Who Wants to Buy Morgan Keegan?
After the announcement last week that Regions Financial Corporation, the parent company of Morgan Keegan & Company, had reached a settlement of $210 million to settle charges that a Morgan Keegan portfolio manager had manipulated the net asset value (NAV) of proprietary mutual funds packed with subprime mortgage backed securities (MBS), the parent simultaneously announced that it was getting rid of the Morgan Keegan unit, according to Investment News. Regions said that it had hired Goldman Sachs Group to find a buyer for the Memphis, TN based investment firm it had acquired back in 2001.
Sources say that the clock is ticking because “if a deal doesn’t happen quickly, it is unlikely to happen at all”, according to a senior analyst with Aite Group LLC. He went on to say that it is very important to find a buyer quickly if you are trying to unload a wealth management franchise or the advisers will start to leave. Morgan Keegan’s most valuable asset is its retail brokerage sales force, which is located primarily in the Southeast. Even with all of the turmoil over the toxic mutual funds in the last several years, the sales force has remained loyal to the firm, experiencing a remarkably low turnover. Recruiters have always thought it to be a waste of time to try and lure advisers away from Morgan Keegan due to the fact that they were loyal to the company and had a strong commitment to their managers. The thought is that the advisers will wait and see who the buyer is and what the deal is for the advisers before jumping ship.
So, who is going to be the buyer? According to those in the know, Wells Fargo & Company is probably going to be at the top of the list. Wells Fargo has made several acquisitions of firms, including Wachovia Corporation and is said to be looking for other deals. Others in the loop are RBC Capital Markets, whose parent Royal Bank of Canada, just sold its U.S. retail banking operations to PNC Financial Services and may be looking to expand its wealth management operations; Southwest Securities Inc. out of Dallas, TX and BB&T Corporation, a Winston-Salem, NC based bank that owns Scott & Stringfellow, a regional brokerage firm.
One of the key issues for a buyer of Morgan Keegan is the amount of risk they are willing to accept, since the firm still faces investor claims from the toxic subprime laced mutual funds. Having said that, those involved in the search process concluded that “it’s a question of how much brand damage and future settlement costs a potential buyer is willing to risk.” Only time will tell.