Morgan Keegan, a securities brokerage unit of Regions Financial Corp. (RF), has been slapped with charges amounting to $3.6 billion in relation with two arbitration cases that were filed against it by two bond investors. These investors, who had invested in the company’s proprietary RMK bonds, suffered losses due to overexposure in risky mortgage-related securities.
The investors allege that they had been given false information about the true nature of the RMK funds. Despite the fact the Morgan Keegan bond funds were promoted as safe, conservative, income-producing investments, these funds have suffered losses of 50% to 67% in 2007.
Morgan Keegan is facing legal challenges in state and federal court as well as a number of remaining arbitration claims before FINRA. Last year, Regions Financial, the parent company, said that it received a Wells notice from the Securities and Exchange Commission, saying that it was looking into the funds and might bring a civil action against the firm.
Estimate Revision
Over the last 30 days, one of the 20 analysts covering Regions Financial has lowered the estimate for the first quarter of 2010, while no upward revisions were witnessed. Currently, the Zacks Consensus Estimate for the first quarter is an operating loss of 28 cents per share.
The absence of upward estimate revisions for the first quarter indicates a likelihood of downward pressure on the performance of the stock in the near term.
With respect to earnings surprises, the stock has not been steady over the last four quarters, with three negative surprises. The average comes to negative 6.2%.
The upside potential for the estimate for the first quarter, essentially a proxy for future earnings surprises, currently stands at 7.1% for Regions.
Read the full analyst report on “RF”
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