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Raymond James hints at cutbacks: ’Our real estate needs will evolve’

As the company's quarterly income dips, executives say they'll streamline operations post-pandemic.

Raymond James Financial executives said the company is looking to cut expenses, and may do so by slimming its office footprint, after reporting a quarterly drop in revenue Thursday during an otherwise record fiscal year.

In an earnings call, chief financial officer Paul Shoukry said the St. Petersburg wealth management company was in a “firm-wide process” of streamlining operations in a post-pandemic world, including potentially scaling back some of its face-to-face business.

Raymond James will “continue investing in our support platforms, robotic automation and integrated and paperless processes,” he said. “Based on lessons learned during the crisis, we also anticipate our real estate needs will evolve as we consider more flexible strategies over the long term.”

Shoukry and chief executive officer Paul Reilly declined to elaborate on how the company might shift or shrink office space. But the New York Post reported this week that Raymond James signed a lease to consolidate multiple offices into one on Park Avenue in Manhattan. Last fall, the company submitted plans to build a new satellite campus on 65 acres of land near Wesley Chapel.

Related: Raymond James poised for Pasco expansion

“We’re far along with the process, and really, we’re looking at almost every single expense line item,” Shoukry said.

The company has already cut business development by $30 million year over year as conferences, meetings and other travel-related expenses were canceled, and most recruiting took place virtually.

“As soon as people are more comfortable traveling, we expect business development expenses to increase,” Shoukry said. “But one of the things that we’re looking at as part of our overall expense initiatives is, we’ve learned that a lot of our advisors are perfectly comfortable and happy doing some of these regional workshops and other product-focused sessions virtually, versus physically, in person, at various locations across the country.”

“It would be a mistake to think they’re all going away,” Reilly added. “The conferences or get-togethers, the educational trips for top advisors, are all part of our culture, and our ability to have feedback with our advisors.”

Overall, Raymond James has seen $5.91 billion in revenue since October, a company record for the first nine months of any fiscal year. But the company did not escape the hard-hit months of April, May and June unscathed, reporting a 5 percent drop in quarterly revenue year over year, and a 34 percent drop in net income to $172 million.

The company attributed the drop largely to low federal short-term interest rates, which Shoukry doesn’t expect to go away anytime soon. Raymond James also pointed to a sharp increase in loan loss provisions for clients who default on their borrowing. The company had to add $81 million to that chest this quarter, on top of $109 million in March.

During the quarter, Raymond James also sold off $355 million of corporate loans it deemed especially vulnerable during the pandemic. More than half belonged to businesses in the restaurant, hospitality and entertainment sectors. Reilly said the company may sell off another $100 million worth of loans.

“We’ve just looked at the industries that we think are very COVID-dependent, and said, on a risk-reward basis, there are loans that, in certain industries, are just not comfortable,” he said. “We think there’s more downside than upside.”

The company has shored up $1 billion in reserves to weather any coronavirus-related stretches ahead, and expects this year to resume stock buybacks for the first time in months.

But even as it pares back its lending business and looks for cuts elsewhere, Reilly said it’s prepared to spend on initiatives it feels are a good fit.

“We would have no qualms whatsoever right now doing an acquisition if we had the right one,” he said.

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