It was reported last month that board members at Regions Financial Corp. are investigating claims that former executives delayed proper disclosures about loans that were going bad in 2008 and 2009. This news broke about the time a federal judge ruled that a lawsuit involving those allegations could go forward. U.S. District Court Judge Inge Johnson denied a motion in that case by Regions to dismiss the suit. This was good news for a pension fund for the Plaintiff in the case, Chicago-based Teamsters Local 703. Judge Johnson ruled that the Plaintiffs “have pled sufficient allegations that Regions’ loan loss reserves were false and misleading.”
The bank board’s audit committee has hired Sullivan & Cromwell, a New York-based law firm, to investigate an allegation that $150 million in bad loans were removed from a list of non-accruing loans in March 2009. The Wall Street Journal, citing unnamed sources and court documents, first reported the board’s investigation. Judge Johnson’s ruling details how Regions reviewed its bad loans to determine those from which the bank did not expect to collect payment, known as “non-accruals.” Such loans require the bank to set aside reserves to cover those losses or to write them off and count them against earnings.
According to the judge’s ruling, the bank’s special assets officers would compile monthly lists of loans that posed a high risk of default, based on the bank’s nine-point scale. It appears that the bank would attempt to keep some loans from being lumped in the “non-accrual” category. The Federal Reserve has opened its own investigation into the allegations, as well as into Regions’ loan classification practices. It should be noted that Regions has not repaid the $3.5 billion it received from the federal government’s Troubled Asset Relief Program. From all accounts, things don’t look very good for Regions on any of the above.
Sources: Birmingham News and Associated Press
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