Fifth Third Bank 2013 Annual Report Download - page 138

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
136 Fifth Third Bancorp
denying any factual allegations, consented to the SEC’s issuance of
an administrative order containing findings that the Bancorp did not
properly account for a portion of its commercial real estate loan
portfolio in its Form 10-Q for the third quarter of 2008 in violation
of certain provisions of the securities laws, including Sections
17(a)(2) and 17(a)(3) of the Securities Act of 1933 and Sections
13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of
1934. The settlement also ordered the Bancorp to cease and desist
from committing or causing any such violations in the future and to
pay a civil penalty of $6.5 million. Daniel T. Poston, the Bancorp’s
interim chief financial officer during the relevant time, agreed to a
separate settlement with the SEC staff pursuant to which Mr.
Poston, without admitting or denying any factual allegations,
consented to an administrative order containing similar findings and
charges against him, a cease and desist order, a separate civil money
penalty of $100,000, and a one-year ban from practicing before the
SEC. The SEC approved the settlement on December 4, 2013 and
this matter is now concluded.
The Bancorp is party to numerous claims and lawsuits as well
as threatened or potential actions or claims concerning matters
arising from the conduct of its business activities. The outcome of
claims or litigation and the timing of ultimate resolution are
inherently difficult to predict. The following factors, among others,
contribute to this lack of predictability: plaintiff claims often include
significant legal uncertainties, damages alleged by plaintiffs are often
unspecified or overstated, discovery may not have started or may
not be complete and material facts may be disputed or
unsubstantiated. As a result of these factors, the Bancorp is not
always able to provide an estimate of the range of reasonably
possible outcomes for each claim. A reserve for a potential litigation
loss is established when information related to the loss contingency
indicates both that a loss is probable and that the amount of loss
can be reasonably estimated. Any such reserve is adjusted from time
to time thereafter as appropriate to reflect changes in circumstances.
The Bancorp also determines, when possible (due to the
uncertainties described above), estimates of reasonably possible
losses or ranges of reasonably possible losses, in excess of amounts
reserved. Under U.S. GAAP, an event is “reasonably possible” if
“the chance of the future event or events occurring is more than
remote but less than likely” and an event is “remote” if “the chance
of the future event or events occurring is slight.” Thus, references
to the upper end of the range of reasonably possible loss for cases
in which the Bancorp is able to estimate a range of reasonably
possible loss mean the upper end of the range of loss for cases for
which the Bancorp believes the risk of loss is more than slight. For
matters where the Bancorp is able to estimate such possible losses
or ranges of possible losses, the Bancorp currently estimates that it
is reasonably possible that it could incur losses related to legal
proceedings including the matters discussed above in an aggregate
amount up to approximately $113 million in excess of amounts
reserved, with it also being reasonably possible that no losses will be
incurred in these matters. The estimates included in this amount are
based on the Bancorp’s analysis of currently available information,
and as new information is obtained the Bancorp may change its
estimates.
For these matters and others where an unfavorable outcome is
reasonably possible but not probable, there may be a range of
possible losses in excess of the established reserve that cannot be
estimated. Based on information currently available, advice of
counsel, available insurance coverage and established reserves, the
Bancorp believes that the eventual outcome of the actions against
the Bancorp and/or its subsidiaries, including the matters described
above, will not, individually or in the aggregate, have a material
adverse effect on the Bancorp’s consolidated financial position.
However, in the event of unexpected future developments, it is
possible that the ultimate resolution of those matters, if unfavorable,
may be material to the Bancorp’s results of operations for any
particular period, depending, in part, upon the size of the loss or
liability imposed and the operating results for the applicable period.