UPDATE 2-Blackstone, TPG, others bid for Morgan Keegan
* More than half dozen firms put in initial bids
* Blackstone teams up with Carlyle, TPG with Lightyear
* Stifel, Raymond James among strategic bidders
* Warburg, Apollo also among bidders for Morgan Keegan
* Auction in second round, book value around $1.5 bln (Adds source comments, background)
NEW YORK, Aug 12 (Reuters) - Blackstone Group (BX.N), TPG [TPG.UL] and Stifel Financial Corp (SF.N) are among more than half a dozen firms that put in initial bids for Regions Financial Corp's (RF.N) Morgan Keegan brokerage unit, sources familiar with the situation said.
Some of these companies have paired up with other firms to bid for the unit, which has a book value of about $1.5 billion, the sources said.
Blackstone has teamed up with Carlyle Group, and TPG has teamed up with with Lightyear Capital, the sources said.
Raymond James Financial Inc (RJF.N), Warburg Pincus [WP.UL] and Apollo Global Management (APO.N) are also among the bidders for the company, the sources said.
Regions, a bank based in Birmingham, Alabama that has not yet repaid $3.5 billion in bailout money received from the Troubled Asset Relief Program, hired Goldman Sachs Group Inc (GS.N) in June to explore options for Morgan Keegan.
Regions said at the time that it agreed to pay $210 million to state and federal regulators to settle allegations Morgan Keegan fraudulently marketed mutual funds. [ID:nN1E75L158]
Morgan Keegan, which Regions bought in 2001 for $789 million, has about 1,200 brokers in its private client group and also has investment banking and capital markets businesses. Morgan Asset Management and Regions Morgan Keegan Trust are not part of the business being sold.
Private equity firms, which make up the bulk of the bidders, are attracted by Morgan Keegan's client base that they could expand at a time when the biggest firms are hindered by tighter capital requirements and regulatory oversight, one source said.
"It had a reasonably sized group of investment advisers that are pretty strong in the Southeast. That's what caused Regions to buy it in the first place," one source said.
"It's got an investment banking business that has run into some trouble during the financial meltdown and it has paid a price for that," the source said. "You might be able to put your arms around it."
Regions, Raymond James, Blackstone, Warburg, Lightyear and Apollo declined to comment. TPG and Stifel were not immediately available for comment.
Regions is hoping to move quickly on the auction, which is in the second round. It got the initial bids late last month. [ID:nN1E76L1QL]
The company is meeting with the bidders and management presentations are going on now, sources said.
The auction still is in the early stages, and some bidders might have put in initial bids and signed confidentiality agreements mostly to take a look at Morgan Keegan's books, and so may drop out as the auction advances, sources said.
One option for the business is a management-led buyout with the help of private equity investors.
Management prefers a private equity buyer and Morgan Keegan employees are also interested in participating in a transaction, one source said.
"They probably see that as a path to be a public company again," the source said.
Regions shares fell 4.4 percent to close at $4.30 on the New York Stock Exchange.
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