Regions Faces Probe for Delaying Disclosure of Soured Loans

The Securities and Exchange Commission (SEC) is apparently nearing a $200 million settlement with Regions Financial Corporation, its brokerage subsidiary Morgan Keegan & Company and two individuals targeted in the SEC’s civil fraud case for defrauding investors during the sub-prime securities crisis, according to an article in the Wall Street Journal. It was also reported that the audit committee of the bank is investigating whether executives delayed releasing information to the public on soured loans leading up to the financial crisis.

Regions, based out of Birmingham, AL, emerged as a prominent player in the southeast during the consolidation frenzy and its acquisition of hometown rival AmSouth Bancorporation, which came with poorly performing commercial and residential mortgages in Georgia and Florida. Saddled with massive claims against its brokerage subsidiary, Morgan Keegan & Company, Regions has not posted a profit since 2007.

The inquiry now is focused upon exactly when some of the problem loans were classified as “nonaccrual”, meaning that interest payments were overdue and collection of the principal was unlikely. Bert Ely, a longtime bank analyst, said that how and when loans should be classified is often a judgment call but that “delaying recognition of nonaccruals is a common kick the can tactic for banks struggling with problems.”

Regions has been sued by two pension funds who have alleged that the bank shifted $150 million worth of loans out of nonaccrual status to hide its problems from investors in 2008 and 2009 and added them back at a later time. Regions had asked federal Judge Inge Prytz Johnson in Birmingham to dismiss the pension funds’ suit on the basis that there was no evidence to suggest the statements were misleading or that the bank was aware of any fraud. Last week, the judge denied the motion to dismiss and said the suit could go forward.

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