A long-running investigation by the Securities and Exchange Commission into improper spending of shareholders' fees linked to mutual funds once run by AmSouth Bank and AmSouth Asset Management have led to an $11.4 million settlement, officials said Tuesday.
AmSouth Bank, now owned by Regions Financial Corp., and AmSouth Asset Management, settled with federal regulators who accused the mutual fund advisers of secretly using part of the fees paid by shareholders for an executive's country club membership and other expenses.
The Securities and Exchange Commission said it was the agency's first case of this kind.
The companies neither admitted nor denied wrongdoing. The $11.4 million will go into a fund that Birmingham, Ala.-based Regions Financial Corp., which acquired AmSouth, will distribute to the affected mutual funds, which are now managed by Pioneer Group.
Regions cooperated with the SEC in its investigation, a bank spokesman said.
The SEC will not tolerate advisers that seek to hide their own marketing expenses in other types of fees charged to fund shareholders, SEC Enforcement Director Linda Thomsen said in a statement.
Regions Bank did not disclose the name of the fund manager (who got the country club membership paid for). He has never worked for Regions, a spokesman said.
AmSouth Funds were sold to Pioneer Investments in 2005, before the merger with Regions Financial Corp., according to Regions spokesman Tim Deighton.
Stock downgradedShares of Regions Financial fell $1.88 per share, or 12.1 percent, to $13.72 in trading on the New York Stock Exchange on Tuesday. The weaker stock price was due in large part to a downgrade of the bank's stock by Citi Investment Research analyst Greg Ketron.
Ketron cut his rating on Regions Financial to "sell" from "hold" and also cut his 2008 and 2009 earnings estimates because of an expected increase in loan-loss provisions and credit costs. He said plans by the government to buy troubled assets from banks would likely set a floor for ultimate losses at banks but would not relieve near-term credit pressures at Regions Financial and other institutions.
Regions is likely to face rising losses from its residential and multifamily lending portfolios, while net interest margin — or the profit margin from lending — is likely to narrow. Nearly all banks have faced mounting losses tied to a sharp rise in mortgage defaults.
Ketron cut his 2008 earnings estimate for Regions to $1.32 per share from $1.40 per share, and his 2009 estimate to $1.25 per share from $1.45 per share.
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