Bank holding company Regions Financial Corp. reported its third consecutive quarterly profit in its second quarter results on Tuesday as it looks to shed its Morgan Keegan brokerage business.
Regions Financial posted $109 million in net income for the second quarter ending June 30, up from $69 million for the first quarter and a $277 million net loss the year before. Net income available to shareholders amounted to $55 million for the second quarter, or $.04 per share, versus $17 million or $.01 per share for the first quarter and a net loss of $335 million or $.28 per share one year ago.
Regions Financial’s pre-tax pre-provision net revenue rose to $500 million on an adjusted basis, also marking a new high for the firm since the third quarter of 2008. The firm’s improved performance came as it worked to diversify revenue streams, while also getting a boost from growth in commercial, industrial, indirect and direct consumer loans and low-cost deposits.
Loan loss provision fell to $398 million in the second quarter, marking a 17% decrease from $482 million in the first quarter.
Regions Financial also worked to clean up outstanding issues surrounding its Morgan Keegan business in the second quarter.
It reached a settlement with regulators, including the Securities and Exchange Commission, the Financial Industry Regulatory Authority and some state regulators for certain mutual funds and closed-end funds, sold under the name RMK funds prior to the financial crisis. Under the terms of the settlement, Morgan Keegan and its asset management subsidiary Morgan Asset Management have agreed to pay $210 million, including $200 million to go into Fair Funds set to compensate investors in those funds.
As a result of the settlement, the second quarter results include a $44 million tax benefit on part of the settlement that had been previously accrued as non-deductible.
With the announcement of the settlement in June, Regions Financial said that it had retained Goldman Sachs & Co. to explore a potential sale of Morgan Keegan, excluding its Morgan Asset Management and Regions Morgan Keegan Trust businesses.
For the second quarter, Morgan Keegan posted a net income of $60 million for the second quarter, up from $31 million for the first quarter and a $180 million net loss for the same period one year ago. Morgan Keegan’s private client division had $117 million in revenue for the second quarter, representing 37.3% of Morgan Keegan’s gross revenue.
Regions Financial was reportedly expected to receive initial bids for Morgan Keegan on Monday, Reuters reported last week, with both private equity and financial services firm suitors possibly interested in the business.
That could include a host of private equity firms including Apollo Global Management, Blackstone Group, Carlyle Group, TPG Capital and Warburg Pincus. Fellow financial firms with brokerage arms said to be potentially interested in a deal include Raymond James Financial Inc. and Stifel Financial Corp.
Regions Financial executives reaffirmed plans to explore the sale of Morgan Keegan in the earnings call on Tuesday, while declining to provide a book value for the business. Regions Financial, which is currently able to cross-sell certain products across its business, would prefer a deal where it could maintain a relationship with Morgan Keegan’s business going forward.
“It’s a very valuable franchise. It’s been a part of this organization since 2001,” Regions Financial President and Chief Executive Grayson Hall said Tuesday. “Our preference is to sort of maintain some type of strategic alliance as we move forward, but we continue to believe that as we look at our capital planning process, that taking a strategic review at this point in time is the right answer.”
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