Stay Strong

REVIEW SUMMARY
Who. Thomas A. James
Role. Executive chairman of Raymond James Financial Inc. in St. Petersburg
Leadership. Financial Services Roundtable, Securities Industry Association, Florida Security Dealers Association, Florida Council of 100, United Way of Pinellas County, Salvador Dali Museum
Key. Maintaining individualized service to financial clients as the company continues growing
By the numbers. Click here for more information on Raymond James.

Had things turned out a little differently early on, Tom James might have ended up playing to crowded football stadiums rather than putting his company's name on one.

Back when he attended Harvard in the early and mid-1960s, he managed and played in several rock bands around the Boston area. Having spent so much time lining up college campus gigs, it's a wonder he was able to complete the business education his father sent him up there to get.

“It was too difficult to keep that going,” says James, who still plays occasionally with bands in the Tampa Bay area and owns 13 guitars. Ultimately, he completed his studies and returned to his hometown of St. Petersburg, becoming CEO in 1970 for the company his father co-founded, Raymond James & Associates.

Forty years later, James has relinquished those duties yet remains in the role of executive chairman with the Raymond James Financial Inc. company he several fold over the years. He still shows up to work each day at its Carillon headquarters and takes the job as seriously as a “Free Bird” six-string solo.

“In today's world there's a plethora, almost an overabundance, of information for people to process and make wise decisions,” says James, who started with the company after getting his MBA (with honors, no less) from Harvard in 1966, when the Dow Jones Industrial Average was below 1,000. “I'd say when I began we operated on a shortage of information. Now it's really too much.”

Having posted nearly $3 billion revenue in its latest fiscal year, including a record-setting $748 million in the fourth quarter, Raymond James remains on a strong track for growth as the economy recovers. The company employs more than 5,300 financial advisors, primarily throughout the United States but also in the United Kingdom, Latin America and Europe.

“We probably have room to grow that to 9,000 or 10,000,” says James, who started with a sales force of only 50 when he became CEO. “We want to continue to focus on individual clients. It's always been the main driver of growth at the firm.”

Buying rather than selling

While speculation has run rampant in recent years that Raymond James would sell to a larger brokerage, the $4 billion company is actually in buying mode. Paul Reilly, who succeeded James as CEO in May, told investors at a Dec. 8 conference in New York they are considering “half a dozen” potential acquisitions, according to a Reuters report.

“We're continuing to fill the holes in our business lines,” Reilly says. “We talked about making a niche acquisition in the international large-cap business.”

James previously said during an Oct. 21 earnings call that the company is seeking smaller firms that would add value and enhance its asset management capabilities, adding: “We don't rely on external acquisitions to affect growth.” Raymond James' last purchase was Lane Berry & Co. International LLC, an investment banking firm with offices in Boston and Denver, in May 2009.

Raymond James itself started as two companies. Robert A. James Investments was established in 1962 offering financial planning mutual fund sales, then merged with Edward Raymond's firm two years later.

Raymond James & Associates eventually became a subsidiary, with the parent company also including a financial services segment and the Gulf Coast's largest locally based bank. Now with more than $11 billion in assets, Raymond James Bank has a physical office at Carillon but virtual branch operations within its 2,300 brokerage locations worldwide, with as many as 1.9 million customers able to open full-service deposit accounts and get loans or mortgages.

“I would say it's an outmoded concept to look at us as a Tampa Bay regional bank. We're really a national bank,” James says. He adds, though, that it is considered a community bank under the Community Reinvestment Act and federal banking regulators need to change those standards.

No avoiding the real estate mess

Despite its unique structure, Raymond James Bank didn't avoid all of the trouble with real estate loans that most other banks along the Gulf Coast and nationwide are still working through. James points out the bank steered clear of the residential condominium boom, knowing that segment was overbuilt.

It chose instead to finance some real estate development, but only at a 50% loan-to-value ratio. “We still lost money on some of those loans,” James says.

Steve Raney, president and CEO of Raymond James Bank, says it may have seen a peak in non-performing loans and assets. “We are seeing an improvement in credit quality,” he says, adding that the bank recently paid a $75-million dividend to its holding company, a testament to its capital strength.

Beyond banking and other financial services, Raymond James' biggest selling point to investors — be they individuals, corporations or municipalities — is deeper guidance. With the Dow now around 11,000 and reliable information exceeding bandwidth, it can be difficult for investors to keep up even if they have all day to monitor their portfolios.

“I would liken our business to a general practitioner with a lot of specialist support,” James says. “All of our financial advisors can draw upon all kinds of expertise at the firm.”

Having lived and worked through various market downturns, starting with the 1970s recession that lasted into 1982, James says it was imperative that his company's financial advisors maintained discipline with clients who watched their nest eggs dwindle through 2008 and much of 2009.

“The vast majority of our clients stayed committed to the asset allocation models that we established with them,” he says. “I'd say 85% of the losses that were accumulated were actually recovered in the latter half of 2009 and 2010.”

Surviving financial fallout

What was even scarier, however, was the prospect of major financial institutions disappearing, James says. For a brief time in September 2008, Raymond James became the nation's largest investment bank by default following the collapse of Lehman Bros. and before Merrill Lynch was taken over by Bank of America.

While Raymond James didn't receive any funding under the Troubled Asset Relief Program at the time, James says the move was necessary to save the financial services industry overall. He points out that the major investment banks that did receive TARP funding paid it back with substantial dividends and interest.

“We actually benefited from the times because people recognized our stability and our financial soundness,” he says. “We suffered from what was going on around us just like our investor clients did. The frightening thing in managing the business was knowing whether your counterparties on your transactions survived.”

James and Reilly both credit their people with helping clients, and the company overall, succeed. In turn, Raymond James employees gave their firm a 94% approval rating as the nation's best brokerage to work for in a survey by Registered Rep magazine.

Reilly, who is expected to eventually succeed James as chairman (as Tom James did when Bob James died in 1983), says the company has been successful in recruiting financial advisors, investment bankers and other professionals during the economic “tsunami” of the last few years. That bodes well for the future of Raymond James, whose continued expansion includes the opening of a public finance office in Houston earlier this month.

“The economic recovery has been erratic, but shows signs of slow growth,” Reilly stated in the company's full-year earnings report. “Although the outlook is uncertain, we remain optimistic that as employment begins to increase and investor confidence in the equity markets returns, Raymond James will continue to prosper in 2011.”

Tom James, in his own words

When you're head of one of the largest publicly traded companies along the Gulf Coast, you can pretty much express an opinion on any subject — and Tom James certainly does. The longtime chairman and CEO of Raymond James Financial Inc. is highly sought after as a featured speaker by local and national business groups.

The following are a few of James' comments during a recent interview with the Business Review.

TARP funding: “If we had not had TARP, we wouldn't have financial markets now. It would have taken decades to re-establish sound management. Virtually every major institution in the United States would have failed. It's when they spread it to other uses (the auto industry, for example) that any loss potential was encountered.

“The press and the populists thought they were throwing money down a rat hole. What they were doing was saving the system.”

Financial industry aftermath: “I found it obnoxious that we had so much ignorance involved in so many professionals in the financial industry, when in fact the politicians and the public were misled. On one hand, the administration would talk about how they had to save the institution, then in the next political commentary they would denigrate and demean them for getting into trouble.

“I'm not saying they didn't deserve criticism, because a lot of them did, but they did it for the whole industry. The fact is there were a lot more companies like us that were doing just fine, thank you, and were surviving. We never had an unprofitable quarter the entire time.”

Investing in Florida: “I actually think the venture capital industry is supplying adequate capital for companies that are worthy of those investments in Florida. It's wrong for the state to get involved in that — all they do is lose their money. They're doing it more intelligently now, they are giving that money to the professional managers of venture capital firms that actually make investments in Florida and the Southeast.

“We have a company that does that, called Ballast Point Ventures, and I think they're doing a good job of finding companies in the Southeast to invest in. Since we're in Florida, we see most everything that's available here.”

Improving the state economy: “The best things we can do are improving the quality of education so that we generate more engineers, more medical researchers. State-of-the-art employment is what we need to invest in now. The government can affect that. They need to free up institutions to do more in those areas and direct them to do that by how they channel their funds. That's a longer-term solution, but it's very important.

“All of these strategic partnerships that were set up by (former governor) Jeb Bush to bring in medical facilities, and the kind of work USF is doing, is all very good. That's where we can make the most impact in my view.”

Recovery outlook: “I think we have a solid foundation for a very slow recovery. When you look at it in the broader perspective of time, it was actually a short interlude, perhaps not as short as 1987 or 2001-02, but it was very deep. Recoveries can take a long time, especially when you do this much damage.”

What's in a (stadium) name?

Raymond James Financial Inc. has been in existence for almost a half-century, yet was less likely to have been heard of across the country until 1998, when the St. Petersburg financial services company agreed to stamp its name on Tampa's new publicly funded football stadium. Tom James and his board of directors agreed to put up almost $60 million over 18 years for naming rights to Raymond James Stadium, including a $3.6 million payment in 2011.

The returns on that investment are immeasurable, both in terms of brand exposure and impressions on potential clients of all types. Tampa Bay Buccaneers and South Florida Bulls fans know the name, as do music lovers: U2 played a sold-out concert there in October 2009, and Kenny Chesney is set to play this March.

The stadium, nicknamed RayJay, also has been the venue for two Super Bowls, in and 2009, with a possible third being pursued for 2015. The Outback Bowl provides additional national exposure every New Year's Day.

“We got $35 million in advertising value from the last Super Bowl,” James says. That's likely a better bang for the buck than Raymond James' various commercials on national cable networks and in The Wall Street Journal. The company launched its “Life Well Planned” campaign this past fall.

Whether it extends the current naming rights deal remains to be seen, though company executives have until 2016 to decide. It isn't likely any other locally based corporation will block.