Investors have filed a class action lawsuit against Regions Financial Corporation (RF) on charges that the bank had obtained shareholders’ approval for the 2006 acquisition of AmSouth Bancorp by misleading investors about its own financial condition.
In November 2006, when the bank announced to purchase AmSouth Bancorp for $10 billion, it allegedly made false representations about the benefits of combining the two banks into a single operation. AmSouth Bancorp has a significant presence in residential loans in Florida market, which suffered losses when the housing bubble burst. Thus, the investors had been unaware that the purchase would expose the company to potential losses.
In January 2009, Regions announced a $6 billion write-down of goodwill stemming from the AmSouth acquisition. AmSouth was supposed to bring about $6 billion in goodwill to Regions, besides the prospects of doubling its operations in Florida’s real estate market. Regions had overstated the goodwill from AmSouth and window-dressed the balance sheets for the combined entity.
The suit was filed through the law firm of Whatley, Drake & Kallas LLC. Merrill Lynch & Co., Regions’ adviser in the transaction, and Ernst & Young LLP, the auditor to both banks, were also named defendants in the suit.
Earlier, during April, a shareholder class action law suit was filed against Regions Financial Corporation by the law firm of Barroway Topaz Kessler Meltzer & Check LLP. The complaint was charged by purchasers of the 8.875% Trust Preferred Securities of Regions Financing Trust III, alleging that the registration statement for the securities was false and gave misleading details.
During the second quarter, the company reported a loss of 28 cents per share. Regions has been badly hit by the subprime mortgage crisis as its loan portfolio is largely composed of real estate including home equity and is largely concentrated in Florida, one of the worst affected areas.
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