September 27, 2011 / 7:25 PM / 6 years ago

UPDATE 1-Morgan Keegan advisers brace for acquisition, exodus

6 Min Read

* Morgan Keegan advisers secure back-up job offers

* An exodus of advisers would be unprecedented for firm (Adds financial impact of departures in last paragraph)

By Ashley Lau

Sept 27 (Reuters) - As Regions Financial Corp (RF.N) looks for a buyer for its Morgan Keegan brokerage unit, recruiters say the trickle of advisers who already have left may turn into a flood.

So far, only five advisers are known to have left the $1.5 billion brokerage since Regions put the unit up for sale in June. But recruiters say that potentially hundreds of the more than 1,200 brokers in the private client group have lined up job leads in case they decide to leave once a buyer is named.

"There's a lot of Morgan Keegan people at play," said Ron Edde, a recruiter with Armstrong Financial Group. An acquisition that raises uncertainly for those advisers could open the "flood gates."

Mindy Diamond, a recruiter based in Chester, New Jersey, said all of the 100 or so Morgan Keegan advisers she's talked to have job opportunities lined up. Some also want to see how lucrative the retention packages will be before they make a decision.

An exodus of advisers at the Memphis-based brokerage firm would be a shock to its close-knit culture. Recruiters who Reuters interviewed in the last week said that advisers are being inundated with calls.

"This is definitely a crossroads in the history of the franchise," said Danny Sarch, a recruiter at Leitner Sarch Consultants in White Plains, New York. "If they do things wrong, they will lose their identity and people will leave."

High Loyalty Factor

The potential exodus is all the more surprising because Morgan Keegan advisers have a reputation for loyalty because of the firm's "family feeling," Edde said. He was involved in the move of a Morgan Keegan team in Huntsville, Alabama, that left this summer.

Even as litigation over Morgan Keegan's management of subprime mortgage-backed securities has dragged on, the bulk of the firm's advisers have remained -- largely because of their deep sense of loyalty, Sarch said.

"The problems have been around for at least a year, but they've been able to keep the players in their seats," Sarch said.

Morgan Keegan has lost 6.6 percent of its brokers, about 85 people, since June 30, 2009. That's average for the industry, but low considering the turmoil at the firm, Sarch said.

Regions bank bought Morgan Keegan for $789 million in 2001 and disclosed plans to sell the division the same day regulators announced a $200 million settlement with the firm.

Regulators said the firm misled investors about the risks of troubled subprime mortgages. A star fund manager at the firm also agreed to a $500,000 fine and a permanent bar from the industry for his role in the alleged fraud.

Defending the claims became expensive for Regions, one of the few banks required to raise more capital after a 2009 government stress test. The bank has yet to repay the $3.5 billion it received from the Troubled Asset Relief Program after the financial crisis.

Plan B for Brokers

Blackstone Group (BX.N), TPG TPG.UL and Stifel Financial Corp (SF.N) have been mentioned as possible suitors for Morgan Keegan. Advisers inside the firm are rooting for a private equity buyer, which could give them an equity share in the firm and stay more client-centered than a big bank might allow.

Client pressure also could spur others to leave, said Rick Peterson, a recruiter based in Houston, Texas, adding that many of the 75 Morgan Keegan advisers he has spoken to this summer are concerned about client dissatisfaction.

"They don't want to be a part of a large firm. They made that loud and clear," Peterson said of Morgan Keegan advisers. "They came from a small regional firm and they want to retain that identity."

Peterson said one adviser fielded five calls in one day from recruiters with new job leads.

Finding a Cultural Fit

Recruiters say the independent space is a logical next-step for the typical Morgan Keegan adviser. Wells Fargo Advisors Financial Network, or FINET, has already become home for a major team that left this summer. Steven Thornton and Richard Smith, who had a combined revenue production of $1.5 million, registered their new firm with FINET in early September.

Regional firms like Stifel Nicolaus, Raymond James, Oppenheimer and Robert W. Baird & Co are also appealing because of their 'small firm' culture, recruiters said.

The idea that so many advisers could leave Morgan Keegan represents a stark departure for the storied brokerage whose roots date back to 1969.

The firm is one of the best-known companies in Memphis, Tennessee, its headquarters. It has maintained its close-knit culture even after going public in 1983 and as it acquired a number of small firms in the 1990s.

But recruiters are salivating over the highly-desirable Morgan Keegan advisers.

Morgan Keegan is banking on its advisers' long-standing loyalty to keep its broker base. The company is looking for a buyer who "will maintain the same culture that we have had," said Kathy Ridley, a Morgan Keegan spokeswoman.

Ridley said the revenue lost because of departures this year, on an annualized basis, is less than that of any of the prior four years.

Reporting by Ashley Lau; Additional reporting by Suzanne Barlyn; Editing by Jennifer Merritt and Walden Siew

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