Raymond James CEO Paul Reilly says his firm has been exploring potential acquisitions, but that any deal must be culturally compatible.

Sources have said Raymond James was in talks to buy Deutsche Bank's U.S. brokerage unit. Another potential target is Cetera Financial, the independent broker-dealer network that may be put up for sale by parent company RCS Capital.

When questioned about possible acquisitions by analysts during an earnings call, Reilly declined to comment on industry speculation. But he did outline how Raymond James would approach a deal.

"I know a lot of people will say it's a strategic initiative or revenue synergies will create all sorts of stuff. We tend not to do that. We look at realistic retention rates and what it's going to cost," Reilly said. "We will not roll the dice and just hope."

Reilly also said that the firm tends to aim for modestly sized acquisitions, noting that Raymond James' deal to acquire Morgan Keegan was the firm's largest at $1 billion.

Should Deutsche Bank choose to sell its U.S. brokerage unit, it would be the third European firm to exit the U.S. market. Barclays is set to sell its brokerage unit to Stifel Financial, and Credit Suisse stuck a deal this week with Wells Fargo Advisors.

BURGEONING HEADCOUNT

Raymond James on the earnings front reported that pretax profits for its private client group dropped to $87 million for the quarter from $100 million for the same period a year ago, a 12% drop.

The drop was partially due to higher expenses as total revenues rose 4% year-over-year to reach $901 million.

Compensation expenses increased 4% to $904 million, representing the firm's single biggest expense.  Technology costs, meanwhile, soared 21% to $70 million. And business development costs rose 10% to $39 million.

The St. Petersburg-based firm said these investments were necessary, and also represented the firm's heightened recruiting activity. Advisor headcount rose by 89 from the previous quarter to reach 6,596 advisors across all channels.

In the independent space, Raymond James registered 3,544 advisors, up from 3,487 for the previous quarter. The firm's employee ranks rose to 2,571 advisors from 2,541.

Reilly remarked that recruiting activity remains vibrant at the firm.

"We came off our second best [fiscal] year ever in terms of recruiting," Reilly said. "We continue to see a lot of high quality teams."

During the firm's fiscal year, which ended Sept. 30, Raymond James recruited several large teams. Among those hires were a $2.4 billion group from Morgan Stanley as well as a team that previously managed $900 million at J.P. Morgan Securities. The latter group opened Raymond James' first office in Manhattan.

SLOWING AUM GROWTH

While recruiting remained a bright spot for the firm, client assets fell 4% year-over-year to drop to $480 billion, partially due to recent market volatility. That figure was actually up 1% from the previous quarter.

Rival brokerage firms have reported similarly weak growth or actual declines. For example, Ameriprise reported that total clients assets were flat compared to a year ago, and actually declined 4.4%, or $20 billion, from the previous quarter to drop to $433 billion. And Morgan said that client assets fell to $1.925 trillion from $2.034 trillion for the previous quarter and $2.003 trillion for the same period a year ago.

Companywide, Raymond James reported net income dropped 5% year-over-year to $129 million. Earnings-per-share fell to 90 cents from 97 cents for the year-ago period.

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