Raymond James buys Morgan Keegan in $930 million deal

St. Petersburg-based Raymond James Financial is buying Morgan Keegan & Co. from Regions Financial for $930 million, creating one of the largest wealth management and investment banking firms not headquartered on Wall Street.

The long-rumored deal announced late Wednesday is not only the largest in Raymond James' history, but also is among the biggest acquisitions ever by a Tampa Bay-based company. It gives Raymond James a significant boost in both its private client wealth management and capital markets businesses, adding close to 1,000 financial advisers to the 5,400 it already has mostly in the United States and Canada.

Raymond James CEO Paul C. Reilly said the company prefers to grow organically, but it opts for a merger when the timing, pricing and cultural fit all mesh. He compared it to seizing the moment in a depressed housing market when a great bargain surfaces.

A cluster of regional players have been bigger than Raymond James in certain financial service categories. Edward Jones, for instance, has had more financial advisers; First Tennessee is a bigger player in fixed-income investments; Stifel Financial Corp. led the way in the equity capital markets.

"This deal puts us where we're the leader in a lot of those categories at once," Reilly said in an interview with the Tampa Bay Times. "But this isn't about size … or winning. We don't want to be the largest. We want to grow to a scale to be the premier alternative to Wall Street."

Raymond James would still trail the largest brokerages such as Morgan Stanley Smith Barney and Merrill Lynch.

As part of the merger, Morgan Keegan CEO John Carson will join Raymond James as president, overseeing the company's fixed income and public finance operations. Carson will work out of Memphis the first year before likely moving to St. Petersburg.

Morgan Keegan's base will remain in Memphis, where Raymond James' head of fixed income is already located. Reilly said there will be some minimal job cuts due to overlap, but the acquisition isn't expected to add or detract from the company's head count in St. Petersburg.

Raymond James has about 3,000 employees in its St. Petersburg headquarters and will have another 1,000 in Memphis once the deal is complete.

Short-term, the Morgan Keegan name will be co-branded with Raymond James.

"Over time it will phase out," Reilly said, "but we're going to continue to use it for a while. They have a big brand equity."

Morgan Keegan will pay Regions a dividend of $250 million before closing, resulting in total proceeds of $1.18 billion to the Birmingham, Ala.-based bank, which has been under pressure to raise funds.

Regions is trying to pay back the $3.5 billion it received from the U.S. Treasury Department's Troubled Asset Relief Program (TARP). It's among the biggest U.S. banks yet to repay the federal bailout.

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In June, Regions began looking for a buyer for Morgan Keegan. For months, Wall Street observers saw the fate of Morgan Keegan as a horse race between two companies: Raymond James and Stifel Financial of St. Louis. Over the past week, Raymond James emerged as the likely buyer.

Raymond James' purchase price is not much more than the $789 million that Regions paid just over a decade ago to buy Morgan Keegan.

The Memphis company ranked as one of the country's lead underwriters of municipal securities in the first half of 2011. Two surveys conducted by the Financial Times and the Wall Street Journal selected seven of its equity research analysts as among the best in the nation.

But Morgan Keegan is not without baggage. Regulators have accused the firm of overstating the value of its mortgage investments just as the housing market was collapsing and luring buyers of its funds with false sales materials.

In 2007, mutual funds marketed nationwide by Morgan Keegan lost $1.9 billion in value. Investigations by Alabama regulators led to fraud charges filed by the Securities and Exchange Commission. Morgan Keegan accepted a $210 million fine to settle the charges, with no wrongdoing proved or admitted.

But the company still faces two separate class-action lawsuits by investors in Memphis federal district court.

In a conference call late Wednesday, Regions CEO Grayson Hall stressed that Raymond James will not be on the hook for any of that pending litigation. Regions has set aside a reserve of $210 million to help pay legal expenses, but the bank indicated it would also cover any additional costs.

Shares in Raymond James closed Wednesday at $34.18 a share, down a penny, before the merger was announced. Raymond James has scheduled an investors conference call this morning.

The deal is expected to close by the end of March.