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Announcement:

Moody's changes outlook on Raymond James to stable from negative

27 Oct 2010

Approximately $300 million in rated debt affected

New York, October 27, 2010 -- Moody's Investors Service changed to stable from negative the rating outlook on Raymond James Financial, Inc.'s ("Raymond James") Baa2 issuer rating. The stable outlook recognizes improvements at Raymond James Bank, namely a larger capital base and a smaller, more seasoned loan book. Raymond James's earnings power and capital base should allow it to absorb additional loan loss provisions, even under adverse macroeconomic scenarios, while comfortably servicing its senior debt.

In the last twelve months, Raymond James has enhanced its capital position at the bank, with Tier 1 capital increasing and loans decreasing by 8%, respectively. The bank's loan book has shown a reasonable level of performance over this period and is now relatively more seasoned. Still, it will likely require further loan loss provisions, especially the corporate loan and commercial real estate books. Moody's base-case estimate for future loan provisions is $330 million. Under the worse-than-expected case, loan loss provisions would amount to about $670 million. Both estimates assume a residual allowance of 2% of loans. Assuming a conservative level of firm-wide earnings combined with $890 million of Tier 1 capital, Raymond James should be able to comfortably maintain well-capitalized status under both of these scenarios.

Also supporting the Baa2 rating and stable outlook is the continued solid performance of Raymond James's franchise. This applies especially to the Private Client business, in which revenues grew 22% y/y. Although this was partly driven by the recovery in the market, it also reflected the success of Raymond James's opportunistic hiring efforts in 2008 and 2009 as it received a net inflow of financial advisors and client assets from troubled bulge-bracket brokerages. Retail brokerage will remain tied to equity market fluctuations, but in the long term Moody's expects this business to remain the mainstay of Raymond James's firm-wide revenue and the key factor supporting its creditworthiness.

A key longer-term rating driver will be the direction of Raymond James's bank strategy. Notwithstanding the bank's utility in monetizing customer cash deposits, its rapid pre-crisis growth was a key reason for weakened performance and multiple capital contributions during the crisis. It should be noted that Raymond James's underwriting appears to have shielded it from extraordinary losses. However, Moody's expectation is that the bank's growth will be more controlled between now and the next inevitable downturn in the asset quality cycle.

The last rating action on Raymond James was on August 12, 2009 when it was assigned a first-time issuer rating of Baa2 with a negative outlook.

The principal methodology used in rating Raymond James is the December 2006 Global Securities Industry Methodology, which can be found at www.moodys.com in the Rating and Methodologies sub-directory under the Research and Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Ratings Methodologies sub-directory on Moody's website.

For additional information on our approach to stress testing, see Moody's Special Comment: "Moody's Approach to Estimating Bank Credit Losses and their Impact on Bank Financial Strength Ratings."

Raymond James is a Florida-based full-service retail brokerage and investment banking firm. It reported $2.92 billion in net revenue and $362 million in pre-tax earnings in fiscal 2010, ended September 30.

New York
Alexander Yavorsky
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Robert Young
MD - Financial Institutions
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.

Moody's changes outlook on Raymond James to stable from negative
No Related Data.
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