Auction-Rate Securities Mess Rages On For Retail, Institutional Clients Of Raymond James Financial
For more than a year now, retail and institutional investors of Raymond James Financial have patiently been waiting for an end to the nightmare known as auction-rate securities (ARS). The problems began in February 2008 when the once $330 billion ARS market abruptly came to a standstill, leaving investors who thought their money was as liquid as cash in dire financial straits.
As reported Aug. 1 in the New York Times, the auction-rate securities mess hit individual investors especially hard, prompting investigations by state and federal regulators. The outcome of those investigations resulted in charges that many Wall Street firms aggressively marketed and sold auction-rate securities as liquid, cash investments, while failing to tell investors about the considerable risks associated with the instruments and the ARS market.
Since then, a number of major investment firms and brokerages agreed to settle charges by regulators and buy back ARS holdings from retail clients. Some firms, however, remained on the sidelines, refusing to make their clients whole by either redeeming their ARS investments or paying to recoup investors’ losses. One of those firms is Raymond James Financial.
Raymond James Financial is one of the nation’s last independent investment banks and brokerage firms. Last week, the company reported that its clients currently held about $800 million of illiquid auction-rate securities, down from $1 billion earlier this year, according to the New York Times.
The decline is tied to a series of redemptions by issuers of the securities, including closed-end funds and municipalities. So far, Raymond James has shown no interest in redeeming customers’ holdings, according to the New York Times story.
Redeeming the $800 million of auction-rate securities would be difficult, says Raymond James. The figure is equal to 4.4% of the company’s total assets and 42% of its shareholder equity.
That means Raymond James’ clients are no better off today than in February 2008, when the market for auction-rate securities collapsed.
The picture is much rosier for Raymond James’s CEO Thomas James. Last year, his company raised its dividend 10%. For James, who owns 12.2% of Raymond James Financial shares outstanding, the dividend increase translated into a payout of about $6 million. And the money will keep coming to James in 2009 if the company continues to pay the current rate of 44 cents a share.
On top of that financial bonanza, James saw a pay package valued at $3.55 million in 2008.
Besides executive compensation, Raymond James Financial spent $6.3 million during 2008 and 2009 for the naming rights to the stadium where the Tampa Bay Buccaneers play. That move alone begs the question: Why aren’t the clients of Raymond James viewed as valuable to the company as a corporate branding campaign?
Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.
