Large-Scale Insurance, Securities Additions Mean Banking Evolution

It’s a brave new world for Regions Financial Corp., especially in Arkansas, with Morgan Keegan Inc. brokerage firm of Memphis and Rebsamen Insurance Inc. of Little Rock coming into the fold.

Participants and onlookers alike are still trying to size up just how sharply the way financial services are marketed in the state could change.

Since December, Regions, based in Birmingham, Ala., and owner of Regions Bank, has announced a deal to buy publicly traded Morgan Keegan for $789 million and bought privately held Rebsamen Insurance for an undisclosed amount.

Banks, brokerages and insurance companies traditionally have played on the edges of each other’s turf. Regions’ moves, though, marked the first acquisition of a major securities firm or insurance company by a traditional bank in the South. Neither would have been possible without the federal Gramm-Leach-Bliley Act of 1999, which repealed most of the 1933 Glass-Steagall Act and the 1956 Bank Holding Company Act, which segregated commercial banking from riskier investment banking and insurance.

The deals are especially significant for Little Rock and northwest Arkansas — the only two markets in the nation where Regions, Rebsamen and Morgan Keegan already coexist.

It remains to be seen whether Regions will get another leg up over its competition by being able to offer “bundled” financial products. For example, Rebsamen clients might get a better deal on insurance policies if they agree to move their deposits to Regions; or Morgan Keegan customers might pay lower fees if they buy insurance from Rebsamen; or some other similar cross-selling arrangement might be offered.

Those involved in the recent transactions say the bundling notion hadn’t occurred to them.

“There hasn’t been any marketing plans finalized,” said Allen J. McDowell, Rebsamen Insurance president. He joked that the suggestion “may have given me a good idea.”

At Regions, Jack Fleischauer Jr., president of the bank’s western division, said “there’s not a formal mechanism in place to do that, nor is there any work to develop one.”

Not that he’s shut the door on the idea: “We have always taken into consideration in the banking business the overall relationship a customer has with us in looking at an individual service and how to price it,” he said. “So this is a concept, but not a formal pricing model.

“Generally speaking, the customers that are best are those who do the most business with you, and we take all that into consideration.”

The Federal Reserve System and the U.S. Treasury Department are considering a proposal to widen the interpretation of Gramm-Leach-Bliley to allow banks to buy real estate agencies as well, but Fleischauer said Regions isn’t working on a real estate acquisition right now.

“At this time we’re very content with trying to put together three very exciting businesses. That’s a pretty good chore to tackle at one time,” he said.

“We believe that bringing together these three important financial services separates us from our regional competition … that’s plenty for us to do, and our customers and our shareholders.”

Chuck Cook, president and CEO for Regions in Little Rock, said his operation has a great window “to take advantage of the opportunities that overlap from customers we all three currently have … some common, some not common.”

“It’ll be our challenge in this market to take the Rebsamen’s customer base and take it across the region and ultimately take it across the company,” he said. “We have the luxury of multiple Morgan-Keegan offices across our footpath. We don’t have that luxury with Rebsamen,” though the insurance agency’s products, “from the commercial line to the personal line, [are] something we haven’t been able to offer before to our customers.”

Outside Looking In

Contrarian Little Rock investment analyst Alex Lieblong is more certain about Regions— or Rebsamen, or Morgan Keegan — customers getting financial breaks by dealing with one or more of the Regions Corp. subsidiaries.

“They’ll likely try to bundle it,” he predicted, perhaps in much the same way that “Merrill Lynch has tried to be a one-stop supermarket.”

After all, said Lieblong, himself a major shareholder in First State Bank of Conway, “Everything is price-sensitive sooner or later. I do my insurance with somebody I’ve been friends with for years. If all of a sudden I can do it with Joe Blow for one-tenth that price, I’ll do it.”

But absent a deal that can’t be refused, “It is still a relationship business,” Lieblong said, one that goes beyond buying “200 shares of stock XYZ.”

For example, he said, switching fields for a moment, “those doc-in-a-box clinics are fine for some things, but you wouldn’t want to go to them for everything.”

Lieblong said that while the moves made financial sense, “for me, I would not want to do it.”

He summed up his own approach to acquiring and investing in companies as “buy your straw hats in the wintertime to get a good deal.”

“I’m not denying they didn’t get a good deal,” Lieblong said, referring to both the Morgan Keegan and Rebsamen purchases. But he thinks Regions could have gotten an even better one by cherry-picking fundamentally sound companies with lower profiles or perceived problems.

Furthermore, he said, “in my opinion, you can almost grow your own [investment firm] as cheap as you can go buy it.”

While the president of Lieblong & Associates Inc. isn’t completely sold on Regions’ recent acquisitions, heads of other local banks are more enthusiastic.

J. French Hill, chairman and CEO at Delta Trust and Banking Corp. of Little Rock, harbors no obvious reservations.

“The acquisitions were terrific ones for Regions. They will really enhance their customer service and their long-run stock performance,” Hill said.

He noted that banks already operate under regulatory restrictions regarding “tying” — making the extension of credit contingent on buying any product.

“So bundling in the financial services industry is possible, but it’s possible within the constraints of federal and state regulatory agencies,” he said.

Lieblong views the trend toward such acquisitions as inevitable.

“Everything is being Wal-Marted, so to speak,” he said. “…It’s a pure commodity, to pick this or that stock or an investment manager, so you’ve really got to find a way to add value. And generally that’s the man out in the field.”

That’s especially true, Lieblong said, because “the assets you’re buying leave every day — the people; there are no other assets.” When that happens too much, “sometimes you have to pay for that business twice.”

“Instead of buying banks, just go get the loan officers,” he said. “That way you don’t have to screw with the building.”

At the same time, he noted, Regions officials told him during a recent meeting in New York that “they were going to work out some system to keep up those assets.” He remains to be convinced.

Bob Dudley Jr., managing director and branch manager at Morgan Keegan in Little Rock, said Lieblong’s concerns about retaining employees aren’t necessarily misplaced.

“You’ve got headhunters calling every day, but the longer this goes on, the more opportunities people see we’ve got with Regions,” Dudley said. Under the new arrangement, “The amount of business we can leverage is enormous,” which he said should reward everybody involved.

Regions’ Little Rock president Cook said, “There’s a certain amount of [such] uncertainty in any acquisition, large or small. And it behooves those in such a situation not to make a hasty decision in the long haul. We don’t view that as a long-term problem. … any benefits we offer would be equal to or superior to those of a competitor.”

In addition, Dudley said, “I understand exactly what [Lieblong]’s talking about: the different cultures [of banking, investment brokering and insurance], but this is one of those rare instances where the cultures overlap,” he said.

Bob Birch, president and CEO of Twin City Bank in North Little Rock, expressed enthusiasm about not only his competitor’s recent acquisitions but also what he sees as its philosophical significance.

He said Regions is doing what “the banking industry as a whole, particularly on a national level, has been trying to do to do for a number of years, and that’s level the playing field” — a necessary element in the care and feeding of the free-enterprise system.

The 1999 banking legislation represents “not just a level playing field for banks but also a removal of barriers to free trade throughout the American economic system,” Birch said. Spurred mainly by fears of the factors that precipitated the Great Depression, those barriers “go back 60, 70, 80 years ago and are no longer necessary in this economy, and the banking industry has been convincing state and federal legislators of that.”

Speaking more concretely, he said he thinks that offering full insurance and brokerage services on as large a scale as Regions will benefit consumers in the long run.

“If you look nationwide you will see nonbanking businesses owning banks … nonbanking holding companies,” Birch said. “An example is Farm Bureau … They sell insurance, and at the same time they also sell through their bank subsidiaries other related financial services… You can go to a real estate agency now and there’s a mortgage loan officer there.”

As for Twin City Bank, which opened less than a year ago using the same name as the former bank where Birch was a longtime executive, “We are continuously looking for opportunities to meet customer needs,” he said. “As a new bank we are still looking to put in some new services … we are not at the point were we can share implementation plans.”

George Gleason, chief executive officer at Bank of the Ozarks in Little Rock, wouldn’t rule out future acquisitions, either, especially in what he sees as an era marked by “a continued blurring of the lines, with consolidations and integrations of businesses such as investment banking and insurance.”

“We are always mindful of opportunities,” Gleason said.

Bank of the Ozarks, he noted, already has an investment banking relationship with Investment Professionals Inc. that allows it to provide such services in its office.

Delta Bank and Trust developed its own Delta Trust Insurance Agency and Delta Trust Investments Inc. years ago, and Hill also foresees “more integration between financial-service types.”

“The granddaddy of them all under Gramm-Leach is, of course, Citigroup and [it] is a splendid example of what one can create at the highest levels of integration” among banks, brokerages and insurance, he said.

Regions: A Family Portrait

Regions Bank’s acquisitions of Rebsamens Insurance Inc. and Morgan Keegan Inc. will make for a powerful combination. Here’s what the three bring to the table:

Regions Bank

• Based in Birmingham, Ala.
• Banking locations throughout Arkansas
• $43 billion in assets
• 200 licensed retail and institutional brokers
• 13,000 employees nationwide, 53 locally

Morgan Keegan Inc.

• Based in Memphis
• 2000 revenue of $494 million
• Arkansas locations in Little Rock and Rogers
• 54 offices in 14 states
• 2,000 employees nationwide
• 760 licensed retail and institutional brokers

Rebsamen Insurance Inc.

• Based in Little Rock
• 2000 premium revenue of more than $26 million
• Locations in Little Rock, Fort Smith, Springdale and Springfield, Mo.
• 198 employees
• 70 percent of business is commercial property and casualty insurance
• The 24th largest privately held insurance broker nationwide, 43rd largest worldwide.

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