Paul Shoukry: Yes, Bill, I think in the Capital Markets segment, when they were operating at record levels over the last couple of years, 2 years ago, they — I think, hit a maximum margin or a record margin of around 26%. And so that just shows you the upside potential for that segment. And that was both the equity side and the fixed income side of the business running on all cylinders, which is somewhat atypical across the industry, just given the countercyclical nature of some of those businesses. But we — there’s a lot of upside from just breaking even this quarter in capital markets to what the potential is and that we proved out a couple of years ago. And that obviously would help the overall margin of the firm. We are still saying it’s a 20% plus margin target for the firm at this juncture, and we will update that as appropriate at Analyst Investor Day in May.
But we have a diversified business. So there’s always puts and takes. And what we don’t try to do is sell you on a story that just adds the incremental margin of everything happening to the plus side without factoring in potential offsets. And so we think that’s a more balanced approach. But obviously, all else being equal, if we had the same exact sort of performance from the other businesses with the upside potential of capital markets that would be accretive to the margins overall for the firm, but we are just reluctant to guide that now given all the uncertainties, particularly around cash sorting dynamics, which is a huge driver of margins. The cash balances and where interest rates are as a big driver of margins for the firm. So we are going to be conservative there until things stabilize.
Operator: Your next question comes from the line of Steven Chubak from Wolfe Research. Your line is open.
Steven Chubak: Hi. Good evening, Paul and Paul. Wanted to start off with a question on deposit betas and pricing flex amid rate cuts. Just one of the challenges that we collectively are grappling with is that your mix of deposits is quite different than peers. You have a lower concentration of higher beta savings deposits that should carry very high deposit betas with rate cuts. At the same time, your current payout on your sweep deposits is actually much more competitive than your peer set. So I was hoping you could frame separately what your expectation is for deposit pricing flex on the ESP piece versus the sweep deposits within the bank channel?
Paul Shoukry: Yes. I mean we — the ESP balances, we would expect the correlation of the movement of those rates to be much more aligned with what happens with Fed funds effective. And I think that’s what advisors and clients expect not only at Raymond James, but across the industry, as well for those higher-yielding products. You say it’s different in terms of mix of deposits than others in the industry. But you also have to remember with the TriState acquisition, we have — they have $18 billion of deposits now, which are higher cost deposits and a likely higher beta deposits too, both on the upside and on the downside of rates. So it gives us more similar sensitivity than just looking at the sort of PCG-related deposits, which we feel good about.
And then as you point out, the BDP, the sweep deposits we were much more generous than most of our competitors on the way up, which gives us more kind of cushion on the way down as well with those deposits. So as Paul said, it’s going to be a competitive dynamic, something that we’ll look at as rates move, but we feel really good about the position we are in right now.
Steven Chubak: That’s great color, Paul. And for my follow-up, it’s related to what Bill had just asked, but I was hoping to pin you down with an explicit number in terms of how to think about incremental margins because the offset from lower rates is clearly expected to come from the capital market side of the business. The concern is that NII is not compensable. But if we actually look at what you guys did during the period of robust capital markets activity, you cited the 25%-plus type margins. The incremental margins were actually close to 50% during that period. So I just want to get a sense, if we do have a more meaningful ramp in capital markets activity, is a 50% incremental margin, a reasonable assumption consistent with what we saw during the COVID period?
Paul Shoukry: Yes. I mean, I guess what I would say is if you kind of look at the revenues now versus the revenues of the peak of capital markets and being breakeven now versus getting a 26% margin during the peak of capital markets. I mean it’s pretty linear. There’s a lot of incremental margin as you grow revenues from the current base to where we were at that point in time. So it also depends on, frankly, the mix of revenues in capital markets, how much comes from M&A versus underwriting versus fixed income. All those businesses have different incremental margins, too. So we can make up a simplistic number for modeling purposes, but frankly, I think it would be false precision. And we also know that the dynamics that may help the capital markets business may be dynamics that may positively or negatively impact our other businesses.
So with generating a 20% plus margin and generating record earnings in the last 3 years in very different market environments, is something that really reinforces the value of having our diversified business model and being able to generate return — adjusted returns on tangible common equity of over 20% — 23% this quarter on our strong capital basis without the support of capital markets is something we’re really happy about.
Operator: Your next question comes from the line of Jim Mitchell from Seaport Global. Your line is open.
James Mitchell: Hey, good evening. Maybe just a quick question on the brokered sweeps. You’ve — your yield went up — net yield went up again. You’ve had pricing power. How long do you think the pricing power can last? I mean deposits in the industry have seemingly stabilized for banks? Does that start to erode some of that pricing power. What’s your outlook on the sweep pricing?
Paul Shoukry: Yes. We are still seeing a lot of demand for these deposits across the banks that we deal with. So we still think that there’s pricing power. But in fairness, the pricing power we are talking about is 5 basis points to 10 basis points, which on the balances of $17 billion is meaningful, but it pales in comparison to what’s happening with the base rates nowadays. So — and what might happen going down or up. So — we still think there’s pricing power. There’s a lot of demand for these deposits. But we are hopeful that over the next year or 2, we are using more of these deposits to grow the balance sheet and support clients with loan activity, which generates a higher yield and returns for the firm overall.
James Mitchell: Great. Makes sense. And then maybe as a follow-up on just sort of the large team pipeline sort of had a record. I think you highlighted that last quarter as well. How much of that is? What is your win rate among the large teams? Do you feel like it’s getting better? And how much is in the pipeline versus actually in the door, I guess, when I think about just as you win new mandates and new clients and FAs?
