Regions Financial: Accounting Probe Loser (Update 1)

Tickers in this article: I:BKX RF

Updated with market close, return and stock ratio information.

NEW YORK ( TheStreet) -- Regions Financial (RF) was the loser among the largest U.S. banks on Monday, with shares pulling back 2% to close at $6.99.

According to a Wall Street Journal report, Regions -- headquartered in Birmingham, Ala. -- is being investigated by federal bank regulators, the Securities and Exchange Commission and the Special Inspector General for the Troubled Asset Relief Program, for improperly accounting for nonperforming loans during the financial crisis.

Regions received $3.5 billion in government bailout funds through the Troubled Assets Relief Program, or TARP, in November 2008, and redeemed in full the preferred shares held by the U.S. Treasury in April, after the company in the first quarter sold its Morgan Keegan brokerage subsidiary to Raymond James Financial (RJF) for $930 million, and raised $900 million in capital through a common equity offering.

The Journal said that the government investigations of Regions sprang from two civil lawsuits brought against the company in 2010 by pension funds holding the company's stock, alleging that "Regions hid problems by moving loans out of nonaccrual status, which means interest payments were overdue and collection of the principal unlikely," according to the Journal piece.

Regions Financial didn't return a call requesting comment.

The company's shares have now risen were up 64% year-to-date. The shares trade just above tangible book value, according to Thomson Reuters Bank Insight, and for 9.1 times the consensus 2013 earnings estimate of 77 cents, among analysts polled by Thomson Reuters. The consensus 2014 EPS estimate is 82 cents.

Regions currently pays a nominal quarterly dividend of a penny a share. Following the next round of Federal Reserve stress tests that should be completed in March, investors are expecting the company to begin returning capital to shareholders. Credit Suisse analyst Craig Siegenthaler in November estimated that Regions would be approved to raise the quarterly dividend to four cents, and to buy back $249 million worth of shares during 2013. Of course, it is too early to predict whether or not the investigations will affect any payout by Regions.

Miller Tabak analyst Thomas Miller wrote on Monday that the investigation of Regions Financial's accounting "is not 'new news,' and the malefactors, if there were any, are long gone from RF's management. Management has aggressively addressed problem loans, and loan classification processes, in recent quarters, and we take the bank's recent improving credit metrics as a sign that a very substantial percentage of RF's recession legacy problem loans have been fully addressed."

Miller added that "the investigations well may lead to RF paying a modest settlement and agreeing to maintain better practices -- practices already implemented -- in future periods."