Regions Bank 2009 Annual Report Download - page 195

In December 2009, Regions and certain current and former directors and officers were named in a
consolidated shareholder derivative action filed in Jefferson County, Alabama. The complaint alleges
mismanagement, waste of corporate assets, breach of fiduciary duty and unjust enrichment relating to bonuses
and other benefits received by executive management. Although it is not possible to predict the ultimate
resolution or financial liability with respect to this matter, management is currently of the opinion that the
outcome of this matter will not have a material effect on Regions' business, 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 required Regions to
recognize a liability 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, 2009 and 2008, Regions’ liability recognized under this
indemnification was approximately $27 million and $51 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 $63 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.
In the second quarter of 2009, Regions sold the Visa Class B common stock to a third party. The sale
resulted in a gain of $80 million.
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, 2009 and 2008, Regions reduced expenses by approximately $13 million and $28
million, respectively, which represents the Company’s proportionate economic interest in the escrow account to
settle the litigation liability.
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