Back of the banking pack: Is Regions Financial hiding bad loans to gain recovery time?
Wake up and good morning. The Wall Street Journal today reports that the board of directors of Alabama's Regions Financial -- a prominent banking company in the Tampa Bay area... it's the "green bicycle" bank in ad campaigns -- is investigating whether executives delayed public disclosure of loans that were going sour (many of them in Florida) during the financial crisis. The story says the audit committee of the nation's 12th-largest U.S. bank by assets -- and the only one of its size still supported by crisis-era government aid -- began its probe after the Federal Reserve expressed concerns about past practices. The story cites anonymous sources and court documents.
The lesson of the story is that not all bank reports of their financial condition are equal. Banks have many ways to mask or delay publicizing financial woes, especially in deciding wow to characterize non-performing loans. Regions, it would seem, is being more creative than most as it struggles to climb out of a real estate lending nightmare brought on, in part, by its rapid push into the teetering Florida economy in the past five years. One example? The newspaper reports that investigators are looking at so-called extend-and-pretend cases, where a bank gives a borrower more time and delays reclassifying a souring loan.
It's well known that Regions, based in Birmingham, Ala., got into a fix through heavy exposure to real estate. Its 2006 acquisition of hometown rival AmSouth Bancorporation saddled Regions with poorly performing commercial and residential mortgages in Georgia and, of course, Florida, the Journal notes. On the other hand, J.D. Power and Associates this year ranked Regions Bank highest in retail banking satisfaction in Florida among U.S. banks.
The Journal adds: "Two pension funds that own Regions stock filed suit last year alleging that the bank shifted certain loans out of nonaccrual status to hide its problems from investors in 2008 and 2009. The suit in federal court in Birmingham asserted that a Regions executive removed $150 million of loans from an internal nonaccrual list on the last day of 2009's first quarter and put them back the following month.
"Regions asked federal Judge Inge Prytz Johnson in Birmingham to dismiss the pension funds' suit, asserting in a filing that there was no evidence to suggest either that financial statements were misleading or that the bank was aware of any fraud."
Last week, Judge Johnson ruled that the Birmingham suit could go forward. In denying the motion to dismiss it, she wrote that shareholders "have pled sufficient allegations that Regions' loan loss reserves were false and misleading" and that the company "had access to accounting systems and internal reports that showed contrary information to what was in their public statements and financials." Read the entire Wall Street Journal story here.
-- Robert Trigaux, Business Columnist, St. Petersburg Times