Happy Investors Weigh Prospects for Regions

The final First Commercial Corp. stockholders meeting was certainly a celebration of business success, but it also served as a pep rally for investment in Regions Financial Corp.

One could “smell the money” in the room at the Doubletree Hotel in Little Rock amid shareholders and employees who are prospering from the great bank consolidation movement of the ’90s. But as Bill Bowen, the retired longtime bank executive, walked by me, I also felt a sense of sadness that another homegrown company was about to be swallowed by an out-of-state firm.

Barnett Grace, who successfully guided First Commercial through the ’90s, explained why the Executive Committee decided Jan. 14 it had to abandon the strategy of remaining independent as a super-community bank. He cited the increased dependence and emphasis on technology, the specialization of products and increased competition from insurance and brokerage firms.

Grace also noted increased difficulties in the growth by acquisitions strategy. Consolidation has left far fewer available bank holding companies willing to sell. Rogers-based Federal Savings Bank turned out to be the company’s last major acquisition, and it was also one of only a handful of buying opportunities that remained in Arkansas.

Executives at First Commercial and Regions had built a relationship over the past 20 years, and in the end it paid off for Regions — which didn’t offer the highest bid but was deemed to be the best fit.

For what it’s worth at this point, only 74 percent of the voting FCC shareholders said yes to the merger. That’s not the resounding vote of confidence one would have expected, and I’m not sure what to make of it.

But it could help explain why Regions put on a road show, complete with an upbeat presentation by well-known investment banker James J. McDermott Jr. of Keefe Bruyette & Woods Inc. He remains bullish on Regions and other bank stocks because of high quality assets, expected cost savings from economies of scale and continued consolidation.

Regions also realizes it’s decision time for FCC shareholders. They will either cash in after the conversion this week or hold out for the potential sale of Regions so they can experience the now-famous Herbert McAdams flip (he’s the investor who enjoyed exponential stock gains by selling Union National Bank to Worthen, which sold to Boatmen’s, which sold to NationsBank, which is merging with BankAmerica). The conversion to Regions stock will immediately result in a 39 percent increase in dividends for FCC shareholders, and that could be an attractive incentive to stay on board.

All the numbers look good for Regions, with the efficiency ratios being particularly impressive. The downside for Arkansas is that those ratios will improve in part because of the elimination of jobs in the state — a move we’ve come to expect with the loss of a major company headquarters.

McDermott did outline a few concerns about all the bank mergers in general, and they primarily focus on promising high cost savings with no revenue loss. He noted how sloppy execution led to customer losses and revenue declines following the Wells Fargo merger with First Interstate.

The key, McDermott says, is customer acceptance. We’ve seen mixed reactions in Northwest Arkansas and the rest of the state. NationsBank has introduced an amazing array of new products in the market but, by design, has also seen its assets and customer base in Arkansas shrink while concentrating on profitable relationships.

Like the former Worthen Banking Corp. that today is part of NationsBank, First Commercial has lost its home field advantage. The new Regions entity will have to redefine its niche and find ways to protect an asset base that leads the Arkansas banking market.