The clock is ticking at Regions Financial Corp. and for the approximately 1,200 brokers at its investment bank, Morgan Keegan & Co. Inc.
Last week, Regions agreed to a $210 million settlement with federal and state regulators over charges that a Morgan Keegan portfolio manager in 2007 had manipulated the value of proprietary mutual funds loaded with subprime-mortgage-backed securities. Regions also said that it had hired The Goldman Sachs Group Inc. to shop the Memphis, Tenn.-based investment bank that it purchased in 2001.
If a deal doesn't happen quickly, it is unlikely to happen at all, said Alois Pirker, a senior analyst with consultant Aite Group LLC.
“When you have a wealth management franchise on the block, you want to find a buyer quickly or the advisers will start to leave,” he said. “Uncertainty is never good for wealth management firms.”
The most valuable asset remaining at Morgan Keegan is likely to be its retail-brokerage sales force, which is concentrated in the Southeast. Goldman's ability to find a buyer for the firm in large part may depend on how Morgan Keegan reps react to overtures from executive recruiters over the next few weeks.
A spokesman for Morgan Keegan said that the company doesn't disclose information about retention strategies.
Morgan Keegan advisers have been a very loyal bunch for most of the firm's 41-year history, recruiters said. The firm has experienced remarkably low turnover, even after the mutual fund mess surfaced several years ago.
“Through the years, it's basically been a waste of time calling Morgan Keegan advisers,” said Mark Elzweig, an executive recruiter, who is nonetheless putting out calls to everyone he knows at the firm. “The brokers have a strong connection to their managers.”
Tim White, managing partner at Kaye/Bassman International Corp., agrees, though he is working with several Morgan Keegan advisers.
“This is really a shame,” he said. “The advisers have stayed because they like the firm and they like the people who run it.”
Their loyalty is going to be tested as the recruiting calls pick up.
“We can't call a broker who hasn't already been contacted by three other recruiters by now,” said executive recruiter Rick Peterson.
He thinks that the firm's reps are likely to stay put until they see what happens on the acquisition front.
“I think very few of them will move until they find out who the buyer is and what the deal will be to stay where they are,” Mr. Peterson said.
After the announcement of the intended spinoff, Morgan Keegan chief executive John Carson posted a letter to clients on the firm's website that discussed the hiring of Goldman; the letter just as easily could have been intended for his advisers.
SHOW OF DETERMINATION
“Please know that this undertaking has our enthusiastic support and that my colleagues and I are fully engaged in the process,” he wrote.
Wells Fargo & Co. is likely to be at the top of Goldman's to-call list, Mr. Peterson said. The bank has acquired several wealth management operations, including that of Wachovia Corp. — whose giant brokerage operation was itself an amalgam of several acquisitions — and has indicated that it is looking for further opportunities.
Morgan Keegan brokers, however, may not be thrilled with that prospect. Recruiters said that many of them came to Morgan Keegan from larger firms precisely for the regional, small-firm culture.
The four other most likely buyers, according to Mr. Peterson, are RBC Capital Markets, whose parent, Royal Bank of Canada, just sold its U.S. retail-banking operations to PNC Financial Services Group Inc. and may be looking to expand its wealth management operations; Raymond James Financial Inc., which boasts a small-firm spirit combined with large-firm resources and a multichannel delivery system; Southwest Securities Inc., a Dallas-based firm that might find a complement in the Morgan Keegan geographic footprint; and BB&T Corp., a Winston-Salem, N.C.-based bank that owns Scott & Stringfellow Inc., a regional brokerage firm with a culture similar to Morgan Keegan's.
Whether these firms or any others are willing to take a risk by buying Morgan Keegan outright remains to be seen. They may be more inclined to try and pick off the firm's top producers one by one.
With Morgan Keegan still facing numerous individual-investor claims over its mutual funds, the latter strategy is the safer one.
“It's a question of how much brand damage and future settlement costs a potential buyer is willing to risk,” Mr. Pirker said. “Plus, the franchise may run away from them in the interim.”
E-mail Andrew Osterland at [email protected].
