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 significant debt investments. The nature of these investments varies from short-term in nature to long-term in nature. As a consequence, consistent with the requirements of accounting rules, Union Planters reports its investments in two different categories??trading and available-for-sale. The following facts were found in a recent Union Planters?? annual report.

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 different categories assist investors in evaluating the profitability 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 definitely increased reported profit? How much could it have increased reported profit? Why do you suppose it chose not to dothis?

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Gross Gross Unrealized Losses Amortized Fair Value Unrealized (all dollars in millions) Trading account assets Securities available for sale Net income Net securities gains (losses) Gains Cost $ 275 8,209 $ 275 8,302 224 (9) $108 $15