According to a May 20, 2009 Bizjournals.com article Regions bank has been ordered to raise $2.5 billion dollars after failing the stress test given to 19 of the country’s largest banks.
Although Regions may have other options, such as issuing additional shares or converting debt, perhaps the most appealing (and most likely) scenario has the bank finding a merger partner. This option is not new to the financial services, particularly in the wake of the subprime mortgage meltdown and corresponding credit crisis that has bankrupted numerous financial institutions and forced mergers among heretofore unlikely bedfellows (see Merrill Lynch/Bank of America, Bear Sterns/JP Morgan, Wachovia/Wells Fargo and Salomon Smith Barney/Morgan Stanley).
Excerpts from the article can be found below:
While Regions Financial Corp. announced plans to come up with half of the $2.5 billion required by the U.S. government through a stock offering, banking experts believe the Birmingham company could eyeball a merger as a part of its capital plan.
North Carolina’s BB&T; Corp. and JPMorgan & Chase & Co., which will likely be hungry for acquisitions once the financial markets turn around, are two potential bidders that are considering Regions to expand their franchises in the Southeast, according to Fox-Pitt Kelton Cochran Caronia Waller analysts.
“While Regions has options to get the capital it needs, we do not think a merger with another institution can be completely ruled out,” the company said in a client note released this week. “If it came down to Regions deciding whether or not to have the government as a partner or merging with another company – we believe a merger would maximize shareholder value.”
Regions – which was ordered to raise $2.5 billion after failing the government’s “stress test” – announced plans Wednesday to raise half of the funds by selling $1 billion shares in a common stock offering and another $250 million worth of new convertible preferred shares.
Since the bank’s shares are trading just above $5 per share, raising the total amount would have been a much harder task, especially since the shares will have to be deeply discounted to lure investors, said Howe Barnes Hoefer & Arnett banking analyst Jeff Davis.
“When it was a $25 stock, the answer would be no (it wouldn’t be difficult) – but to raise $2 billion at $5 – that’s going to be tough for Regions,” he said. “This is not about what’s best for shareholders. This is more about survival and meeting the capital call the government has required.”
Regions spokesman Tim Deighton stressed that the company would raise the money without converting Uncle Sam’s preferred shares into common stock. He also said the bank’s brokerage arm, Morgan Keegan & Co. and its retail-branch network are not up for sale.
However, if options become limited, the bank would not have a choice but to sell some of its most valuable assets, Davis said.
“If they can’t make the $2.5 billion capital call – then Morgan Keegan might have to be on the table,” he said.
However, if the bank’s earnings improve within the next few quarters, the federal government might ease up and allow the bank to raise a lower amount, Davis said.
The stress test, officially known as the Supervisory Capital Assessment Program, analyzed fourth quarter data at the nation’s top 19 banks to test their ability to withstand economic pressures amid skyrocketing unemployment rates and loan defaults. Based on the government’s worst-case scenario, Regions could encounter $9.2 billion in loan losses next year.
Region’s brokerage unit Morgan Keegan has been embroiled in customer lawsuits over the marketing and sale of its proprietary RMK Bond and Income Funds. Approximately 40 arbitration claims have been heard and ruled on by FINRA arbitration panels in the past four months. The Claimants in those suits have won the majority of the claims and over 80% of the past dozen or so decided.
Please contact the law offices of Colling Gilbert Wright & Carter for additional information on Regions Bank and Morgan Keegan. Thank you.