Regions May Lend $200 Million to Buyers of Morgan Keegan Broker

Regions Financial Corp. (RF) is offering as much as $200 million to help finance the sale of its Morgan Keegan brokerage unit, said people with knowledge of the matter.

As part of a plan to boost capital and pay back a U.S. bailout, Birmingham, Alabama-based Regions is in talks with two competing groups of private-equity firms seeking to buy the brokerage, said the people, who spoke on condition of anonymity because the talks are private. A deal valued at more than $1 billion may be reached within weeks, the people said.

Regions would be the latest bank to use its own lending resources to help arrange a divestiture. Barclays Plc did the same when selling its investment-management arm to BlackRock Inc. in 2009 for about $15 billion, as did Fifth Third Bancorp when Advent International Corp. bought a majority stake in the Cincinnati-based bank’s payment processing division.

In the Morgan Keegan sale, the Regions financing may help fill a gap left by other lenders. Banks have been cutting back lending for leveraged buyouts since July as demand for loans dropped on investor concern that Europe’s fiscal crisis is intensifying and the economic recovery is faltering.

Regions expects to provide less than half of the total amount of debt financing for any deal, one of the people with knowledge of the matter said. Evelyn Mitchell, a spokeswoman for Regions, declined to comment.

Regions, Alabama’s largest lender, is one of the biggest banks that has yet to repay its bailout under the U.S. Troubled Asset Relief Program. It received $3.5 billion in November 2008.

Repayment Conditions

Chief Executive Officer Grayson Hall told investors in September that repayment would depend on achieving “sustainable profitability” and an improvement in credit metrics, not just a successful resolution of the review of Morgan Keegan. Regions said in June that it hired Goldman Sachs Group Inc. (GS) to help examine options for the Memphis, Tennessee-based brokerage.

The negotiations for Morgan Keegan pit a group including Carlyle Group and Blackstone Group LP (BX) against a consortium including Thomas H. Lee Partners LP and Jeffrey Greenberg’s Aquiline Capital Partners LLC, the people said. Regions is seeking final bids for the unit around the end of the month, the people said.

Both groups indicated in a recent round of offers that they may be willing to pay about $1.1 billion for the business, the people said. That’s on top of the roughly $250 million that Regions plans to pay itself in the form of a dividend from Morgan Keegan before completing the sale, the people said.

Spokespeople for the private-equity firms either declined to comment or didn’t return messages.

With only private-equity firms left in the running to buy Morgan Keegan, the brokerage may be set to return to independence. Founded in 1969, Morgan Keegan agreed to be sold to Regions in 2000 for about $789 million.

Stifel Financial Corp. (SF), the St. Louis-based brokerage, also submitted a recent offer for Morgan Keegan and was rejected, said the people with knowledge of the matter. Among the reasons was a concern that Morgan Keegan executives and brokers, many of whom opposed a sale to a competitor, might quit before the sale is completed and jeopardize the transaction, they said.

Sarah Anderson, a Stifel spokeswoman, declined to comment.

To contact the reporter on this story: Zachary Mider in New York at zmider1@bloomberg.net.

To contact the editor responsible for this story: Jennifer Sondag at jsondag@bloomberg.net

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