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How RayJay saw the crisis coming, and took advantage

Raymond James boss Thomas James tells how his firm was almost based in Philadelphia, and how it exploited the 2008 financial collapse to grow at Wall Street's expense

When giant national investment houses led by Merrill Lynch, Smith Barney and Morgan Stanley tottered in the 2008 financial crisis, regional brokerages like Philadelphia's Janney Montgomery Scott and St. Petersburg-based Raymond James grabbed market share.

With Merrill and SB sold and Morgan Stanley on the defensive, "we staffed up," Thomas James, boss since 1970 of the firm named for his dad, told me on his visit to Philadelphia this week, where he brought local clients to the Marc Chagall exhibit at the Museum, and talked to students at Wharton.

Back in '08, "we didn't know if people were going to settle trades there for awhile" as Bear Stearns and Lehman Bros. fell. "But we had a lot of capital. We survived without TARP funds. And then we decided we'd actually invest."

Raymond James & Associates added more than 400 brokers, mostly from the bigger firms. Independent affiliates at Raymond James Financial Services added more than 800. The firm now employs 5,000 advisers. "To me this was an unbelievable opportunity." At one point he had to call JPMorgan Chase & Co. boss Jamie Dimon personally to arrange housing for James' newly-hired ex-Bear Stearns brokers in former JPMorgan office space.

Two years later Raymond James shares (20% owned by James, another 20% by his managers and employees) trade at a record high, while industry giant Morgan Stanley still struggles.  Its Raymond James Bank escaped mortgage losses by dumping its riskier loans after 2004 because, yes, James says, he saw this coming, having survived the last market collapse in the 1970s.

"For five years up to 2007 we knew (Fannie Mae and Freddie Mac) had problems," he told me. As head of the Financial Services Roundtable, a bank and brokerage lobby, James says he joined JPMorgan's Dimon, ex-Wells Fargo boss Dick Kovasevich and others pressuring Treasury and the Fed to rein in irresponsible Fannie financing and Wall Street trading in bad mortgages. But Fannie and Freddie had "very strong lobbies" of their own.

His firm was so poor in the 1970s, he almost sold a controlling stake in the firm to Philadelphia Stock Exchange short seller Barry Tague, whose bearish advice had saved James' modest portfolio. Tague backed out, or the firm would have been Tague James, and maybe based up here, he told me, laughing.

In 1998 James returned, picking up Wheat First Butcher Singer veteran Thomas Walrond Jr. (who still heads the tri-state market) and colleagues.

He credits the government with saving the banking system with forced mergers and rock-bottom interest rates. And he's bullish: "The private sector is strong. It has squeezed the lemon hard to get profit out." There's not much left to cut in US business, "so they're starting to hire again. You're going to see continued growth from here, but slow, in fits and starts. The venture capital and the buyout funds haven't started bringing their stuff public yet. We're just at the start." He's not scared of $100 oil, thanks to Pennsylvania's cheap natural gas.

James says American business is too busy to learn its lesson, but now's the time: "People forget the bad times. Times like we've just been through. But they need to learn and remember. Read the books. Too Big to Fail. Paulson's book. Larry McDonald's book. Use it for next time things go wrong."

Update: "It was refreshing to be one of the few brokers in the business that did not have to spend the last two years explaining my own firm's ineptness," says Raymond James Financial rep Kevin Kane, who joined the firm when he started in the business 15 years ago, and hopes to retire there. "Tom steered the company around potential landmine after landmine, sometimes to the screaming chagrin of shortsighted stockholders, but to the extreme longterm benefit of everyone."