Raymond James CEO looks ahead to election impact

Raymond James Financial is “extremely well positioned” for fiscal year 2021, although the crystal ball for the upcoming year remains cloudy.

“There’s still a high degree of uncertainty given the Covid-19 pandemic and upcoming presidential and congressional elections,” Paul Reilly, chairman and CEO, told analysts on a conference call Thursday morning. He also cited the impact of lower short-term interest rates.

A change in political party control could benefit the company’s tax credit business, Reilly said.

The company has a subsidiary, Raymond James Tax Credit Funds, that is the managing member or general partner in low-income housing tax credit funds. Those funds invest in housing project limited partnerships or limited liability companies which purchase and develop affordable housing properties qualifying for federal and state low-income housing tax credits.

If Democrats win control, “Our tax credit business will probably benefit from it. The higher the tax rate, the more value for those credits,” Reilly said.

Overall, Reilly does not expect tax rates to have a huge impact on most businesses, unless they go “totally crazy,” he said.

He also expects little change in regulations in the near future.

“It doesn’t look like the number one platform of the Democratic nominee is seeking regulatory reform,” Reilly said.

A bigger factor could be the appointees the president makes to key regulatory bodies.

“People are in those positions for a couple of years, so they usually set the tone on enforcement and other things. So I don’t think there’s going to be a short-term impact no matter what the election is. Longer-term, certainly there could be,” Reilly said.

Regulation Best Interest, or Reg BI, a rule that requires broker-dealers to only recommend financial products to their customers that are in their customers’ best interests, and to clearly identify any potential conflicts of interest, was approved under the Trump administration.

“Even with what is considered a business friendly White House, we’ve had some pretty big regulatory changes with Reg BI, and so I think you’re talking about matters of degree,” Reilly said.

Despite any potential changes, “we all compete in the same environment, so we feel very comfortable competing in whatever that environment is,” Reilly said.

It was the first time Reilly has addressed analysts since Raymond James (NYSE: RJF), a St. Petersburg-based financial services firm, laid off about 4 percent of its global workforce in September. In a Sept. 15 memo, Reilly said the pandemic and corresponding economic conditions had effectively wiped out half of the company’s earnings.

Raymond James ended its 2020 fiscal year on Sept. 30 and posted financial results late Wednesday. The company reported net income of $818 million, or $5.83 a share, on revenue of $7.99 billion for the 12 months ended Sept. 30. Revenue was up 3 percent from a year ago and was a record high for Raymond James, but net income was down 21 percent from a year ago and earnings per share were 19 percent lower.

During the fourth quarter of FY 2020, the company had $46 million in severance and other expenses attributed to the layoffs.

Paul Shoukry, chief financial officer, said the layoffs were unavoidable, given the impact of unexpected interest rate cuts.

The company continues to keep a close eye on expenses, Reilly said.

“We are managing infrastructure spend, technology spend, you go across the board, we are still looking at how do we get more efficient and continue bringing down costs,” Reilly said. “We have a big service initiative going on as we believe we are at high service levels but we want to increase those from an advisor standpoint. We look to not only becoming better at services, but be more efficient, which is a longer-term project. So, we’re all over expenses but there’s no big needle movers as the reduction of force was.”