Regions Bank 2012 Annual Report Download - page 227

May 2010 an order to compel arbitration was denied. Regions appealed the denial and on April 29, 2011, the
Eleventh Circuit Court of Appeals vacated the denial and remanded the case to the district court for
reconsideration of Regions’ motion to compel arbitration. On September 1, 2011, the trial court again denied
Regions’ motion to compel arbitration. Regions again appealed the denial to the Eleventh Circuit, which on
March 5, 2012 granted the motion and ordered that the case be dismissed. Plaintiffs filed a motion for rehearing
by the full court of appeals, which was denied on April 30, 2012. Plaintiffs petitioned for certiorari with the U.S.
Supreme Court, but their petition was denied on October 9, 2012. The case was dismissed with prejudice on
December 21, 2012. Another purported class-action alleging these claims was filed in the U.S. District Court for
the Northern District of Georgia in January 2012. The case is still early in its development and no class has been
certified. Plaintiffs in these cases have requested equitable relief and unspecified monetary damages.
In July 2006, Morgan Keegan and a former Morgan Keegan analyst were named as defendants in a lawsuit
filed by a Canadian insurance and financial services company and its American subsidiary in the Circuit Court of
Morris County, New Jersey. Plaintiffs made claims under a civil Racketeer Influenced and Corrupt Organizations
(“RICO”) statute, for commercial disparagement, tortious interference with contractual relationships, tortious
interference with prospective economic advantage and common law conspiracy. Plaintiffs allege that defendants
engaged in a multi-year conspiracy to publish and disseminate false and defamatory information about plaintiffs
to improperly drive down plaintiffs’ stock price, so that others could profit from short positions. Plaintiffs allege
that defendants’ actions damaged their reputations and harmed their business relationships. Plaintiffs allege a
number of categories of damages they sustained, including lost insurance business, lost financings and increased
financing costs, increased audit fees and directors and officers insurance premiums and lost acquisitions, and
have requested monetary damages. On September 12, 2012, the trial court dismissed the case with prejudice.
Plaintiffs have filed an appeal. This matter is subject to the indemnification agreement with Raymond James.
While the final outcome of litigation and claims exposures is inherently unpredictable, management is
currently of the opinion that the outcome of pending and threatened litigation will not have a material effect on
Regions’ business, consolidated financial position, results of operations or cash flows as a whole. However, in
the event of unexpected future developments, it is reasonably possible that an adverse outcome in any of the
matters discussed above could be material to Regions’ business, consolidated financial position, results of
operations or cash flows for any particular reporting period of occurrence.
GUARANTEES
INDEMNIFICATION OBLIGATION
As discussed in Note 3, on April 2, 2012 (“Closing Date”), Regions closed the sale of Morgan Keegan and
related affiliates to Raymond James. In connection with the sale, Regions agreed to indemnify Raymond James
for all legal matters related to pre-closing activities, including matters filed subsequent to the Closing Date that
relate to actions that occurred prior to closing. Losses under the indemnification include legal and other expenses,
such as costs for judgments, settlements and awards associated with the defense and resolution of the
indemnified matters. The maximum potential amount of future payments that Regions could be required to make
under the indemnification is indeterminable due to the indefinite term of some of the obligations. However,
Regions expects the majority of ongoing legal matters to be resolved within approximately three years.
As of the Closing Date, the fair value of the indemnification obligation, which includes defense costs and
unasserted claims, was approximately $385 million, of which approximately $256 million was recognized as a
reduction to the gain on sale of Morgan Keegan. The fair value was determined through the use of a present value
calculation that takes into account the future cash flows that a market participant would expect to receive from
holding the indemnification liability as an asset. Regions performed a probability-weighted cash flow analysis
and discounted the result at a credit-adjusted risk free rate. The fair value of the indemnification liability includes
amounts that Regions had previously determined meet the definition of probable and reasonably estimable.
Adjustments to the indemnification obligation are recorded within professional and legal expenses within
discontinued operations (see Note 3). As of December 31, 2012, the carrying value of the indemnification
obligation was approximately $345 million.
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