're in that position today..

Great. And then -- 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.

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've provided it before, but I think you've articulated it well at the Analyst Day, so I mean, does that -- can we think about that changing all that much? Or 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?.

Yes, I mean -- this is Paul Shoukry. While the asset levels for the client asset levels are up since we gave that guidance, if you look at the cash balances, a lot of it's 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's still pretty constant with what we told you at around $150 million pretax impact on an annual basis when interest rates rise, 100 basis points simultaneously. That doesn't change much, Doug..

Next question comes from the line of Christian Bolu (sic) [Chinedu Onwugbolu] with Crédit Suisse..

Just back to the M&A strengths. You mentioned some of the investments you've made in that business, and I appreciate it's hard to predict, but I would like some color on the backlog.

I mean, is it contrary to the certain industry verticals? And how broad-based or lumpy is it?.

Well, first, it's 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. The factors still seem good both with equity market outlook and certainly achieved financing cost for M&A.

The backlog's good, and in fairness, a lot of the activity in the segment both in underwritings and M&A was kind in kind of a life-science based this year, which we didn't participate in since we're not really in that space. So it's pretty broad across our sectors. They've all kind of contributed, and I can't say it's focused on one area.

The backlog is still very strong, and I don't think we're 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's strong, so that's good. Just a bit on Fixed Income. You spoke into one of your initiatives being driven to asset manager client base from your traditional sort of bank client base. So first, just an update on that and how that's progressing.

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

I think on both initiatives that the focus is on extending the client base, the total return client bases. It's been a focus of ours, and we're making good progress. But as a percent of our revenue, it's still small, so we're very focused on it.

And I think as we look 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 of time there, we wondered with some of the liquidity calculations based on the latest rules.

We think those business will be fine. Now I can't tell you what's going to happen to regulation day-to-day because they keep changing, but we feel good about those spaces. The thing that's inhibiting that business the most right now is rates. And most of the bank deals really aren't muni deals, so there's a lot of tax.

They were holding on the taxable instruments in our bank franchise to....

Agencies..

Agencies, particularly. So the munis distribution is really separate from the bank space..

Okay. And then just lastly for me, I guess, on regulation. I know you're not formally -- I believe you're not formally subject to kind of a set of liquidity rules at the bank or the HoldCo. But just curious if you have us 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've seen and done as we've gone forward is, if you look at our capital and liquidity position under any rules, we're still well over, so....

Even on liquidity?.

Liquidity, too. We're extremely liquid right now. So as the previous question said in excess capital, it's not just capital. It's in cash. So we're 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..

Your next question comes from the line of Steven Chubak with Nomura..

And I'm Leung for Steven. Just had a quick question. Some of the bigger banks that have reported earnings this quarter have noticed that they've seen -- given the loosening set underwriting standards, they've seen some more aggressive pricing, which has resulted in lower loan pricing.

Just wondering what you've seen that's kind of given the opposite effect at RJ bank..

Yes, we've not seen that. We've actually experienced a little bit of the opposite this last quarter.

Actually, I would say that secondary prices on corporate loans have actually come down maybe 100 to 150 basis points, and I would say that the market plays both banks and institutional investors that invest in commercial loans has been pushing back against the declining margin, and we've seen improvement in that space, not huge, but some improvements so....

And in fairness, we play in a small segment on the C&I loans with a certain credit rating and -- so they could be getting some pressure at the high end..

And the risks here are -- or the risks....

We have a very less risk within our risk less, but -- yes..

And the next question comes the line of Devin Ryan with GMP 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 on what else has changed to make the recruiting back drop so strong right now.

And I know that you guys have done a great job upgrading your technology and adviser offering over the past handful of years. So just trying to get some perspective around how much might -- maybe the environment versus how much you guys think is Raymond James specific based on what you're seeing..

I thought you said they wanted to because of us and not because of -- the -- I think honestly, you get in the momentum plays in recruiting, and there's a number of factors, it's not just one. First, I do think that our culture has been very steady, and a lot of advisers that grew up in regional firms like ours that are at the wire house.

They went to the wire houses by waking up, and their card changed. Those deals have rolled off that seat to find a place like ours, and that certainly has been a big factor.

The second piece is I think that other people did even grow up at the wire houses as many banks and private institutionalize our clients through credit and relationships and also eliminating lower accounts and putting pressure on fees and teaming with people that like their semi-independence and then grown up and looking for alternatives, and we're certainly a very, very good alternative.

And I think the other 2 factors that have helped us, certainly, our technology, which we believe is competitive with any of the big banks or custodial firms.

It's never perfect, but we think some areas we excel in, especially when it comes to the advisers' desktop that our technology is 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 a kind of renewed interest in us given our size and scope and just made us more people, more market aware. 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 too, but whether it's a good destination, and all those factors plus the 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 then where it's slows down.

Right now, it's an active time, and we're just in a great position, so we're trying to take advantage of it by just getting as many good advisers as we can during this process. We're also opening up in regions we didn't recruit in. California, it's so far away for us, and now we've got boots on the ground there in terms of management.

We're expanding it. We've increased the number of advisers by multiples, but we're still a small factor in that market. And the same in the Northeast. So we just really stayed out of New York and the employee side and surrounding areas and we've grown those businesses. So we've opened up.

I think the status are there are more advisers between the Philadelphia and Boston and the rest of the country, and we weren't active -- really active in those markets. We are now. So that's also opened up our recruiting availability. So there's a lot of things going on that is driving the number..

Okay. That's really helpful color. And then just staying on maybe the technology side. I apologize if you addressed this. But the low in technology investments within product line that you guys mentioned in the release.

Can you give any perspective around the magnitude of that? And how much that helped? And then did that imply there's going to be some catch-up -- there could be a catch-up quarter. I'm just trying to understand the comment in relation to the impact..

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 you have a consultant show-up at September 15 or October 1?" And it's not really much of what was the budget catch-up. It's not a deferral.

I think they spent their budget through the year, and I'm sure they're going to do everything they can to spend their budget this year..

[Operator Instructions] And your next question comes from the line of Alex Blostein with Goldman Sachs..

First question on the trends you guys seeing on fixed income trading. And I think you guys have done a great job on your Investor Day, a couple of 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's the shape of the yield curve for one of the level of interest rate that matters here because I think increasingly the content of the issues become the what the rates of the short end might go up a little on action that would affect yield curve, so just curious how you think your fixed income trading business aside from the trading profits fees would perform in that environment..

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

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

And certainly, if there's no volume, there is commission. So in October, we -- the early weeks, trading profits are down a little bit because we had good days and bad days, but I think well-managed.

The commission volume was way up as people looked whether it was the market or movements in -- because of changes in TIMCO and other things, there was activity. Who knows what's driving it, but volatility is a big help on the commission line and if we manage our inventories well, I think we'll do fine. So it's 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 because it sounds like it's been a fairly good lump on that front..

Yes, the front end was very, very good. So we'll see where it settles out whether it will continue. Now again, if rates stay flattish and nothing moves and there's no market for us, I think you're going to see a slowdown in commissions where people are just waiting again. So they like volatility.

And the trading businesses, the sales businesses all like volatility. The same with equities. They like the volatility. It's 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 will be helpful.

If you look at last year, I think we really didn't have much..

Yes, makes sense. And my second question was around the asset management business. Just looks like you guys obviously don't break out the net flows in that $60-ish-or-somewhat billion number, but it sounded like -- it looked like you're just backing up 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 can talk a little bit about the source and your outlook for flows and 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 and the asset management business is again, even though the S&P was flattish, small caps were down 5% depending on how you measure it and we've got and equal especially the large concentration of small caps. And mid-cap, good product, but that's in international, and those products weren't in favor.

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

The asset management segment, the internal part has been very strong because of recruiting, so just to get more advisers. Those advisers choose to put some of the assets on our platforms and that grows. So we're not negative on it even though it was again choppy at the end there because of small caps..

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's great to have that you're in. We got about 5 minutes of celebration and then go on to the next meeting. We keep operating the company. So thanks for your support. We're focused on our continued growth, and appreciate you being on the call..

Thank you, and this concludes today's conference call. You may now disconnect..