UPDATE 1-Raymond James stock falls amid disclosures
(Recasts first sentence, adds analyst comments, closing share prices, other details)
By Joseph A. Giannone
NEW YORK, Dec 1 (Reuters) - Shares of regional brokerage Raymond James Financial Inc (RJF.N) sank 23 percent Monday as its acknowledgment about capital limits fueled lingering worries about the firm's potential exposure to credit losses.
Raymond James said it might have to repurchase auction rate securities it sold to customers -- but which have been nearly impossible to trade this year -- to resolve pending claims and regulatory investigations. Yet the St Petersburg, Florida, firm warned it lacks the capital or borrowing capacity to complete such a transaction.
The company "would have to have sufficient regulatory capital and cash or borrowing power to do so, and at present it does not have such capacity," the firm said in its 10-K annual report filed with the Securities and Exchange Commission.
"Further, if such repurchases were made at par value there could be a market loss," the company continued. "Any such loss could adversely affect the results of operations."
Raymond James shares fell 23 percent to close at $16.92 on Monday, giving up gains made in the last week when shares rallied from a five-year low. The stock is down 43 percent this year.
Raymond James is one of many brokerages under fire from regulators over the handling of auction rate securities, a market that froze up in January amid a worsening credit crunch. Hundreds of thousands of Americans suddenly were stuck with securities touted as cash equivalents.
State and U.S. officials have pushed big investment banks like UBS and Merrill Lynch to reimburse clients by repurchasing billions of dollars of auction-rates at face value. Raymond James, which did not underwrite ARS, resisted such buybacks.
On Friday, Raymond James said outstanding ARS fell to $1 billion as of Sept. 30 from $1.9 billion in April, due to redemptions and refinancing by issuers.
IMPAIRMENTS
David Trone, brokerage analyst at Fox-Pitt Kelton, said the filing reinforced concern that one of the top-performing brokerages faces potential problems from its banking unit, which has been a sore point among investors over the past year.
"Regional brokers used to be viewed as safe -- no credit exposure -- but with Raymond James, you've got corporate loan exposure. People just assumed that their broker doesn't underwrite credit," Trone said.
Loan charge-offs, or losses, are small but up dramatically, he observed: $13 million in the most recent period from $1 million. Nonperforming assets surged to $62 million from about $6 million. Nonperforming loans also are less than 1 percent of net loans.
"It does have the potential to be a meaningful hit if commercial credit gets bad enough," Trone said.
Raymond James Bank participates in "shared national credits," which means it buys into big corporate loans arranged by other banks. The company in the filing stressed that the bank unit avoided subprime mortgage losses.
As of Oct. 31, the firm realized $114 million of losses on available-for-sale securities, up from $89 million a month earlier.
Raymond James on Friday also disclosed that since October it has recorded $25 million in temporary impairments triggered by the sell-off in mortgage markets. Wachovia Securities analyst Douglas Sipkin said if the impairments remain by the end of the quarter, Raymond James' book value would decline.
These worries, and the company's need for government aid, undermine the premium valuation Raymond James stock enjoys.
"These points reinforce our view that shares are overvalued at this level," Sipkin wrote in a research note Monday. (Editing by Matthew Lewis)
