* Losses if forced to repurchase auction-rate securities
* Clients hold about $370 mln of the securities
* Raymond James in talks with regulators
By Joseph A. Giannone
NEW YORK, May 10 Raymond James Financial Inc
(RJF.N) said it may incur losses of $25 million to $50 million
if state and federal regulators force the brokerage to
repurchase auction-rate securities it sold to clients.
The securities, touted as offering investors cash-like
liquidity, have been illiquid since early 2008. St. Petersburg,
Florida-based Raymond James is just one of many brokerages that
sold the long-term debt, designed to be traded in weekly or
Raymond James on Tuesday disclosed it has been in talks
with regulators "to resolve the investigations," according to
the company's fiscal second-quarter financial report filed with
The company previously said it was under investigation by
the U.S. Securities and Exchange Commission, the New York state
attorney general and Florida's financial regulation office.
Three years ago, the SEC and New York state forced Wall
Street's big investment banks, which underwrote the ARS and
hosted the auctions, to repurchase billions of dollars of the
securities from customers.
Regulators said the banks had continued to sell the
securities even as they internally worried about credit market
conditions. The banks left investors in the lurch when they
suddenly quit supporting the auctions.
As a secondary broker of ARS, Raymond James argues it
should not be forced to repurchase the securities.
"We believe we have meritorious defenses and, therefore,
any action by a regulatory authority to compel us to repurchase
the outstanding ARS held by our clients would likely be
vigorously contested by us," the company said in its filing.
Raymond James, for the first time, estimated its potential
losses if it were forced to repurchase ARS still held by
clients at par value: $370 million as of March 31.
Because the market value of the securities is likely to be
less, Raymond James estimates its losses would be $25 million
to $50 million. The estimate does not include ARS held by
clients who moved holdings to another brokerage.
Raymond James said it has cash on hand to complete all or a
significant portion of repurchases.
Potentially softening the blow is Nuveen Investments, a
large mutual fund manager that has been redeeming certain ARS.
Raymond James says about 40 percent of its clients' ARS were
issued by Nuveen, which said in early May that it would redeem
up to $94 million of the securities.
Raymond James clients' holdings in ARS have been steadily
shrinking thanks to redemptions or notes reaching maturity.
Raymond James customers held $550 million of the securities at
(Reporting by Joseph A. Giannone; editing by John Wallace)