Newspaper article Sarasota Herald Tribune

Big Raymond James Deal Spurs a Downgrade by S&P

Newspaper article Sarasota Herald Tribune

Big Raymond James Deal Spurs a Downgrade by S&P

Article excerpt

RAYMOND JAMES FINANCIAL'S bold deal to buy broker Morgan Keegan got a quick reaction from Standard & Poor's Rating Services.

S&P placed St. Petersburg-based Raymond James on CreditWatch "with negative implications" for its $930 million purchase of Morgan Keegan from Regions Financial Corp.

"We believe the company's management team is too thinly staffed and could struggle to integrate an acquisition the size of Morgan Keegan," S&P credit analyst Nik Khakee said.

S&P placed its "BBB/A-2" long- and short-term counterparty credit ratings and "BBB" senior unsecured debt rating on Raymond James. The ratings stem, in part, from the fact that Raymond James will roughly double its outstanding corporate debt from a current level of $600 million.

Morgan Keegan, based in Memphis, employs about 1,200 financial advisers and a total of 3,100 full-time workers. It has 30 offices in Florida, including Sarasota and Punta Gorda.

The deal greatly expands Raymond James' private-client wealth- management and capital-markets businesses.

"Strategically, the transaction seems to make more immediate sense as a defensive measure than an offensive move," Khakee said.

Bank consolidations slow

Traditional merger and acquisition activity in the banking sector slowed considerably last year, stalling what analysts expect will be a wave of bank consolidations.

Even so, some of those experts are not sure that wave will hit in 2012. The economic recovery remains weak, the regulatory landscape uncertain, and potential buyers have had their own issues with stock prices.

"As earnings continue to rebound, capital and liquidity are at, or near, all-time highs, and with very few avenues for organic growth, we expect the courting process to continue but for the pace of announced deals to remain at low levels for at least the next few months," said analyst Michael Rose, of Raymond James Equity Research.

Industry consolidation is inevitable, he said, as "fatigued" management and directors choose to sell after weathering the recent credit cycle. M&A deals will continue over the next five to 10 years, Rose expects, not in a large wave over a few years. Most of the deals will involve banks under $1 billion in assets. …

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