Regions is Having a Hard Time Unloading Morgan Keegan
Although there have been several firms listed as potential suitors for Morgan Keegan & Company Incorporated, including Stifel Financial, Raymond James Financial Incorporated, RBC Capital Markets LLC and Wells Fargo Advisors LLC, none have stepped up to the plate as reported by Investment News. Regions Financial Corporation, the parent company of the beleaguered brokerage unit Morgan Keegan, has been under the gun for a multitude of claims stemming from proprietary Regions Morgan Keegan (RMK) mutual funds that were linked to subprime mortgages. The firm paid $210 million to settle state and federal charges pertaining to those toxic funds. According to the article, Regions will remain on the hook for future expenses related to the scandal, just as Ameriprise Financial Incorporated was for similar expenses when Ladenburg Thalmann & Company Incorporated bought its beleaguered Securities America Incorporated unit.
Morgan Keegan has been on the block for three months but offers that have come in have been less than expected by Regions. When Regions hired Goldman Sachs Group Incorporated to find a buyer for its brokerage unit, it was looking for it to bring at least $1 billion. It was bought by Regions 10 years ago for $789 million. The word is that it will be offered for another round of bidding in hope of finding a buyer. Unfortunately, the longer the firm stays on the selling block the more disgruntled their advisors become with the unknown and decide to exit. So, time is not on Regions’ side if it wants to keep its most important asset.
Since the Morgan Keegan unit was put up for sale, it recently had a class action by investors dismissed by a federal judge in Tennessee. Unfortunately, the brokerage unit has two other class actions pending in federal court and tons of other claims and litigation tied to investor losses related to the RMK proprietary mutual funds that were linked to mortgage backed securities (MBS) when the housing bubble burst.
An analyst with Guggenheim Securities LLC, Mart Mosby, has said “A lot has happened since June,” and “Potential buyers likely have changed their perception of what the firm is worth and whether they want to undertake a big transaction in an environment like this.” Mosby predicts that the going price should be between .75 and 1.5 time revenue. This would make the potential sales price at $750 million to $1.5 billion, based on annual revenue of $1 billion, with a realistic price closer to $750 million due to the present market conditions.
A big concern for Regions is its 1,200 or so Morgan Keegan brokers. Although few have left the firm, notwithstanding the fact that they have been contacted by headhunters, they are all waiting to see who steps up to the plate as the new owner and whether they will pay enough to keep the brokers from bolting. Unfortunately, a couple of heavy hitters have already decided not to wait on the new owners. Richard Smith and Steven Thornton, both twenty year brokers with Morgan Keegan and holders of a $1.5 billion book of business, have opted to move to Wells Fargo Advisors Financial Network LLC. It is too soon to tell if this changes the mindset of the wait and see brokers and causes others to jump ship.