Another week, another potential suitor of Morgan Keegan & Co. is reportedly out of the picture.
Bloomberg reported last week that Morgan’s parent, Regions Financial Corp., had broken off talks with
Stifel Financial Corp. to buy the embattled brokerage. The bank is reportedly back in discussions with
Raymond James Financial Inc. — traditionally a conservative, low-ball bidder for brokerages.
“Every day that goes by without a buyer, the value of the firm decreases for a host of reasons,” said Rick Peterson, who runs a recruiting firm in Houston.
Reason No. 1: The departure of advisers from the firm. To date, relatively few — 25-30 advisers out of a force of over 1,200 — have left Morgan Keegan, but the departures have picked up as of late. And with the prospects of a sale looking bleak, the trickle of departing brokers could soon become a flood.
“Every major Morgan Keegan adviser has options laid out for them now,” said Mr. Peterson, whose firm is actively recruiting brokers from the firm. “Either the firm will get sold at a historically low valuation, or it will disappear.”
Reason No. 2: Clients who have been waiting for a resolution of the situation are getting increasingly frustrated, advisers tell Mr. Peterson. Their frustration may lead advisers to lose patience with the process as well and accelerate defections from the firm.
Reason No. 3: Every time a potential buyer walks away, more questions are raised about the viability of the firm. The private-equity firms lost interest after MF Global Holdings Ltd. collapsed, and the strategic buyers have dwindled in number. The firm still faces uncertain liability from class action relating to $1.5 billion in losses suffered by investors in Morgan Keegan mutual funds during the financial crisis. Unless Regions is willing to cover that liability, it could be a major obstacle to a deal, recruiters and analysts say.
If
Raymond James is indeed speaking with Regions about Morgan Keegan, there’s a good chance that the bank is now considering selling the firm in pieces. Several months ago,
Raymond James chief operating officer Chet Helck said his firm was interested in the force of 1,200 Morgan Keegan advisers but not in the fixed-income underwriting business.
“You have to consider how much overlap [in the businesses] there is and how much of it you’ll have to eliminate,” Mr. Helck said in September. “As a fiscally conservative managed company, we’re not going to overpay for something because we like it.”
Raymond James spokeswoman Anthea Penrose declined to comment on the speculation. Regions spokesman Mel Campbell also declined to comment.
It is pretty clear now that a sale of Morgan Keegan will not contribute a significant sum towards the $3.5 billion that Regions still owes the federal government in bailout money. But if the bank plans to realize any value for Morgan Keegan, it may have to act soon.
Meanwhile, Morgan Keegan advisers may have to accept that no deal is forthcoming. “At some point you have to stop drinking the Kool-Aid and watch out for your own career,” said Ron Edde, a recruiter with Armstrong Financial Corp.
