Watchdog: Accountability

Fifth Third Bank charged with bad accounting during financial crisis

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Watchdog,SEC,Finance and Banking,2008 Financial Crisis,2007 Housing Crisis,Kelly Cohen,Accountability

Fifth Third Bank's holding company is in hot water -- and now owes more than $6 million to the Securities and Exchange Commission.

The bank's parent company, Fifth Third Bancorp, was charged by the SEC on Dec. 6 with "improper accounting of commercial real estate loans in the midst of the financial crisis," according to the Office of the Special Inspector General for the Troubled Asset Relief Program.

Fifth Third has to pay $6.5 million to settle the charges, and its former chief financial officer, Daniel Poston, will pay a $100,000 penalty. He can also never practice accounting again.

According to the SEC's proceedings, Fifth Third experienced a large increase in "non-performing assets" between 2007 and 2009.

When borrowers refused to repay their loans, Fifth Third decide to sell large groups of the troubled loans during the third quarter of 2008.

The groups of troubled loans should have been classified as "held for sale," but bank officials instead kept them classified as "held for investment," preventing Fifth Third from incurring a 132 percent increase in its pretax losses.

“When it mattered most, Fifth Third failed to write down the value of loans it held on its books, and as a result, the bank didn’t show its true losses on those loans in the records it used to apply for TARP funds,” Christy Romero, special inspector general for the Troubled Asset Relief Program, said.

The SEC also reported that Poston knew what was happening. Despite knowing accounting rules, Poston failed to direct Fifth Third to classify the loans correctly, in addition to misleading the company's auditors.

Fifth Third received $3.4 billion in TARP funds in Dec. 2008 and repaid them three years later.

View the full SIGTARP statement below.

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