Business Context and Reporting Period
Company: Regions Financial Corporation
Filing Type: Form 8-K (Current Report)
Date of Report: July 21, 2009
Subject: Regulatory actions and legal proceedings involving Morgan Keegan & Company, Inc., a wholly-owned subsidiary, regarding Auction Rate Securities (ARS).
Key Financial Metrics and Exposure
The filing does not provide consolidated revenue, profit, cash flow, or margin data for the reporting period. It specifically discloses the following ARS exposure as of June 30, 2009:
- Customer-owned ARS: Approximately $365 million.
- Company-held ARS: Approximately $128 million on the balance sheet.
Material Changes and Events
Two significant regulatory events occurred on July 21, 2009:
- SEC Complaint: The SEC filed a complaint in the U.S. District Court for the Northern District of Georgia against Morgan Keegan alleging violations of federal securities laws (antifraud provisions) in connection with ARS underwriting, marketing, and sales. The SEC is seeking an injunction, disgorgement, financial penalties, and the repurchase of all ARS sold by Morgan Keegan prior to March 20, 2008.
- Alabama Securities Commission Order: The Alabama Securities Commission issued a "Show Cause" order requiring Morgan Keegan to justify why its broker-dealer registration should not be suspended or revoked in Alabama. The order also addresses potential disgorgement, repurchase of ARS sold to Alabama residents, and payment of costs and penalties.
Outlook, Management Commentary, and Contingencies
Repurchase Program: Morgan Keegan commenced a voluntary ARS repurchase program in February 2009. The company plans to extend this program in the third quarter of 2009 to include ARS sold to customers but underwritten by other firms.
Contingencies: The company faces potential financial liabilities including the repurchase of ARS, disgorgement of profits, and payment of penalties. There is also a risk of suspension or revocation of broker-dealer registration in Alabama.
Investor Verification Checklist
- Verify the total potential financial liability associated with the SEC's request for repurchase of all ARS sold prior to March 20, 2008.
- Monitor the outcome of the Alabama Securities Commission "Show Cause" order regarding broker-dealer registration status.
- Assess the impact of the extended voluntary repurchase program on third-quarter liquidity and earnings.
- Review subsequent filings for updates on the status of the $128 million ARS held on the balance sheet.