DES MOINES, Iowa (AP) — Regions Financial Corp. said Wednesday that it has agreed to sell its Morgan Keegan & Co. Inc. brokerage subsidiary to Raymond James Financial Inc. for $930 million.
Morgan Keegan, one of the nation's leading underwriters of municipal bonds, will pay Regions a dividend of $250 million before the sales closes, resulting in total proceeds to Regions of $1.18 billion.
The deal is expected to close within the first quarter.
Memphis, Tenn., where Morgan Keegan is currently headquartered, will be the headquarters of Raymond James' Fixed Income and Public Finance businesses. Raymond James will continue to operate a regional support center in Memphis.
Regions said it expects to record an impairment charge of about $693 million in the fourth quarter related to the sale. The charge is a non-cash item which will not have a negative impact on regulatory capital, the company said. The following quarter, after the deal closes, Regions said it expects to see a gain of about $20 million.
The purchase allows Raymond James to expand its retail brokerage business. Morgan Keegan ranked as the nation's ninth leading underwriter of municipal bonds in 2011.
Banking regulators are expected to require Regions to increase its capital ratio before it begins repaying the U.S. Treasury the $3.5 billion it received as part of the bank bailout program.
With the deal, Birmingham, Ala.-based Regions boosts its capital and gets into a better position to repay the money. Regions CEO Grayson Hall said in a conference call that one of the benefits of the sale is a boost in Regions' capital. But he didn't directly say repaying the government money was a primary reason for the deal.
"I am very pleased that we were able to reach an agreement that benefits our shareholders and helps us focus on our core banking business while also allowing us to continue providing a full range of products and services seamlessly to our customers," Hall said in a statement.
Regions announced last June that it had hired investment bank Goldman Sachs & Co. to explore potential strategic alternatives for Morgan Keegan.
Morgan Keegan employs about 3,100 full-time workers including about 1,200 financial advisers. It had $921 million in total stockholders equity as of June 30, 2011.
Morgan Keegean CEO John Carson will join Raymond James Financial as president and oversee Fixed Income and Public Finance. Other senior leaders from Morgan Keegan will join Raymond James in roles not yet determined.
St. Petersburg, Fla.-based Raymond James has about $271 billion of client assets under management as of October 2011, with about $ 34.8 billion in the asset management subsidiaries.
Net revenue in 2011 was $3.3 billion, up 14 percent from 2010.
Raymond James shares fell 1 cent to close at $34.18. Shares are up about 4.5 percent in the past year.
Regions also gave a brief look at fourth quarter results as it made the sale announcement.
Including the impairment charge, the company expects to record a net loss of between $432 million, or 34 cents per share, and $633 million or 50 cents per share.
Net income from continuing operations excluding the impairment charge is expected to be in a range of $88 million to $119 million or 7 cents to 9 cents per share. Analysts surveyed by FactSet expect 5 cents per share. The company releases its official report on Jan. 24.
Regions shares rose 10 cents, or 2 percent, to close at $4.80. Shares fell 5 cents in after-market trading.
Shares are off 33.5 percent in the past 52 weeks.