OREANDA-NEWS. S&P Global Ratings today said it affirmed its 'BBB' long-term issuer credit rating on Raymond James Financial Inc. (RJF). The outlook remains positive. At the same time, we affirmed our 'A-2' short-term issuer credit rating and 'BBB' senior unsecured debt rating.

"Our ratings on RJF reflect the company's solid retail brokerage franchise and diverse business mix, flexible cost base, and fairly conservative financial profile with strong liquidity and capital," said S&P Global Ratings credit analyst Robert Hoban. "We believe the firm's holdings of illiquid assets, relatively elevated credit risk from the bank loan portfolio, and higher compliance risks for its nonemployee financial advisers partially mitigate these strengths."

RJF is a diversified bank holding company whose subsidiaries provide retail brokerage, investment banking, asset management, and banking services. The firm is the ninth-largest U. S. retail broker in terms of total client assets with over $548.2 billion, and it continues to demonstrate strong growth, with net new client assets of $30 billion in the last nine months.

The firm has reduced illiquid Level 3 assets to 7.4% of total adjusted capital and has been improving its funding. It also maintains the flexibility to sweep more of its brokerage client cash balances into deposits at its own bank instead of to third-party banks. However, pro forma for the recent issuance of $800 million in senior notes and the acquisition of the U. S. private client services unit of Deutsche Bank Wealth Management, the gross stable funding ratio (GSFR), our preferred funding metric, remains below 110%, which would support a higher funding assessment.

The company's operating performance has held up despite market volatility and additional regulatory and compliance costs. RJF has reported record revenues year to date in all reportable operating segments, except for capital markets (which accounts for about 20% of total revenues). We expect RJF's recent closing of its acquisition of the U. S. private client services unit of Deutsche Bank Wealth Management to boost RJF's retail business and not materially erode its risk-adjusted capitalization.

Our long-term issuer credit rating on RJF is one notch lower than the group credit profile ('bbb+'), reflecting the entity's structural subordination, consistent with our criteria for analyzing nonoperating holding companies.

The positive outlook reflects our view that RJF's efforts to diversify and improve its funding, if sustained, could materially strengthen the funding profile. We expect that RJF will maintain its good operating performance and an S&P Global Ratings risk-adjusted capital (RAC) ratio above 12%, a GSFR of more than 100%, and a liquidity coverage metric above 150%. We also expect controlled additional cash sweeps at the bank (with total cash swept to RJ Bank not exceeding 50% of total sweepable brokerage client cash balances) in order to limit undesirable balance sheet variability.

We could raise the ratings over the next 12 months if RJF maintains its conservative business and financial risks, and if we expect the company to maintain a GSFR above 110%.

We could revise the outlook to stable if, in the next 12 months, the firm does not improve its GSRF above 110% on a sustainable basis.

We could lower our ratings on RJF if asset quality declines more severely than peers, or if the expected RAC ratio falls below 10%.