Robust Trading & IB to Support RJF's Q3 Earnings, High Costs to Hurt

Core Insights - Raymond James (RJF) is expected to report a slight decline in earnings for Q3 fiscal 2025, while revenues are projected to increase year-over-year [1][3] Financial Performance - In the last quarter, RJF's earnings fell short of the Zacks Consensus Estimate due to higher non-interest expenses and subdued investment banking (IB) performance, although strong brokerage performance in Capital Markets and robust results from the Private Client Group and Asset Management segments provided some support [2] - The Zacks Consensus Estimate for RJF's Q3 earnings is $2.37, reflecting a nearly 1% decline from the previous year, while the sales estimate of $3.36 billion indicates a 4.1% growth [3] Investment Banking (IB) Fees - Global M&A activity improved in the reported quarter, leading to an expected rise in RJF's advisory fees, despite initial market volatility due to tariff announcements [4] - The IPO market saw a resurgence, positively impacting RJF's underwriting fees, with IB fees estimated at $212.1 million, representing a 15.9% year-over-year increase [5] Trading Revenues - Client activity and market volatility were strong in the June-ended quarter, driven by trade war concerns and sustained high interest rates, suggesting solid growth in RJF's trading revenues [6] Net Interest Income (NII) - The Federal Reserve's decision to maintain interest rates at 4.25-4.5% is expected to have a favorable impact on RJF's NII, although higher funding costs may offset some gains [7] - The consensus estimate for interest income is $980.4 million, indicating a 7.2% decline, while RJF's own estimate is $1.01 billion [8] Expenses - Non-interest expenses are projected to rise nearly 6% due to advisor hiring and inflationary pressures, with total non-interest expenses expected to reach $2.74 billion, a 5.9% year-over-year increase [9][10] Earnings Surprise Potential - The likelihood of RJF beating the Zacks Consensus Estimate is high, supported by a positive Earnings ESP of +1.24% and a Zacks Rank of 3 (Hold) [11][12]