Regions Financial's (NYS: RF) money-raising attempts at last seem to be bearing fruit with news that the company is close to striking a deal for its investment banking arm.
A little over six months ago, Regions Financial put Morgan Keegan up for sale. The two names that surfaced as the most likely suitors were Raymond James Financial (NYS: RJF) and Stifel Financial. Now, according to reports, it seems that a deal is imminent. The latest is that Raymond James will pay $930 million for the brokerage unit.
Regions Financial owes the government $3.5 billion that it had received as part of the Troubled Asset Relief Program. The bank has been on the lookout for ways to raise cash, and selling Morgan Keegan fits into the scheme of things.
Farewell, Morgan Keegan
When Regions put the unit up for sale last June, executives at the Birmingham, Ala., bank had expected it to fetch somewhere around $1.5 billion. But the long, drawn-out process of finding a buyer possibly pushed down the value. According to The Wall Street Journal, the unit may attract somewhere in the range of $900 million to $1 billion. If the deal occurs, as seems likely, Morgan Keegan may first have to pay a $250 million dividend to Regions.
JPMorgan Chase may assist Raymond James by offering $900 million in credit to help the company reach a deal.
The merger between the two brokerage firms may, however, end up causing job losses at Morgan Keegan. According to a news report, Stifel Financial apparently had dropped out of the fray earlier this month. But Stifel is very much in the race and has also received a financial commitment, the details of which are still unknown.
Regions: Go away, $3.5 billion
No matter who bags the unit, it will result in the marriage of two brokerage firms in an industry that has become increasingly more fused in the last few years. A similar deal took place back in 2007, when A.G. Edwards was taken over by Wachovia for a sum of $7 billion. In the following year, the merged entity was taken over by Wells Fargo.
Nonetheless, Regions will hope the deal reaches fruition soon, as it desperately wants to pay back the government. Whether or not the deal goes through, Regions will look at other means to raise capital, such as share sale.
Hopefully, by next week we'll know how things shape up for Morgan Keegan.
Fool contributor Shubh Datta doesn't own any shares in the companies listed above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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