Regions to Keep, Combine Choice Wealth Units

* Regions to merge insurance, private banking, trust units

* Bill Ritter, son of former CEO, to run combined division

* Alabama bank seeks options for retail brokerage business (Adds detail on new wealth management group)

By Joe Rauch

CHARLOTTE, N.C., June 23 (Reuters) – Southeast U.S. bank Regions Financial Corp (RF.N), which is taking steps to sell a retail brokerage unit marred by scandal, said on Thursday it will keep three businesses that serve wealthy customers and combine them into one group.

Birmingham, Alabama-based Regions said it is merging its trust, insurance and private banking businesses into a division called the wealth management group under Bill Ritter, currently the bank’s central region president and the 40-year-old son of former Regions Chief Executive Dowd Ritter.

The reorganization comes a day after Regions said it was reviewing options for its Memphis-based brokerage and investment bank, Morgan Keegan.

Regions on Wednesday also said it had agreed to pay $210 million to settle state and federal probes into Morgan Keegan’s sales of bond mutual funds that plunged when the subprime crisis struck in 2007. [ID:nN1E75L158]

The bank on Wednesday had said it planned to hold onto Morgan Keegan’s asset management and trust businesses, which analysts and others in the industry say are the most lucrative. The retail brokerage arm by comparison is not expected to attract a premium, given the damage done to its reputation.

“It’s like they’re selling every part of the cow and keeping the filet mignon,” said attorney Lawrence Klayman, whose Klayman & Toskes represents many of the hundreds of investors seeking arbitration claims against Morgan Keegan.

Morgan Keegan’s trust unit generated $56 million in gross revenues in first quarter 2011, about 17 percent of Morgan Keegan’s total gross revenue. Regions does not break out the results of its private banking unit; its insurance unit posted $7 million in first-quarter profit.

Roughly 1,900 employees will move to the new division, with more than 1,000 coming from Morgan Keegan’s trust business. The company’s trust unit operates 60 offices in 16 states.

The remainder of the new group will include 320 private bank employees and 600 insurance unit employees.

Regions hired Goldman Sachs to help explore its options for the rest of Morgan Keegan, which includes a regional capital markets business and a brokerage catering to retail investors.

But Evercore Partners analysts said Morgan Keegan might not find many takers, citing limited appetite for brokerages in a sluggish trading environment.

Evercore’s John Pancari estimated the business may fetch $1.0 billion to $1.3 billion. (Breakingviews [ID:nN1E75M07P])

“The retail side is just very difficult. There are a lot of liabilities there,” said Klayman, who expects more of the 30,000 investors who lost $1.5 billion in three Morgan Keegan bond funds to consider pursuing new claims in arbitration.

Beyond improper sales of bond funds, Morgan Keegan is under investigation by the U.S. Securities and Exchange Commission and state regulators for its marketing and sales of some auction rate securities to clients.

Auction-rates are debt instruments sold by many brokerages as cash alternatives — but which became nearly impossible for investors to sell when credit markets seized up in 2008.

As part of the reorganization, Regions named former Whitney National Bancorp President John Turner to replace Ritter. Both men will report to Regions Chief Executive Grayson Hall.

Shares of Regions fell 4 cents, or 0.6 percent, to $6.17 in late-afternoon trade on the New York Stock Exchange. (Reporting by Joe Rauch; additional reporting by Joseph A. Giannone in New York; editing by Matthew Lewis, Gerald E. McCormick and Andre Grenon)

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