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Legal expenses weigh on Raymond James


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Legal expenses weigh on Raymond James

Elevatedlegal expenses are making it more challenging for toachieve its pretax margin target.

RaymondJames CFO Jeffrey Julien said the company's legal and regulatory expenses were elevatedby about $10 million during the fiscal third quarter. Raymond James' non-GAAPpretax margin was 15.6% for the fiscal third quarter and 14.8% for the firstnine months of its fiscal year. Julien noted that the company has a non-GAAPpretax margin target of 16%.

"Wewould've been close to that potentially without some of these abnormal expensesin legal and regulatory," he said during Raymond James' July 21 earnings conferencecall.

Juliensaid a settlementwith a Vermont regulator drove the fiscal third-quarter increase in legalexpenses, and in the previous quarter, he noted that the company accrued a finerelated to its anti-money laundering program. In May, FINRA announced itfined Raymond James$17 million because of alleged failures to its AML programs.

RaymondJames CEO Paul Reilly said the Vermont case was related to the AML issue.However, he said the more recent expense was the result of a situation isolatedto Vermont and a specific group of investors.

"Wedon't think those are happening all over," he said.

RaymondJames' compensation ratio of 66.9% for the fiscal third quarter was better thanthe company's goal of 68%, Julien said. He added that the company remainedcomfortable with the target and didn't say Raymond James was lowering it.

Juliensaid revenue mix drove the lower compensation ratio in the fiscal thirdquarter. He noted that the company saw higher revenues from businesses thathave less variable and more fixed compensation such as trading, interest profitand private equity gains.

Inthe fiscal third quarter, Raymond James' net trading profits increased 84% yearover year and 107% quarter over quarter. The company's executives said thetrading results in the most recent quarter were an outlier driven by anincrease in activity in June.