Monday, March 31, 2008

Credit Crunch Shadows Regions Financial’s First-Quarter Earnings Report

After announcing a round of layoffs last week, Alabama-based bank Regions Financial Corp. will report its first-quarter earnings on April 15, which will most likely commence a year that will be dominated by decisions connected to the nationwide credit crunch.

Housing-related loans will be Regions’ (and the entire banking industry) weak spot. According to a Morningstar analyst, Regions’ loans to homebuilders in Florida and Atlanta are the source of its biggest woes.

In January, Regions started targeting $850 million of loans of its homebuilder portfolio it hoped to find a way out of. Instability in their homebuilder portfolio is expected the rest of this year and Regions recently reported to the SEC that its nonperforming asset and charge-off levels will continue to go up in 2008. The bank will also realize costs associated with its 2006 merger with AmSouth Bank through the second quarter of this year.

As the bank gets ready to move into managing the uncertain credit cycle, litigation will also plague its decisions.

For example, in West Tennessee, there are six pending federal lawsuits (there are no class actions as of yet) that specifically relate to activities of Regions' investment banking arm, Memphis-based Morgan Keegan. Morgan Keegan executives are departing the company amidst emerging complaints that allege the company misrepresented or failed to disclose facts concerning portfolio composition, fair valuation, liquidity, and risk in fund registration statements and other documents.

And last week, the New York-based Catholic Medical Mission Board filed a federal suit against Regions in Birmingham claiming that bank executives swindled shareholders and sold their shares of Regions stock because they allegedly knew the share price would fall.

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