WASHINGTON - Raymond James Financial Inc. confirmed Thursday that it will apply for bank holding company status, following the course taken last week by the larger investment banks, Goldman Sachs Group Inc. and Morgan Stanley.
The firm's management stressed that the move comes as part of a long-term strategy and does not indicate any immediate capital needs. The conversion "will have little impact" on the firm's operations and management structure, officials said in a financial statement filed with the Securities and Exchange Commission.
"It's an unfortunate misperception that Goldman Sachs, Morgan Stanley, and now Raymond James are fundamentally changing their business models," Thomas A. James, the firm's CEO and chairman, said in the filing. "In fact, these changes are more form than substance in that regard."
Raymond James ranked 24th among municipal underwriters and was senior manager on 54 issues this year through Sept. 25, according to Thomson Reuters. The firm ranked 34th among financial advisors, serving as FA on 12 issues for the same period. With $40.8 billion in assets under management as of June 30, Raymond James would rank 32nd among bank holding companies, according to the Federal Reserve.
The conversion to a bank holding company is the first step toward eventually becoming a financial holding company, the firm said. If approved by the Fed, the St. Petersburg, Fla.-based Raymond James will convert its thrift, Raymond James Bank, into a state-chartered commercial bank.
The conversion of the bank, which had $7.7 billion in deposits as of June 30, would allow it to engage in more corporate lending, which historically has been more profitable and bears less interest rate risk, the firm said. A financial holding company is a subset of a bank holding company that allows a firm to engage in investing, insurance, and other activities when its commercial bank meets the regulatory standards set by the Fed.
The conversion would lead to greater regulation by the Federal Reserve. Under Regulation Y, the Fed may regulate non-banking activities of the parent company, including mergers and acquisitions. The parent is also expected to maintain the capital and leverage requirements the Fed places on the commercial banks. Subsidiary commercial banks are limited by how much they can lend to the parent company.
Once the conversion for Raymond James takes place, oversight of the Raymond James Bank will be transferred from the Office of Thrift Supervision to the Office of the Comptroller of the Currency.
Goldman Sachs and Morgan Stanley received Fed approval on Sept. 22 to convert to bank holding companies on an expedited basis. The five-day waiting period the Fed requires to examine antitrust concerns before beginning the conversion status was waived for both firms because "emergency conditions exist that justify expeditious action," the Fed said.
Raymond James said it is not looking for emergency funding and that it expects the conversion to a banking holding company to be completed by summer 2009.
The shift to bank holding companies signifies a change in the financial sector. Investment banks like Raymond James rely on short-term borrowing to fund its businesses. Large bank holding companies like Citigroup Global Markets Inc. and JPMorgan Chase & Co. have weathered the liquidity crisis better than the investment banks because they are perceived as being safer under Fed regulations.