SEC scanning bank loan practices: report

Reuters News
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Posted: Mar 22, 2011 10:04 AM
SEC scanning bank loan practices: report

(Reuters) - U.S. securities regulator is seeking information from an unknown number of regional and community banks that have restructured troubled loans in order to make them appear healthier than they really are, the Wall Street Journal said, citing people familiar with the situation.

The officials of Security and Exchange Commission (SEC) are seeking information from the banks with large concentration of commercial real estate loans, the Journal said.

The SEC is scrutinizing a practice known as "extend and pretend" or "amend and pretend," in which a bank gives a borrower more time to repay a loan. Banks are permitted to modify loans to help troubled borrowers, according to the paper.

The SEC also is looking into a more common practice called "troubled debt restructurings." Such restructurings involve modifying an existing loan by changing the terms or breaking the loan into pieces.

Although the practice is permitted, SEC officials are concerned about the way some banks are accounting for such loans, the paper said.

SEC could not immediately be reached for comment by Reuters outside regular U.S. business hours.

Fifth Third Bancorp said in its annual report on Monday that it is under investigation by the U.S. Securities and Exchange Commission for how it accounted for and reported some of its commercial loans.

(Reporting by Sakthi Prasad in Bangalore; Editing by Lincoln Feast)