When Big News hits the trade press and the newswires about a particular firm, I'm often asked about how the news affects the recruiting world. In general, it's not rocket science: Good news is good for the firm in question and bad news, like indictments, going bankrupt, etc. is very bad. But dig more deeply and the answers are more subtle.
Morgan Keegan had two news events hit them recently. The first was the long expected settlement of the RMK mutual funds case. You know this is bad news because when you Google “Morgan Keegan RMK Funds” you get a list of law firms before you can even find the press release. This was not unexpected and was certainly welcome to the Morgan Keegan Advisors. The settlement was long overdue and it puts a bad episode behind them. So while this publicity is BAD news, the concept of resolution to a long standing black cloud is GOOD news.
At the same time, Regions Bank, the beleaguered parent of Morgan Keegan, announced that it had hired Goldman Sachs “to explore potential strategic alternatives for Morgan Keegan as Regions evaluates how best to deploy its capital to increase shareholder value.” In plainer terms, Morgan Keegan is for sale.
But is this good news or bad news for the Morgan Keegan Advisors? On one hand, it creates unbelievable uncertainty for the current Advisors. On the other hand, getting out from under Regions Bank has Morgan Keegan Advisors dancing for joy in their offices. Regions has not repaid TARP. This fact has been a tremendous drawback for recruiting Advisors into Morgan Keegan. Nevertheless, Morgan Keegan has done an amazing job in keeping their culture intact under the circumstances. This has enabled them to largely retain their current salesforce.
So now the rumors of who will buy Morgan Keegan are buzzing around the industry. Whenever something is for sale in this industry, you always hear that Wells Fargo is a potential buyer, and Stifel is not far behind. Both of these firms have been serial acquirers over the last several years so the rumors are understandable. But will any larger firm be able to retain the Morgan Keegan culture and thereby retain the brokers? I suspect not.
When I think of the options available to Regions I think of poor Pinto in Animal House, with the unconscious girl at his feet, the Angel on one of his shoulders and the Devil on the other.
The Devil's Option: Sell to a Big Buyer and get a good price, giving the Bank needed capital and making shareholders happy, but destroy the culture, and most likely, the franchise. What would the Acquirer actually be Acquiring? Perhaps some nice, large empty real estate. The Angel's option: maybe Regions can figure out a way to empower Morgan Keegan management to control their own destiny, to stay independent with their own identity. While this might not pay Regions as much up front, structured the right way, this would reward patient shareholders over the long term because the Morgan Keegan franchise would remain intact, and possibly even thrive.
