Regions Financial Corp. could be more open to selling Morgan Keegan & Co. Inc. should the brokerage unit continue to draw scrutiny for its management of funds hit hard by the subprime meltdown, analysts say.
Regions said in a filing Wednesday it had gotten requests from the Securities and Exchange Commission in recent months for information on lawsuits filed against the company and Morgan Keegan, whose president and CEO, G. Douglas Edwards, abruptly announced Wednesday plans to retire in April. Regions said in a press release John C. Carson Jr. will replace Mr. Edwards as CEO and R. Patrick Kruczek will become the unit's president and chief operating officer.
The lawsuits, filed in U.S. District Court in Tennessee from December to February, allege certain Morgan Keegan funds misrepresented or didn't disclose material facts related to their activities.
Regions spokesman Tim Deighton said the $141 billion-asset Birmingham company has a "strong and open relationship" with regulators and it is supplying the information requested. He would not comment further and a call to Morgan Keegan was not returned.
Jeff Davis, an analyst at First Horizon National Corp.'s FTN Midwest Securities Corp., said Wednesday the lawsuits and the SEC request could revive lingering concern that Regions "may throw Morgan Keegan under the bus … or put a tight noose around the organization." He said, the unit's management team is "under a lot of pressure" from Regions.
"The concern has been that the bank would get heavily involved with Morgan Keegan if it stumbled," Kevin Fitzsimmons, an analyst at Sandler O'Neill & Partners LP, said in an interview.
Morgan Keegan has maintained autonomy since Regions bought it in 2001. But that was called into question after Regions purchased AmSouth in November 2006.
More questions arose in the fall when Regions disclosed issues surrounding two Morgan Keegan funds and then announced Allen Morgan, its founder and chairman, would retire at yearend.
Beyond regulatory filings, Regions has said very little about the funds, which analysts said had invested in complex instruments such as collateralized debt obligations. In November, chief financial officer Alton Yother said that Regions had invested $95 million to support a high-income fund and an intermediate fund to "provide some liquidity for handling the redemptions in those funds."
Mr. Morgan said in a November interview with American Banker that his plan to retire had nothing to do with the issues involving the unit's funds.
In its annual financial report filed Wednesday with the SEC, Regions said it lost about $42.8 million on investments in the funds last year. Though Regions has sold some of its investment in the high-income fund its stakes in the funds totaled about $64.6 million at Dec. 31.
Analysts said it is unclear what Regions' financial liability could be, but there could be some reputational risk for Morgan Keegan.
Mr. Yother said earlier this month that the company has opened 95 offices since November 2006 and added more than 200 financial advisers.
