Regions agreed to pay $46 million to the Federal Reserve and $5 million to authorities in Alabama, the central bank said today in a statement. The firm also reached a deal to avoid civil prosecution by the U.S. Securities and Exchange Commission, which credited Regions’s cooperation in the probe.
Thomas Neely Jr., a former executive for credit risk, sought to circumvent internal controls in early 2009 and improperly classify $168 million in commercial loans as still current, letting Regions avoid adding to reserves for loan and lease losses, the SEC said in a statement. He and two other executives “arbitrarily and without supporting documentation, took steps to keep the loans in accrual status,” the SEC said.
Neely’s attorney disputed the accusations.
Bad loans contributed to more than $7 billion of losses in the four years through 2011 at the Birmingham-based lender, which took a $3.5 billion taxpayer bailout in 2008 to stay afloat. Regions took longer than larger banks to repay the money, leaving it the biggest recipient of aid when it exited the bailout program in 2012.
The Fed faulted the firm for lapses in controls and procedures and failing to ensure regulators got true information. Bank employees provided “inaccurate, incomplete and misleading information to examiners” about the process for handling non-accruing loans, the central bank said.
Top bank executives including the finance chief were misled about loans, and the firm overstated earnings, the SEC said.
The SEC opened an administrative case against Neely to weigh sanctions including a fine. The Fed said it also initiated proceedings, seeking to ban him from the banking industry and impose a $2.4 million civil penalty.
Neely’s attorney, Augusta Dowd, said she hadn’t yet seen the regulators’ accusations aside from news reports.
“Mr. Neely had an extremely successful career in the banking industry, and it is tragic that he has been been wrongfully charged with the various violations,” she wrote in an e-mail. “We do not believe these charges will withstand the scrutiny the regulatory processes will require.”
Regions said in a statement that it “returned to sustainable profitability, significantly reduced credit losses and strengthened its executive management team.” It also bolstered controls and set aside money last year for the fines.
Michael Willoughby, the bank’s former chief credit officer, and Jeffrey Kuehr, former head of the problem-loan workout department, consented to orders barring them from the banking industry, the Fed said. They settled SEC claims by each paying $70,000 and agreeing not to work as officers or directors of a public company for five years. They didn’t admit or deny wrongdoing, the agency said.
Kuehr’s lawyer didn’t immediately respond to a message seeking comment.
“It’s a compromise of claims, like any settlement,” said Jack Sharman, an attorney for Willoughby. “Mr. Willoughby settled those claims and can move on.”