Morgan Keegan woes hammer Regions

Regions Financial Corp. reported its sixth loss in seven quarters on $200 million in costs for a regulatory probe into its Morgan Keegan brokerage unit. The second-quarter net loss widened to $277 million, or 23 cents a share, from $188 million, or 22 cents, in the same period a year earlier, the Birmingham, Alabama-based lender said today in a statement. Earnings per share excluded $58 million in preferred dividends, or 5 cents a share. Regions was expected to lose 21 cents, according to the average estimate of 23 analysts surveyed by Bloomberg. The $200 million charge reflects Regions' “estimate of probable loss” from settlements with investors over bond funds managed by Morgan Keegan, the company said. The Securities and Exchange Commission, Financial Industry Regulatory Authority and four state regulators said April 7 they were starting proceedings against Morgan Keegan over potential legal violations. Regulators are scrutinizing whether fund managers properly kept investors abreast of risks and mounting losses as the U.S. housing market headed for collapse three years ago. The SEC's complaint names Morgan Keegan, its asset-management unit, fund manager James Kelsoe and Joseph Weller, who oversaw fund accounting during the alleged misconduct. Morgan Keegan will “vigorously refute these charges,” spokesman Eric Bran said when the investigation was announced. Morgan Keegan Excluding the Morgan Keegan charge, Regions reported an 11- cent per share loss. “We remain intensely focused on returning the company to sustainable profitability as our core business performance and risk profile incrementally continue to improve,” Chief Executive Officer Grayson Hall said in the statement. Regions has written off more than $2.5 billion in loans during the past year, mostly from developers and home builders in Georgia and Florida markets that account for a quarter of total deposits. Hall, who replaced Dowd Ritter in April, said writedowns and loans not yielding interest should peak this summer. The bank “is still plagued by sizable loan issues that are not going to dissipate soon,” Richard Bove, an analyst at Rochdale Securities Inc., said in a June 22 report. “Despite the very solid improvement in the company's balance sheet, the earnings outlook remains clouded.” Loan Losses The bank cut its provision for loan losses to $651 million from $912 million a year earlier. Assets no longer collecting interest or restructured with new terms totaled $5.51 billion, up from $4.61 billion. Charges for loans deemed uncollectible were $651 million, compared with $491 million. Deposits increased by 1.6 percent to $96.3 billion, while loans fell 11 percent to $85.9 billion. Morgan Keegan reported a loss of $180 million, compared with a profit of $30 million a year earlier. Revenue declined 8 percent to $310 million at the unit. Regions rose 44 cents, or 6.6 percent, to $7.09 yesterday in New York Stock Exchange composite trading. The shares have gained 34 percent this year.