Regions Bank Plays ?Red Rover?

With most financial firms slowly wading into one-stop service, Regions Bank decided to make a splash.

On Feb. 8, the Birmingham, Ala., bank bought Rebsamen Insurance Inc. of Little Rock for an undisclosed amount. By month’s end, Regions will close on a $789 million acquisition of brokerage firm Morgan Keegan Inc. of Memphis. Banks, brokerages and insurance companies have long delved into each other’s sectors.

But this is the first acquisition of a major securities firm or insurance company by a traditional bank in the South. The appeal for Regions is it gets two autonomous subsidiaries that have more expertise and flexibility in their fields than the bank.

The deals are especially significant for Northwest Arkansas and Little Rock, since those are the only two markets in America where all three firms already operate. Analysts say the buyouts will make the resulting company a real triple threat in the marketplace — and Arkansas will be the staging ground for Regions’ evolution.

“We’re in a unique position to be the prototype for how the whole Regions network integrates these three companies,” said Jerry Vest, president and CEO of Regions Northwest Arkansas in Rogers.

“We’ll probably be the first place where the synergies begin to work together.”

The Gramm-Leach-Bliley Act of 1999 repealed most of the 1933 Glass-Steagall Act and the 1956 Bank Holding Company Act, which separated commercial and investment banking and insurance. The intent was to fragment the nation’s financial institutions to hedge against a potential domino collapse.

Congress decided in 1999 to knock down walls between financial sectors. Its hope was competition would benefit customers with lower costs and better service.

So far, companies have treaded lightly toward offering universal services. Vest said that’s because the territory is new and firms are trying to avoid biting off too much. He said Regions’ recent moves came about because the bank, which has $49 billion in assets, determined that its customers sought comprehensive financial services.

Since economies of scale could be found with regional neighbors Rebsamen and Morgan Keegan, Regions got aggressive in its pursuit of the one-stop strategy.

Vest said Morgan Keegan, with 2000 revenue of $494 million, and Rebsamen, with $426 million in annual premium revenue, will retain their management teams. But since the bank already offers some brokerage services, the brokerage offers some banking and insurance products and the insurance company does a little of everything, areas that overlap will have to be evaluated.

“I don’t know how it’s going to work,” said Mike Kirkland, branch manager of Morgan Keegan in Rogers and a former quarterback for the Arkansas Razorbacks and Baltimore Colts.

“Rebsamen, for instance, can’t do everything we can and vice versa. They’ve been the largest fixed-income broker in the Southeast for some time, but our insurance department works with 30 different insurance companies. I don’t think we’ll have to do away with all of those relationships, but that’s still an unknown.”

United Bank in Springdale is the only other local financial institution that’s positioned similar to Regions’ new strategy. The bank’s parent, United Holding Co., also owns United Bilt Homes and First United Insurance Agency. Craig Young, president of the holding company, said the group expects the $74 million bank to drive its integration which is still in the early stages.

“It’s hard for banks to grow their customer bases because most people are satisfied where they are,” said Dick Bove, a banking analyst at Raymond James and Associates in St. Petersburg, Fla. “Regions is buying additional customer bases and cross-selling more value-added products to their existing base. Its new model just makes sense.”

It’s About People

The Gramm-Leach-Bliley Act, referred to in the industry as “GLIBA” or the “financial modernization act,” has caused concern about protecting the privacy of customers’ financial or even health information. States are required to issue GLIBA privacy regulations by July 1, 2002. Arkansas has already established its own policy, which helps Bank of Arkansas N.A., Arvest Bank Group Inc., First Security Bank and many others offer or direct customers to insurance alternatives and asset management services.

Farm Bureau Insurance Cos. and State Farm Insurance are aggressive on banking products. Chet Caldwell, managing general agent for American National Insurance Cos. in Northwest Arkansas, operates Caldwell & Associates in Fayetteville. His company is doing well with everything from money market accounts to mutual funds.

Chris Weavers, president of Community Bank in Fayetteville, said his firm is still exploring what it will do. He wants to give customers what they want, but small banks like his, which has $200 million in assets, must watch margins closely to compete.

Weavers said in addition to an over-banked market, credit unions’ federal tax-free status and favorable rates from lenders like GMAC make it tough. The key, he said, is his bank’s 70 employees staying efficient and maintaining strong customer relationships.

“A majority of our customers want to come in, get a handshake and a Coke and tell you about their grandkids and church,” Weavers said.

It’s About Service

Jeff Dunn, president of Bank of Arkansas N.A., sees the blurring of financial sector lines a little differently. He doesn’t shun the mass consumer market, but with a $9.7 billion holding company, Bank of Arkansas focuses on commercial accounts.

So he sees GLIBA as a chance to compliment Bank of Arkansas’ commercial products like online banking with wire transfer capabilities, sweep accounts, control disbursement and international services.

Already the bank’s 401K portfolio has grown to 20 local companies, and Bank of Arkansas has an in-house brokerage and insurance capabilities through its parent company.

“If you’re a small business and you need a $200,000 loan, you can get that from 25 banks in this market,” Dunn said. “But if you need $5 million to $30 million and you want some cash management products, we can do that better than anyone.”

Bove, the banking analyst, said commercial service will certainly be a major selling point for the new Regions, too. For instance, he said, the company’s ability to lend clients the use of its balance sheet, by backing up commercial paper or financial offers, is a luxury for both parties. The possibilities, Bove said, are nearly limitless.

“Regions isn’t just adding products,” Bove said. “They’re looking to increase profits by adding to their distribution system more products and services with higher returns.”

It’s About Time

Rebsamen’s Northwest Arkansas president, Fred Stone, is working closely with company president and CEO Al McDowell to prepare for integration with Regions. McDowell said greater distribution, reaching critical mass and timely and quality delivery is what will benefit the new Regions most.

“Now when we all three buy a new computer system, the price will go down,” McDowell said. “We’ll also reach some economies of scale with the delivery of products, too, but I do not see us getting away from taking care of clients.”

Kirkland, the Morgan Keegan manager, said building relationships for referrals between the divisions is crucial. He said his company’s home office in Memphis has indicated the Northwest Arkansas branch is already ahead in that regard.

“Morgan Keegan added a world of research expertise that far exceeds what we’ve been doing in our brokerage business,” Vest said. “They definitely amplify the services that we can offer our customers. And Rebsamen has already established a great client base.

“It’s like what’s made Wal-Mart so successful in retail. The more products they’re able to sell, the better the prices they can offer. It’s the same for the financial services industry.”

Vest said both the bank and Morgan Keegan, which is officed locally in Rogers, are working on expansions into Washington County. There are no plans yet to co-locate, but Vest said as time goes on the new company will probably package more of its services and work spaces together.