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T.J. Raney running strong; Morgan Keegan's courtly acquisition brings vitality to T.J. Raney & Sons.

T.J. Raney Running Strong

One year after Morgan Keegan Inc. merged with T.J. Raney & Sons Inc., the dealmakers project it as one coutly Southern investment house acquiring another.

Arkansas's oldest investment banking firm, established at Little Rock in 1931, Raney & Sons is apparently thriving under the appreciably younger Morgan Keegan (established at Memphis in 1969).

Keegan's substantial $50 million capital base has given Raney & Sons increased economic clout and a wide array of securities to sell. (See accompanying chart for comparison of the two firms.)

Thomas D. Raney, the company founder's grandson and president who negotiated the sale, continues to downplay speculation the firm was in a cash crunch last year from a large fixed overhead and forced to sell.

"We had enough money to cover those things, but there was no future in it," Raney says. "It wasn't fun any more. There was no reason to spin your wheels."

"There's not much room out there any more for a free-standing investment broker-dealer," Raney says. The trend is for larger shops to acquire smaller ones. "They [at Morgan Keegan] expressed an interest and we started talking. The more we talked, the more we liked it [the idea of a merger.]"

Spreading West

Morgan Keegan's offices were east of the Mississippi River and the young firm was searching to expand. Raney & Sons' focus on Arkansas, Texas, Louisiana and Oklahoma gave Morgan Keegan an instant entree into the Southwest, says Mark A. Lee, manager of the equity division at Raney.

"There were a lot of the same type people working here as worked for Morgan Keegan. So it was kind of a neat fit - a glove fit," says Lee, who came from the main office to help the merger along.

The acquisition came as a much-needed tonic for Raney, which in 1988 suffered $268,300 in net losses before income tax benefits. No one's talking details at either company about the sale, but Morgan Keegan's 1989 Annual Report notes "net operating loss carry-forwards of approximately $700,000 generated by T.J. Raney & Sons which expire in 2004 are available to the Company (Morgan Keegan)."

Decade of Activity

The sale of Raney, Arkansas' oldest investment banking firm (Stephens Inc. was formed in 1933), capped a decade that began with Thomas D. Raney, the company founder's grandson, leading it toward growth and innovation.

* His company had 75 employees in 1980. By the mid 1980s, it had a staff of 140, larger than Stephens' 125. When it was sold, however, it had 175 employees to about 300 at Stephens.

* Raney & Sons branched into real estate in 1982 with the hiring of John McKay, owner of McKay & Co. But the bottom soon fell out of real estate. Raney & Sons never did experience much success with the venture, and the real estate division was shut down.

* In 1983, Raney hired a rising business talent, Thomas A. Prince, to fire up a corporate finance department. After being with Raney & Sons less than a year, Prince left.

* Prince hired John W. Priest, whose responsibility was to search for venture capital. Priest also would leave the company after a couple years.

* By the fall of 1983, Raney also added a 13-member "tax advantage" department to market real estate shelters.

While in the midst of putting into effect a vision, Raney & Sons was slapped in 1982 with a complaint by the Arkansas Securities Department. Nancy J. Jones, then the department's chief examiner, called it "the most extensive broker-dealer complaint ever filed by this department in terms of volume and the extent of the alleged violations."

The firm disputed the charges, but settled quickly and was censured for alleged improper trading by three traders. A supervisor was demoted and paid a $5,000 fine. The company also agreed to improve its compliance procedures.

Tom Raney discounts the significance of the complaint and others filed against the firm.

No Raney employees ever were convicted of securities-related crimes.

Before the merger, "Raney & Sons tried to be a full-service investment banking company, and that's difficult to do," says Robert L. Snider, who heads up the Raney investment banking division. "It just made more sense from the standpoint of Morgan Keegan to merge with T.J. Raney rather than start their own company in Arkansas and compete with us."

Raney & Son's single office at Little Rock became the 20th office in the Morgan Keegan family. Raney's weaknesses, which led to its sale, included the lack of the economies of scale to hold down operating costs.

The firm lacked the support services and also the capital to excel in a highly competitive market, Lee says.

Among Raney's strengths are an established retail stocks and bonds department and an institutional bond department, which has taken years to develop through personal relationships with city, county and school district officials.

Raney & Sons had not focused much on institutional equity (selling stocks to pension funds, mutual funds, foundations and large bank trust departments).

Without citing figures, Raney says his firm's bond business is at least equal to that of Stephens Inc. While Raney & Sons may not have been weak in the equity division, it was not as large as Stephens, whose quick success compounded because of ownership positions it took in several companies it helped.

Morgan Keegan receives criticism from some Arkansas investors for not covering Arkansas stocks as extensively as T.J. Raney & Sons did. A pre-merger research report by Raney comments on 18 Arkansas-based companies.

Morgan Keegan now covers eight Arkansas stocks in depth and monitors four other for trends that warrant closer attention. "We would rather do a good job on the ones we cover than a mediocre job and cover them all," Lee says.

Absent from the Morgan Keegan lists are Alltel, Systematics, Worthen Bank and Baldor. Alltel, Systematics and Worthen are closely followed by Stephens, which has a major ownership in each.

What can Morgan Keegan add to coverage of the three stocks that Stephens does not already provide?, Lee asks.

Early Layoffs

About 35 former Raney employees were laid off after the acquisition. But there are now more traders and analysts, through a large support operation at Memphis, to serve T.J. Raney than it had before.

It appears that both Raney & Sons and Morgan Keegan have benefitted from their deal. With overhead reduced, the office is making a profit, says Lee. "Our revenues are up on a per broker basis and a firm basis."

Meanwhile, Lee says the office is run by a committee of first vice presidents with decisions being made jointly by himself; Thomas V. Harkins, who manages fixed-income sales; Snider, who manages investment banking; and Tom Raney, who consults all of them.

Morgan Keegan enhanced its status as a premier regional investment house with the acquisition of T.J. Raney & Sons, which brought to the deal a fine reputation, quality people and a strong client base, especially in public finance.

With emphasis on personal service to clients and direct contact between employees in one area and with those in another, Morgan Keegan has set its blueprint for the future.

As a promotional brochure states, "Among the large, far-flung financial giants, Morgan Keegan is unusual. We're Southern, we're close-knit, and we like to think we're smart. Smart enough to know that brokers and clients are the key ingredients to our success. Smart enough to follow investment ideas that make sense for those clients and brokers."

TABLE : T.J. Raney & Sons Inc. By The Numbers
 (prior to May 8, 1989, sale to Morgan Keegan Inc.)
 OOOs mill. mill. EQUITY
1979 54 4.2 5.9 2.5
1980 54 4.3 13.8 1.6
1981 (298)2 5.0 9.4 1.2
1982 115 6.2 16.9 1.4
1983 (3/31) 808 9.4 26.5 2.3
1983 (6/30) 197 3.0 25.6 3.8
1984 (569)3 9.4 19.1 4.4
1985 615 9.7 16.2 4.5
1986 1.700 14.9 21.0 4.5
1987 1.400 16.4 22.2 5.3
1988 239(4) 10.6 20.7 4.3
1989 NA NA NA NA

TABLE : A Morgan Keegan Look
1985 3,242 51.3 100.8 28.7
1986 5,474 69.8 180.3 33.9
1987 6,699 86.4 195.1 56.0
1988 2,505 73.6 236.2 49.3
1989 2,372 79.4 397.0 48.4

Sources: Annual financial statements filed by T.J. Raney & Sons Inc. with Arkansas Securities Department. No statement was filed for 1989, the year in which Morgan Keegan Inc. acquired Raney. Figures for Morgan Keegan obtained from annual reports and the company.

Notes: 1Reporting years end on May 31 for 1979-1982. In 1983, two reports were issued (for 10 months ending March 31 and three months ending June 30), and the reporting period was changed to end in March. Figures for 1984-1988 reflect an April-March reporting period. 2Loss before income tax benefit was $509,400. 3Loss before income tax benefit was $952,300. 4Loss before income tax benefit and cumulative effect of change in accounting principles was $268,300. NA - Not available.

PHOTO : MANAGING RANEY: Mark A. Lee came from the main Morgan Keegan office at Memphis to help run T.J. Raney & Sons Inc. after the merger.
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Article Details
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Author:Kern, David F.
Publication:Arkansas Business
Article Type:company profile
Date:May 21, 1990
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