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Recently, Fifth Third Bancorp (FITB - Analyst Report) arrived at a settlement with The Securities and Exchange Commission (SEC) regarding its faulty accounting of commercial real estate loans. The Ohio-based bank will pay $6.5 million to settle the charges leveled against it. Notably, the amount is inclusive of penalties against the bank's former chief financial officer (CFO).

However, Fifth Third did not admit or deny the allegations. Under terms of the settlement, the bank removed Daniel Poston as CFO and consequently assigned him the role of chief strategy and administrative officer.

The SEC has suspended Poston from practicing as an accountant for a year and demanded a penalty of $100,000 from him. However, according to terms of the settlement, Poston can apply for the resumption of his former post after one year.

With the burst of the housing bubble in 2007 and 2008, the real estate market crashed and the number of defaulting borrowers significantly increased. Therefore, Fifth Third had decided to sell some of its problem loans but continued to categorize these as “held for investment."

The SEC instructed that the above-mentioned loans should have been labeled "held for sale." The SEC also declared that proper accounting would have increased Fifth Third's pretax loss for the third quarter of 2008 by 132%.

In the recent past, Fifth Third has been striving to resolve its legal woes. In November, the company announced a settlement worth about $25 million with Freddie Mac (FMCC). The settlement included resolution of certain repurchase claims related to misrepresentation of loans originated and sold directly to Freddie Mac by Fifth Third before Jan 1, 2009.

The latest move by Fifth Third demonstrates its efforts to resolve litigation issues and thereby reduce costs. Moreover, such settlements will help boost investors’ confidence in the company.

Fifth Third currently carries a Zacks Rank #3 (Hold). Some better-ranked banks include TriCo Bancshares (TCBK - Snapshot Report) and Preferred Bank (PFBC - Snapshot Report). Both these stocks have a Zacks Rank #1 (Strong Buy).

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