II, Union Planters

Union Planters is a Tennessee bank holding company (that is, a corporation that owns banks). (Union

Planters is now part of Regions Bank.) Union Planters manages $32 billion in assets, the largest of

which is its loan portfolio of $19 billion. In addition to its loan portfolio, however, like other banks it has

signifi cant debt investments. The nature of these investments varies from short-term to long-term. As a

consequence, consistent with the requirements of accounting rules, Union Planters reports its investments

in two diff erent categoriestrading and available-for-sale. The following facts were found in a

recent Union Planters annual report.

(all dollars in millions)

Amortized

Cost

Gross Unrealized

Gains

Gross Unrealized

Losses

Fair

Value

Trading account assets $ 275 $ 275

Securities available for sale 8,209 $108 $15 8,302

Net income 224

Net securities gains (losses) (9)

Instructions

a. Why do you suppose Union Planters purchases investments, rather than simply making loans? Why

does it purchase investments that vary in nature both in terms of their maturities and in type (debt

versus stock)?

b. How must Union Planters account for its investments in each of the two categories?

c. In what ways does classifying investments into two diff erent categories assist investors in evaluating

the profi tability of a company like Union Planters?

d. Suppose that the management of Union Planters was not happy with its net income for the year.

What step could it have taken with its investment portfolio that would have defi nitely increased

reported profi t? How much could it have increased reported profi t? Why do you suppose it chose not

to do this?