Welcome to the Raymond James Financial fourth quarter earnings conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time. (Operator Instructions) And your host and speaker, Tom James.

Thank you very much. Welcome to the year-end quarter earnings release conference call for analysts. I think we have a large group that have joined us this morning indicating that we have some other than analysts that are listening in to this call. I welcome you all also. As you know, we reported a down quarter compared to last year. My reaction is I was waiting for someone to ask me the question yesterday about why it was down. I was going to reply that we didn’t want to embarrass our peer group by reporting earnings that were equal to last year. But I will have some explanation to you the principal causes here so that you can understand the difference between this quarter and last year. But if I might, I would chide you a little, at least the analysts present, because at the end of the second month of the quarter I thought we telegraphed pretty well that finally this market trauma that we were experiencing was beginning to impact the Private Client Group in terms of client activity in the stock market. The institutional activity has remained at high levels, but the individual activity had slowed in spite of the additions that we continue to experience to our sales force, which I’ll give you some more details on. I think that’s understandable if you just think about your own reaction to the market declines, the shock that has gone on here when you have a market down 32% year-to-date on a calendar basis. That’s a little traumatic for the average client. I can tell you in the number of letters, calls, et cetera, that I receive directly from financial advisors and clients, you should understand that this is a time when people are really worried about their…

(Operator Instructions) Our first question is from the line of Devin Ryan - Sandler O’Neill.

Can you remind us approximately what percentage of client assets are equity related, and are you seeing actual outflows in client assets just given that the volatile markets or the declines are still primarily related to the equity market declines?

Actually we’re seeing net inflows, because of the recruiting again. I just reviewed last night the number of new accounts moving into the firm versus those being delivered out. We’ve maintained about a 2.25 to 2.50 to 1 ratio. It’s largely from recruiting and the acquisition of accounts by existing financial advisors. Any decline we have in what we call assets under administration as related to the market decline. In fact this new inflow of money has offset a lot of the market decline, not just in managed assets, but in non-managed assets. We have been working for years on improving asset allocation throughout our sales force and you’ve seen some of that reflected in our client base, and apart from those that I described that had moved out of the market from managed assets or from unmanaged fee-based programs, which is small relative to the total group, it’s still larger than you would normally see. I think during the year we still were more like 14 or 15% erosion out of managed accounts in terms of cancels – 10 to 14%, which is a low average, relatively speaking, especially in a down market. The opportunity here is that the base has grown, it’s just that, unfortunately, the assets have depreciated in value. I can’t give you off the top of my head. I don’t know if anybody here knows.

There’s a lot of packaged products in there that’s hard to...

We’d see just a mutual fund number. We don’t know how much of that would be in PEMCO and other fixed income alternatives that Templeton-type assets.

We believe it’s heavily weighted towards equity versus fixed income alternatives and other types of asset classes. For our own benchmarking, we tend to estimate somewhere in the two-thirds to three-quarter equity totals for large groups of clients, but because of the packaged products, it’s hard to be precise.

That’s actually helpful. And just given the more recently recruited FAs and it sounds like that they’re typically larger on average than maybe the existing FAs; how long does it take for them to actually become accretive to results on average?

That’s a good question. The answer varies dependent on whether you open a new office, those individual FAs go into the new office; and what we have done recently, we’ve actually decreased the total package sizes. We have moved more of the retention front-end money to a not exactly front-end money status, where really in the second and third year you get additions to the base amount, which start a new period of amortization. Effectively you might give a broker 50% upfront and allow that broker, depending on the performance of his production over the next two years to move up to 80 in total production. But you’re not going to pay money based on 12-months of historical gross, when we know that the future gross is probably going to be down just because of the market environment. We actually have made those adjustments, and anybody that isn’t doing that now, the answer is it’s going to be at least three to five years until they make money on their deals. I think in our case, I would expect these bigger brokers, who tend to maintain productivity much better than smaller brokers in these timeframes, that we’ll be accretive in the second year.

Sure, okay. And in terms of share repurchases, it seems like every time the stock has traded down to around one and a half times book value or in that range, you’ve been out there repurchasing shares. So just with the stock, you’ve been trading a little bit below that, I just want to get your thoughts here on the repurchase program?

The last couple of times that the stock has moved down to this level; our quiet period, which we respect as a company, so we haven’t been active in those particular timeframes. Because of the current condition of the financial markets, we have been extremely conservative marshaling cash. We don’t want to be in a position if we have some special opportunity that we couldn’t turn around and invest 50 or $100 million. We’re less apt to do purchases at this moment than we normally are, but if the stock obviously moved down considerably from this point again, as it has once or twice in the immediate past three to six months, we would use some of these new lines that we are obtaining. As you can see from our release, we have adequate collateral lines for all of our inventories; that’s not really a problem. The reason you need some of these lines on operating basis are simply for delayed settlements, unusual situations in terms of cash flow in and cash flow out that require more free cash to operate; it’s not a net capital related issue. As the situation begins to clarify here and some of these new lines are put in place, we would once again be positively predisposed to utilizing the existing purchase authority that our board has granted us to repurchase stock. It’s been our history to try to time these purchases at lower end prices, which has actually been extremely positive for us over the long run. You are quite correct in pointing out the current pricing timing is very good, and as I said if we see any further decline and some opportunities here, we probably will take a good look at participating again. But again, you need to understand that the prime directive today is to keep powder dry.

Okay. I’m going to hop back into queue. Thanks for taking my questions.

Our next question is from the line of Joel Jeffrey - KBW.

Can you give us an update on your client’s auction rate securities positions?

It’s a $1.1 billion in total and about $950 million in liquid securities. Actually, some the securities have become liquid in our trading, some of the municipal ones. We’ve had a few repurchases from some of the closed end funds recently, but they are related mainly to violations of covenants with respect to coverage in things like convertible bonds, and some of the international equity closed end funds and things like that. We have not seen the follow through by firms like Nuveen or PEMCO in terms of stepping up these, merely because of the instability in the marketplace. The rates certainly would justify repurchases. I think what’s going to happen here is either the auction rates are going to be financeable somehow through government assistance, or the issuers are going to have more pressure on them at the same time we see more liquidity in the marketplace allowing financing alternatives to proceed, so that the auction rate securities issue goes away in the next 9 to 12 months.

Are you seeing any increased pressure from clients in terms of trying to unlock that and how would be dealing with that?

We have always provided margin lending to our clients that want to borrow on these securities that have emergency needs, and actually the demands for that have been very low. We have a few arbitrations with clients that are ongoing, but that’s all. We have been very open in terms of describing the issues that are posed to us, and other firms of our size who don’t have access to the federal window to buy these back, plus the issue of not having any capital credit for any purchases directly into the firm. I think our clients are pretty aware of this. We wouldn’t have had any problem at all were if not for some of the larger firms that did have access to the window, who had other violations with respect to employees getting out at the same time they were selling auction rate securities to clients; inside information that caused suppression of research reports, activity like that. We don’t have any instances of that. We weren’t auction market makers in any major sense of that word. While we did do some business in between period dates, we really didn’t do much. We didn’t have much inventory ourselves at all. This is a problem that I think is going to go away. The regulators are still being unreasonable in their demands in terms of having this happen, because they simply don’t understand how the process works, number one. Number two, this was one of the first manifestations of this perfect storm caused by sub-prime and related credit issues, and to be frank, this is absolute nonsense. If I had been Chairman of the SEC, I’d have slammed the New York Attorney General for this activity, and I think it’s not only been unfair, it’s been unreasonable. In our case,…

Okay. And can you just give us a little more detail on the necessity of a tri-party repo agreement between RJN and Raymond James Bank and why the $300 million is necessary as opposed to the $78 million that was talked about in the footnotes?

As we talked about, that was mirroring a bank exemption that was permitted to allow affiliated institutions to provide secured financing only supported by collateral permitted under Reg W where that type of lending had become less available in the marketplace. We have not even used our bank facility at all yet, not even the $78 million. We put it in place as a contingency backstop when the darkest days of September were upon us. We didn’t even know if committed lenders were going to live up to their commitments at one point in time. As it turns out, the availability of those lines has continued apace. We are in the process of putting other committed lines in place with other lenders such that when the $300 million ability runs out, if it does, or if it’s not extended at the end of January, that’ll be a somewhat non-event. We don’t carry large inventories, as you know, Joel. We’re carrying $200 to $300 million at this point in time in terms of financeable inventories. So, we don’t really need $1 billion worth of secured lines. But we’d like to comfortably have enough secured lines in place that when the bank line goes away, it will be a non-event. As Tom pointed out, secured lending is available in the marketplace under fairly conservative collateral requirements and margin requirements, et cetera. But it’s the unsecured lending that has really totally dried up.

Okay, great. And then just lastly, given what’s going on with the decline in the economy and then concerns about commercial real estate, is there any thought about reconsidering your strategy at the bank in terms of aggressively pursuing commercial loans?

I don’t like to use the word commercial loans. I like to use real estate related lending and that would be development oriented as opposed to general mortgages, and use corporate lending. On the corporate lending side, I would tell you that so far we really haven’t had any problem loans. We have a couple that we have rated at some of the lower quality levels, but actually the companies are performing quite well with respect to coverage in terms of EBITDA performance. Where we think our big advantage is, is understanding the individual corporations. We can invest with management teams that we know, with businesses that we understand, and industries that we have great internal knowledge about. As you know, we have announced that we had intended prior to all this to convert to a bank, which would make us a bank holding company. We still intend to do that. We would love to do it sooner than later in the event that some other future timeframe has problems with liquidity so that we have the availability of the Fed window ourselves directly. From a business strategy, we had to go through this, I will describe it as Mickey Mouse from my perspective, dynamic of pumping money into the bank and then investing it overnight in real estate related short-term securities, then taking it right back out to meet a requirement which is a fully permissible activity, and in fact was supported with the regulators who didn’t want us to cease becoming an S&L. We really should do it anyway, because our business is much more corporate related. We understand how to buy good real estate mortgages and are still doing it. But in the interest of diversification we will always maintain participation in different forms of loans. We…

Joel, let me give you a couple of other reasons; the answer to your question is no, we don’t plan to alter our strategy going forward. Besides from the internal knowledge base with research and investment banking of these companies and industry, historically the corporate commercial loans side has been more profitable than the residential mortgage side, not always true given some of the pricing anomalies in the market today, but historically, that’s been true. We certainly want to put ourselves in a position to take advantage of that if normality returns to spreads there. Another factor is availability. In case you hadn’t noticed, there are fewer mortgages being originated today than in the past. There are also fewer corporate loans available today. But availability swings back and forth, and again we need to be in a position to go where the goods are if we’re in a growth mode and have cash to put to work, and that may be more on the corporate side than it is on the residential side at any point in time. One of the most important factors to me is that the corporate loans are all floating rate as opposed to the 5/1 type ARMs that we typically buy in the residential portfolio, which is a much better match interest rate risk-wise to our bank’s balance sheet, where all the deposits virtually are floating rate.

Just to provide a few numbers for you. As of September 30, our corporate and real estate lending portfolio was about $4.6 billion in outstandings. Approximately $3 billion of that were corporate loans. About $1.6 billion in commercial real estate. Also included in that $1.6 billion is our loans to REITs. So of that $1.6 billion, a little bit less than $100 million were in the residential acquisition and development in homebuilder space. That gives you a little bit more diversification and color for the size of the portfolio as of September 30.

Great. Thanks for taking my questions.

(Operator Instructions) At this time, we have no additional questions in queue.

I want to thank you very much for spending the time with us this morning. All of us look forward to a period when market conditions are rosier, but this is the kind of environment when I think the good management teams will prove their worth for analysts. We look forward to continuing to generate relatively good results as we go forward into 2009. We look forward to talking to you in the near future, certainly at the next quarterly call. Thank you very much for participating.

Ladies and gentlemen, that does conclude your conference. We do thank you for joining and for using AT&T executive teleconference. You may now disconnect. Have a good day.