Raymond James ARS holders on hold

Clients of Raymond James Financial Inc. who are stuck holding $1 billion of auction rate securities will have to hang onto the paper for months to come, even though several large firms have announced buybacks. The clients will likely need to wait until at least the middle of this year to get their money back, the firm’s chairman and chief executive, Thomas James, wrote in a letter last week. The reasons are clear. Facing frozen credit markets, Raymond James of St. Petersburg, Fla., does not have access to the necessary capital, he wrote. “Some of you have asked why we haven’t repurchased these securities as have a number of the broker-dealer that were underwriters,” wrote Mr. James in the letter, dated last Friday. Two reasons are blocking the firm and other independent broker-dealers from an ARS buyback, he wrote. First, “Raymond James does not have access to the necessary financing at this time to purchase anything near the $1 billion outstanding.” Second, securities regulators will not give broker-dealers such as Raymond James any credit to their net capital requirements for the auction rate securities because they are illiquid. Some banks appear to be willing to make loans that would make a repurchase viable, Mr. James wrote. Clients could find relief in June, when Raymond James plans to complete its transition to a bank holding company, Mr. James wrote. That could facilitate the buyback process. Although thousands of investors trapped in auction rate securities sold by Merrill Lynch & Co. Inc. of New York, UBS AG of Zurich, Switzerland, Wachovia Corp. of Charlotte, N.C., and other big banks and brokers are finally getting relief through regulatory-mandated repurchases by the firms, others who bought the securities through brokers untouched by the settlements were left hanging (InvestmentNews, Oct. 20). Auction rate securities were sold for about 20 years by brokers, advisers and other investment professionals as cash-equivalent investments, with the added kick of paying a small percentage above money market rates. In February, auctions almost unilaterally failed because capital-starved securities dealers such as The Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc., both of New York, Merrill Lynch and UBS AG backed away from making bids. Last February, Raymond James’ clients owned $2.3 billion of the securities, and that total has been reduced to about $1 billion.