BIRMINGHAM (ALABAMA) (dpa-AFX) - Regions Financial Corp. (RF) Wednesday agreed to sell its investment brokerage unit Morgan Keegan & Co. Inc. to Raymond James Financial Inc. (RFJ) for $1.18 billion.
As a result of the transaction, Regions said it will incur hefty goodwill-related impairment charges and expects to report a net loss for the fourth quarter 2011. Regions shares dropped 1.04% in extended session on the New York Stock Exchange, upon the news.
Detailing the $1.18 billion stock purchase deal with Raymond James, Regions said the price includes a dividend payment of $250 million from Morgan Keegan before closing.
The transaction price is subject to adjustments based on the closing tangible equity of Morgan Keegan and retention of associates in the immediate post-closing period.
Regions expects to complete the deal in the first quarter 2012, subject to regulatory approvals and other conditions.
Regions added the deal does not include the sale of Morgan Asset Management and Regions Morgan Keegan Trust, which will remain in its Wealth Management division.
Also as part of the deal, Regions will indemnify Raymond James for all litigation matters related to pre-closing activities. Regions will also receive the benefit of reserves it previously established at Morgan Keegan.
Regions expects an impairment of $575 million to $745 million in the fourth quarter 2011 related to the $745 million of goodwill inherent in its brokerage business. The impairment is to be recorded within both continued and discontinued operations. Based on current estimates, Regions has assumed fourth-quarter impairment to be about $693 million.
For the fourth quarter 2011, Regions expects a net loss to common shares of $432 million to $633 million, or $0.34 to $0.50 per share.
On a continuing operations basis, fourth-quarter net loss is forecast in a range of $101 million to $197 million, or $0.08 to $0.16 per share. Excluding goodwill impairment, Regions expects fourth-quarter net income from continuing operations of $88 million to $119 million, or $0.07 to $0.09 per share.
Street analysts based on consensus currently expect Regions to earn $0.05 per share for the fourth quarter. Analysts' estimates typically exclude special items.
Regions, which owes the US government $3.5 billion in TARP funds, had in June announced a strategic review for Morgan Keegan in a bid to raise capital. Nevertheless, tough market conditions delayed the process and also forced Regions to scale down its initially expected price of $1.5 billion for Morgan Keegan. Media reports recently quoted Stifel Financial Corp. (SF) and St. Petersburg, Florida-based Raymond James as potential buyers for Morgan Keegan.
RF closed Wednesday at $4.80, up $0.10 or 2.13%, on a volume of nearly 18 million shares on the NYSE. In after hours, the stock dropped $0.05 or 1.04%.
RJF closed at $34.18, down $0.01 or 0.03%, on the NYSE.
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