Has anyone read the RJF 2008 annual report regarding Auction Rate Securities that are still on their books in Customer Accounts??? I think the ARS issue is addressed in Tom James letter to shareholders. I believe RJF still has about 1 billion dollars of ARS securities in Customer Accounts and if they are required to buy them all back, as other brokerage firms were required to do recently, they may not have enough capital to "REMAIN AS AN ONGOING BUSINESS". If the Gov or Court requires RJF to buyback any or all of the ARS held in Customer Accounts, these could then be on the books of RJF in trading or investment accounts. The ARS could have to be "MARKED TO ZERO" by RJS for capital calulations since there is no liquid market for these securities. This could be a problem if RJF was required to take up to a $1 BILLION CHARGE TO NET Capital if all the ARS in customer accounts end up in Firm accounts. I believe RJF is planning to become a National Bank later this year so they can borrow from the FED, "ANOTHER GOV BAILOUT", on the ARS position they may be required to "buy-back" from customers. This looks to be an interesting situation as it plays out.
IMO, the ARS issue should play itself out. Recall that the ARS, unlike most ABS, actually are backed by 300% collateral and are worth a buck on the dollar beyond a shadow of a doubt. There is no principal risk. Also, they continue to get redeemed - hence that $1 billion is certainly smaller and getting smaller all the time - recall it was over $2 billion a few quarters ago.
IMO, there is a reason there has been no government action against the regionals on ARS - because it is the primary dealers who were responsibile for pulling out of the auctions in the first place -- does anyone really think they (primaries) wouldn't be liable in the end? Remember, the only firms that have been required to buy them all back so far are the primaries. Regionals are victims just like end customers.
Of course, in the grand scheme of the financial world, ARS seems to be a pretty pleasant problem to have. Think about -- customers have had their assets tied up in vehicles that have actually made money over the past year...a lot better than if they had been in most anything else other than treasuries!!!!