CHARLOTTE, N.C., June 13 (Reuters) - Regions Financial
Corp's board is investigating whether executives delayed public
disclosure of soured loans during the financial crisis,
according to documents filed in a federal district court.
The bank's audit committee began the probe after the
Federal Reserve expressed concern about past practices at
Regions, plaintiffs said in documents filed on June 7 in
connection with a 2010 investor lawsuit against the bank.
The lawsuit -- filed by a pension fund investor -- alleges
senior Regions executives violated federal securities laws by
misrepresenting the bank's financial condition in 2008 and
2009.
A spokeswoman for Birmingham, Alabama-based Regions
declined to comment.
"This is just the latest reminder of the kind of pressure
that's on Regions to perform," said Chris Marinac, a bank
analyst with FIG Partners LLC.
According to the court documents, Regions' audit committee
has hired New York-based law firm Sullivan & Cromwell to aid in
the investigation. The law firm has a list of $150 million in
assets that were removed from the bank's problem loan list in
March 2009, the documents said.
Investigators are looking at so-called extend-and-pretend
cases, where a bank gives a borrower more time and delays
reclassifying a souring loan, according to the documents.
A probe of the bank's loan practices would be the latest
wrinkle in Regions' struggle to cope with loan losses tied to
the U.S. housing market collapse.
The bank has not yet repaid $3.5 billion in government
bailout aid received during the financial crisis. It is the
only one of the 19 largest U.S. banks that has not paid back
its bailout. Regions just recently began reporting quarterly
profits.
Last fall, Regions' senior risk management team left the
bank in a surprise move that spooked investors.
The latest internal investigation was first reported by the
Wall Street Journal on Monday. The Journal said the probe would
look into "troubled-debt restructurings," where a bank breaks
up a nonperforming loan and labels a portion of it as
performing.
The Journal also reported that a Securities and Exchange
Commission probe of Morgan Keegan & Co, the investment banking
unit of Regions, could result in a settlement. The SEC is
investigating whether Morgan Keegan defrauded investors in
subprime securities.
In April 2010, U.S. regulators charged Morgan Keegan and
two employees with fraud for inflating the value of subprime
mortgages and other risky debt in mutual funds, resulting in
more than $1 billion of investor losses.
The case is Local 703, International Brotherhood of
Teamsters Grocery and Food Employees Welfare Fund vs. Regions
Financial Corp et al, U.S. District Court, Northern District of
Alabama, No. 10-02847.
For Local 703 et al: Andrew Brown and Tricia McCormick of
Robbins Geller Rudman & Dowd; James Ward and Patrick Cooper of
Ward and Wilson; Larry Moore of Moore & Trousdale; Roger
Bedford of Roger Bedford & Associates.
For Regions Financial: Betsy Collins, Kip Nesmith and
Victor Hayslip of Burr & Forman.
(Reporting by Joe Rauch and Vaishnavi Bala; Additional
reporting by Jonathan Stempel)