Regions Bank 2008 Annual Report Download - page 161

that the Funds and the defendants misrepresented or failed to disclose material facts relating to the activities of
the Funds. No class has been certified and at this stage of the lawsuits Regions cannot determine the probability
of a material adverse result or reasonably estimate a range of potential exposures, if any. However, it is possible
that an adverse resolution of these matters may be material to Regions’ consolidated financial position or results
of operations. In addition, the Company has received requests for information from the SEC Staff regarding the
matters subject to the litigation described above.
Certain of the shareholders in these Funds and other interested parties have entered into arbitration
proceedings and individual civil claims, in lieu of participating in the class actions. Although it is not possible to
predict the ultimate resolution or financial liability with respect to these contingencies, management is currently
of the opinion that the outcome of these proceedings would not have a material effect on Regions’ consolidated
financial position or results of operations.
GUARANTEES
As a member of the Visa USA network, Regions, along with other members, indemnified Visa USA against
litigation. On October 3, 2007, Visa USA was restructured and acquired several Visa affiliates. In conjunction
with this restructuring, Regions’ indemnification of Visa USA was modified to cover five specific cases
(“covered litigation”). Certain of the covered litigation has been settled or Visa has recorded a liability for it, and,
accordingly, Regions has recorded its pro-rata share. Additionally, this modification caused Regions’
indemnification to be included within the scope of FASB Interpretation No. 45, “Guarantor’s Accounting and
Disclosure for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” requiring a liability to be
recognized at fair value for Regions’ share of the indemnification for the covered litigation that has not been
settled or accrued by Visa. As of December 31, 2008 and 2007, Regions’ liability recognized under this
indemnification was approximately $50.9 million and $51.5 million, respectively.
On March 25, 2008, Visa executed an initial public offering (“IPO”) of common stock and, in connection
with the IPO, Regions’ ownership interest in Visa was converted into Class B common stock of approximately
3.8 million shares. On March 28, 2008, Visa redeemed approximately 1.5 million shares of the Class B common
stock from Regions for proceeds of approximately $62.8 million, all of which was recorded as “Other Income” in
the consolidated statements of operations. The Class B common stock is subject to a restriction period of the
lesser of three years from the date of the IPO or settlement of all covered litigation. The number of shares of
Class B common stock may also be adjusted by Visa, depending on the outcome of the covered litigation.
A portion of Visa’s proceeds from the IPO, totaling $3.0 billion, was escrowed to fund the covered
litigation. To the extent that the amount available under the escrow arrangement is insufficient to fully resolve
the covered litigation, Visa will enforce the indemnification obligations of Visa USA’s members for any excess
amount. During 2008, Visa settled its lawsuit with American Express for approximately $2.25 billion.
Additionally, Visa agreed to settle litigation with Discover Financial, and the portion of the settlement funded
from the escrow account is approximately $1.74 billion. As a result, Visa reduced the conversion rate applicable
to Class B common stock outstanding and an additional $1.1 billion was deposited into the escrow account. As of
December 31, 2008, Regions’ remaining investment totaled approximately 1.5 million shares with a cost basis of
zero. As of December 31, 2008, Regions recognized an asset of and reduced 2008 expense by approximately
$27.9 million, which represents the Company’s proportionate economic interest in the escrow account to settle
the litigation liability.
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