Introduction
This report is a company analysis of Regions Financial that includes the company description and the historical background of the company. There is also a SWOT analysis which includes strengths, weaknesses, opportunities, and threats to the company. At the end of the company analysis, a list of recommendations is included on how to improve their business as a whole.
Company Description
Regions Financial Corporation was formed in 1971, and consisted of three banks with forty locations throughout Alabama. The bankers and executives who created Alabama's first multi-bank holding company had a goal to use a thorough banking philosophy while discovering new prospects for development. (Regions Financial Corporation, 2007) Regions Financial Corporation currently functions as the holding company for Regions Bank, which supplies an assortment of banking services. Regions Bank has expanded to provide their products to Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, Tennessee, Texas, and Virginia. At this time, the Bank has roughly 1,800 full service offices employing over 28,000 individuals and 2,200 ATMs. (Business Week, 2010).\
Regions Financial has diversified itself by providing services outside conventional banking, including Regions Mortgage, Regions Insurance, equipment financing, Regions Interstate Billing Service, Morgan Keegan Investment Firm, and the active process of constructing their own private banking business. Regions Insurance offers life, health, and property/casualty insurance. The billing service focuses on the automotive industry largely in the areas of collection services, billing operations, and issuing accounts receivable. (Hoover's Company Records, 2010)
The Morgan Keegan Investment Banking Firm offer's retail brokerage services, fixed-income capital markets, trust and asset management, private clients, and equity capital markets. Regions supplies Morgan Keegan with over 330 offices and has developed it into a top southern investment firm. (Datamonitor, 2009)
Regions Financial Corporation earnings took a large drop in 2008 and in 2009 things started to look worse. Although much improvement has been made during 2010, it will take more time for the company's earnings to recover. Regions Financial Corporation on March 19, 2010 had a stock price of $7.38 per share. (also a drop from 2008) and ended 2009's fiscal year with sales of $7,994,000,000.00. (Corporate Information, 2010)
Company History
Regions Financial was first formed under the name First Alabama Brancshares and was a consolidation of three esteemed banks from the cities of Birmingham, Huntsville, and Montgomery. The names of those banks were First National Bank of Huntsville, First National Bank of Montgomery, and the Exchange Security Bank of Birmingham. These banks were all over 80 years old. Alabama's first multi-bank holding company doubled its starting assets of $543 in less than four years, simply by increasing its market by buying more banks. (Regions Financial Corporation, 2007) The main consolidator was established banker Frank Plummer. Frank Plummer remained chairperson until 1987, when he replaced himself with Willard Hurley who died shortly after. (Hoover's Company Records, 2010)
One of Regions Financials first accomplishments came in 1981 with the success of the company's very expensive and extensive ATM network called Right Place Banking Machines. Regions Financials used a plan of growth that required them to purchase outside banks. This was accomplished in 1986 when Alabama passed an interstate banking bill that permitted Alabama banks to acquire out-of-state banks. This was a huge opportunity for Regions Financial to increase its territory. In the plan for growth Florida was the first, then Georgia, and the rest followed. Further success came in 1987 when Regions became the initial bank in Alabama to give customers complete access to their account inquiries through a computerized telephone service. (Regions Financial Corporation, 2007)
The actual changing of the company's name happened May 2, 1994. The name chosen was Regions Financial Corporation, and the idea of the new name was to accommodate the states where the company had spread. November 4, 2006 the company may have achieved its greatest feat ever, with the merger between themselves and AmSouth. The merger put Regions Financial Corporation on the A list of U.S banks. (Regions Financial Corporation, 2007)
SWOT Analysis
This section of the report contains the SWOT analysis of Regions Financial. The SWOT analysis contains examples of strengths, weaknesses, opportunities, and threats of Regions Financial.
Strengths
This section contains an insight into a few strengths of Regions Financial: including Wide Product Portfolio, Subsidiaries, Ability to Increase Market Position, Assets, and Participation in CPP to enhance Capital Adequacy Ratio.
Wide Product Portfolio
Regions Financial offers a wide range of financial products, which reduces the risk associated with concentrated products. By having a diverse set of products, Regions Financial is able to compensate for those that are underperforming. This allows Regions Financial customers to feel confident that their money is diversified logically. Regions Financial can serve customers with various types of needs with their access to a broad portfolio of financial products. They provide a wide range of public and business banking, trust, securities brokerage, mortgage and insurance products and services. By making large business transactions, Regions Financial is able to have more assets helping it play a bigger role in helping finance other transactions. They also provide risk management products and other services that make it much more than a banking institution. (Global Markets Direct, Inc. Major Products and Services, 2009)
Subsidiaries
In addition, Regions Financial has subsidiaries such as Regions Bank, Morgan Keegan & Company, Regions Insurance Group, and Regions Agency that help compliment Regions Financial in providing services to their customers. These subsidiaries also contribute in Regions Financial being able to provide services for a wide range of customers looking for different financial services. Finally, these subsidiaries increase Regions Financials ability to serve customers in different parts of the country. (Business Wire , 2010)
Ability to Increase Market Position
Regions Financial has a strong hold on the banking market in the United States. Currently Regions Financial serves customers in 16 states ranging from the South, Midwest, and Texas. Through years of service and customer satisfaction Regions Financial has been able to develop a strong brand image. Along with Regions Financials strong brand image and their financial assets, they are ready to take on any opportunity to expand their operations. (Global Markets, Inc. SWOT Analysis, 2009)
Assets
Along with its strong brand image, Regions Financial is one of the leading banks in the United States with total consolidated assets of 146.25 billion USD and total consolidated deposits of approximately 90.9 billion USD as of 2008. In addition, Regions Financials subsidiaries further strengthen Regions Financial operations. Regions Bank operates around 1,900 banking offices and 2,300 ATMs, and Morgan Keegan & Company provides services from over 300 offices. Therefore, Regions Financial strong brand along with their subsidiaries help provide the company with a competitive advantage in the market. (Datamonitor, 2009)
Participation in CPP to enhance Capital Adequacy Ratio
The Capital Purchase Program (CPP) was implemented in 2008 by the United States government to encourage financial institutions to build capital and increase the flow of money in the United States. Regions Financial was one of the first companies to participate in the CPP. By doing so Regions was able to increase its capital cushion and lower their capital cost. With their increase in capital Regions Financial increased its Capital Adequacy Ratio, which is the bank's capital as a percentage of the risk weighted credit exposures. With Regions Financials increased Capital Adequacy Ratio they hold an advantage over their competitors with their capital cushion. (Global Market Direct, Inc. Company Statement, 2009)
Weaknesses
This section focuses on the past and present weaknesses of the Regions Financial Corporation. There are two main categories of weaknesses that majorly affect Regions Financial: wide-spread market disadvantages and personal company weaknesses that can have a particular affect on a company's competitive edge. The discussed weaknesses include: The Recent Recession, Passed Legislation, Drop in Stock Prices, and Lawsuits.
Recent Recession
As many financial institutions have felt the impact of the recent recession, which began around December 2007, Regions Financial is no exception to the negative impacts from a volatile market. (Wikimedia Foundation, 2010) The most recent recession inhibited growth and created many obstacles and weaknesses within the market. Many regional banks experienced large losses due to charge-offs, decline of property value, and credit/loan losses. (Comlay & Rauch) The high unemployment rate is a current negative market aspect for Regions Financial. Since bank lending is dependent upon household income and credit quality, the loss of income for households has had a negative effect on loan growth. (Oja, 2010) Another market concern for Regions Financial is the fragile housing situation. When the housing market was at its worst, the results were large mortgage write-offs that weakened Regions Financials position. (Oja, 2010)
Recently Passed Legislation
Although the recession is the most widely known factor that could be considered a weakness to Regions Financial, recent legislation also had a negative effect on business. Recent legislation restricted the amount of fees a bank can earn from debit and credit cards. Such legislation can hinder and weaken the attempted growth from the debilitating recession.
Drop in Stock Prices
Separate from market volatility and recession, there are also several internal factors that can be considered weaknesses. One such weakness includes the dramatic drop in stock prices since the summer of 2005. In that summer, the price of stock for Regions Financial hovered around $33 to $35. (Reuters, 2010) Five years later, the stock price was around $7 to $8, a surprising decrease of 78%.
Lawsuits
Another internal weakness of Regions Financial is the recent litigation in the past two years. Suit claims range from patent infringements to misleading information to stockholders. Two of such lawsuits, both in 2009, are against recently merged subsidiaries of Regions Financial. (Reuters, Business & Financial News, Breaking US & International News, 2010) Claims accuse the Regions Financial subsidiary of defrauding by concealing actual risks; such violations are against the federal securities laws and would involve the S.E.C.. (Reuters, Business & Financial News, Breaking US & International News, 2009). Such suits against Regions Financial may weaken customer's trust and product assurance and may also affect the reputation and how the stockholders see the corporation as a whole.
Both the internal weaknesses as well as the overall stability of the finance market impact the ability of Regions Financial to succeed. There are many key disadvantages from the recent recession and over-all market, including the increasing unemployment rate, a fragile housing market, and recent legislation. The internal key weaknesses include stock prices and recent lawsuits. Both categories can have a large influence on the corporation's income, stockholder's and customer's reliance, and overall reputation of the corporation.
Opportunities
This section focuses on a few of the opportunities that Regions Financial can use to increase revenue and sustain current operations. The opportunities discussed in this section include: The Recovering economy, Emerging markets, Staffing, Population growth, and Restructuring.
Recovering Economy
With Regions Financial, maintaining such a significant part of their business in the United States, it is like to benefit from the 787 billion dollar economic stimulus bill signed by President Obama in February 2009. This major economic rescue package enacted as the American Recovery and Reinvestment Act is focused towards improving the ailing United States economy, by using Keynesian economics in conjunction with tax cuts to aid both business and individuals. According to Global Markets Direct, this bill will look to create or save 3.5 million jobs in the next two years, protect tax cuts for middle-class families, and provide tax benefits to small businesses. These measures have the potential to boost the economy and improve consumer confidence, which means more credit flow and more potential business opportunities for Regions Financial. (Global Markets Direct, pg 2)
Emerging Markets
According to a report by Datamonitor there are 76 million baby boomers in the United States approaching retirement age, with an estimated 20 trillion dollars in retirement savings at stake. With only about a quarter of these boomers having a plan in place to create a reliable retirement income this represents a huge potential market for Regions Financial to offer financial planning services through their substantial network. In addition, if the economic stimulus bill has the intended effect on the economy then a rising stock market will sway some boomers into shifting their investments away from low risk investments like gold and silver into securities that are more turbulent. By offering highly personalized investment strategies geared towards boomers, Regions Financial has an opportunity to create a division within their company to handle this large demographic of investors. (Datamonitor, 2009, pp. 7-8)
Staffing
During the recent recession many companies trimmed their work force in order to stay lean and reduce costs in order to stay operational. A problem with that strategy is that the quality of the employee diminished sometimes in order to hire someone with a lower pay rate. With business increasing in the banking industry according to Standard & Poor's outlook this gives Regions Financial an opportunity to build their staff up with quality employees. Bank lending and credit quality are directly dependent on employees. By rehiring talented individuals into these areas, you can only expect better decisions to be made which will increase company revenues in the future. (Poor's, Stock Report, 2010, p. 4)
Population Growth
According to a United States Census press release, twenty-five of the top fifty fastest growing metro areas are in the south. With Regions Financial having such a presence in the southern geographic region, this logically gives them an advantage against competitors. With the influx of people moving to these regions, it provides an opportunity for Regions Financial to increase their business without having to do much more than continue to offer their banking services and possible expand their branches to handle the increased traffic. (Commerce, 2007, p. 2)
Restructuring
With the potential for the stock market to see steady growth Regions Financial has decided to restructure their fixed-income and equities businesses into a single investment banking division according to an article in American Banker. By making this move Regions is making an effort to try and position the division for growth, by making it easier for bankers to communicate with each other and not undermine each other's efforts. (Davis, 2010)
Threats
This section of the SWOT analysis will include the threats that will face Regions Financial in the future. The threats discussed in this section include: Weakened Public Image, Fierce Competition in the Banking Industry, Competition for Market Share, Changing Regulations in the US Banking Industry, and Declining Interest Rates.
Weaker Public Image
One threat that Regions Financial will face is a weaker public image. The analysts at Goldman Sachs downgraded Regions Financial to a neutral rather than a buy. They also removed the stock from their "Americas Buy List." (Godman Sachs Analysts downgraded Regions Financial Corp, to neutral from buy, 2009) This in turn will create a weaker public image for the company and may result in some uneasy feelings by stockholders in the stock market.
Slowing Economy
A slowing economy also offers many threats to Regions Financial. The automobile industry is facing a major slow down and is likely to continue to suffer (Outlook on Automotive Industry 2009, 2009). In addition, the housing industry, especially in places such as Florida, is suffering substantially. This will result in less consumer loans and mortgages being demanded by the public and therefore fewer assets on the books of Regions Financial.
Fierce Competition and Low Market Share
New companies entering into the Banking Industry pose a real threat to companies such as Regions Financial. It is not very difficult for companies such as Insurance companies to enter into the Banking Industry. (The Industry Handbood: The Banking Industry, 2010) This poses a threat because as more companies enter into the industry companies become much more competitive in order to try to gain market share. This in turn may cause them to take on much riskier business decisions in order to gain larger profits.
Changing Banking Regulations
Changing regulations in the banking industry could cause more troubles for Regions Financial. As regulations change, they can cause an entire change in the company's business model. The changes will also cost the company large sums of money due to the policy changes that will have to implemented within the company itself. An example of this is the changing regulations of swipe fees that small business owners are trying to push in legislature. (Bohn 2010)
Declining Market Interest Rates
Declining interest rates may also cause problems to Regions Financial in the future. As market interest rates decline so will the value of the loans that are on the books of the company. This will not only result in uneasy feeling in investors but may also lead to other shortcomings. Long-term rates are not expected to go up anytime soon and this could cause other issues such as operating losses within the company. (McBride 2005) The table below shows the recent decline in long-term interest rates. (Mae)
http://www.irvinehousingblog.com/images/uploads/tghb/Declining%20Interest%20Rates%201984-2006.jpg
Recommendations
Recommendations are things that a company should always be open to hear about because they have the potential to help the company and lead them to a brighter future. The recommendations will focus on Regions Financials SWOT Analysis, which consist of strengths, weaknesses, opportunities, and threats.
1. The best strength of Regions Financial is its ability to increase its market position.
2. The biggest weakness of Regions Financial is where the company was caught defrauding, by concealing actual risk from its customers.
3. The best opportunity for Regions Financial is taking advantage of emerging markets arising in the United States.
4. The worst threat to Regions Financial is the declining market for interest rates.
Summary
The summary contains information that presents the best opportunities for Regions Financial to move in a positive direction in the future. This summary will contain the best strength, worst weakness, best opportunity, and worst threat of Regions Financial.
Increase Market Position
The biggest strength for Regions Financial is its ability to increase its market position. Regions Financial has banks in over 16 states in the Midwest, South, and Texas. It is a leading bank in the United States with a consolidated assets holding of $146.25 billion and consolidated deposits of $90.9 billion. (Regions Financial Corporation and Regions Financial Corporation Global Markets Direct - SWOT Analysis, 2009) With that amount of financial backing and the density in which they are located in the southern region, Regions Financial has the opportunity to increase to other parts of the country. If they continue to grow to other parts, their holdings could increase even more and would give them the potential to create a national brand.
Concealing risk from customers
The worst weakness for Regions Financial, as of now, is that they were caught defrauding by concealing actual risk from its customers. Anytime you do not provide information for a customer that needs to be told to them, the company will look bad. The worst part about the situation is that they broke federal security laws. When a company becomes involved with the S.E.C., it is usually not anything good. (Reuters, Business and Financial News, Breaking US & International News, 2009) Once suits were filed against Regions Financial a lot of customers and potential customers probably decided to go in another direction with their investments.
Take on emerging markets
The best opportunity for Regions Financial, in the future, is to take advantage of the emerging markets arising in the United States. There are 76 million baby boomers getting ready to retire. There are only a quarter of them who have a reliable retirement income. This gives many different banking companies the opportunity to grab the other 57 million baby boomers without a retirement savings. If Regions Financial could just get a hold of a couple million of the baby boomers as clients then Regions Financial could hold onto millions in savings. Also, if the stimulus package does cause the stock market to rise, many people might back away from low risk investments. This could allow Regions Financial to offer highly personalized investments to the baby boomers. By doing so, Regions Financial could open up a new division in the company to focus strictly on the baby boomers and their investments. (Datamonitor 2009 pp. 7-8) This would allow for more company growth, which would have the potential to increase stock prices dramatically.
Declining interest rates
The worst threat, that could affect Regions Financial, are the declining market interest rates. The Federal Reserve has lowered interest rates to extremely low levels as of lately. On March 16 of this year, the Federal Reserve announced it would keep the interest rate near almost zero percent (New York Times 2010, March 16.) In addition, as market interest rates continue to decline, the loans Regions Financial has in their books will become of less value. Regions Financial might have more potential customers come in because of such low interest loan rates, but they will not make much money, if any, on the loans. (McBride 2005)
