Fifth Third Bancorp Chief Financial Officer Daniel Poston had the unfortunate task of facing a roomful of investors the morning after the company announced it had been subpoenaed by the Securities and Exchange Commission for information about its commercial loans.
Speaking Tuesday at a Keefe, Bruyette & Woods Inc. bank conference in Boston, Poston offered no details about the nature of the SEC's investigation, beyond what the company already has disclosed in regulatory filings.
In its annual 10-K report filed Monday, Fifth Third said it had been subpoenaed by the SEC regarding "issues which Fifth Third understands relate to accounting and reporting matters involving certain of its commercial loans." A previous disclosure that the SEC had made several requests for similar information — though apparently not with the use of a subpoena — had been made in Fifth Third's third-quarter 10-Q regulatory filing.
"We continue to not have a lot of specific information with respect to what the SEC is looking for," Poston said Tuesday as Fifth Third shares sank. The stock went on to close at $13.95, down 4.5% for the session. "I think it [the latest disclosure] has received an increased level of attention due to the fact that we have received a subpoena for information, but the nature of the investigation in terms of the type of information they are requesting and our knowledge of what they are looking for has not really changed currently versus what was previously disclosed," Poston said.
But investors pressed for more details during the question-and-answer period following Poston's presentation about the company, with one audience member describing the matter as the "800-pound gorilla" in the room.
Poston was game, working with investors as they tried to deduce the SEC's intentions.
One audience member asked whether the investigation could be tied to the company's internal grading system for loans. "That would not probably be what they would focus on," Poston said. "Loan rating systems are typically more in the arena of the banking regulators than the SEC."
How about the classification of nonperforming loans? Poston did not rule out that possibility, but he offered that the classification system "is something that the banking regulators look at, and therefore there has been some oversight all along from banking regulators with respect to classification of loans as nonperforming or not."
Responding to a question about what the SEC could be examining that bank regulators might have missed, Poston acknowledged the different missions of the agencies. "Banking regulators focus on a much broader set of objectives than the SEC. They evaluate the safety and soundness of an institution, they evaluate credit quality, they evaluate risk management practices," he said. "The SEC, on the other hand, focuses on accounting and reporting. Their mandate is much narrower than the banking regulators'."
Given the distinction, Fifth Third does not expect the SEC action to have any effect on the company's ability to make loans. "[T]he potential impacts of that matter really relate primarily to the financial statements and the presentation of information in our financial statements, and not … the way we do business on a day-to-day basis," Poston said.
