May 20, 2002
Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, NW
Washington DC 20549
Re: File No. S7-08-02
Dear Mr. Katz,
UnionBanCal Corporation is pleased to have the opportunity to respond to the proposed rule change regarding acceleration of periodic report filing dates and disclosure concerning website access to reports.
We are a commercial bank holding company, headquartered in California. As of March 31, 2002, we had total assets of $36.2 billion and public float of approximately $2 billion. We have the following comments related to the proposed rule change.
We support the Commission's desire to provide investors with more timely information that may be accessed readily. With respect to website access to reports, our shareholders were able to obtain both our proxy and our annual report within several days after we filed our Form 10-K with the Commission. We would not find it difficult to provide this information on a quarterly basis. With respect to the acceleration of the periodic report filing dates, we have several concerns.
Our company seeks to provide the most accurate disclosures and to maximize the efficiency of all of our staff functions. As a result, we utilize the same core financial staff group to perform all of the financial reporting for UnionBanCal Corporation. This group begins the reporting process immediately upon the closure of the general ledger, which occurs on the second business day following the quarter end. The group prepares all of the financial tables that are included in the company's press release and reviews all of the financial information discussed in the press release. Concurrently with the press release, the group prepares a detailed package of financial information for our Executive Management and our Board of Directors. This package contains very detailed information in a bullet format. The information is much more detailed than would be acceptable to the Commission since it contains explanations for very immaterial amounts. At this point in our process, we are now well into the third week of the month following the quarter-end. Once all of this information is completed, the staff members then turn their attention to the preparation of the quarterly report. Although, all of the basic financial statements have been prepared and much of the analysis written, the information does not contain all of the information required by Regulation S-X. In addition, none of the verbiage or detailed information for the allowance for credit losses, business segments, lending activities, nonaccrual loans and derivatives used for hedging has been prepared. The internal process of writing, reviewing and approving the MD&A, in conformity with Regulation S-X, and the condensed footnote disclosures, currently brings us to the 30th of the month. Once reviewed and approved by our senior management, we then circulate our draft quarterly report to our external legal counsel and our external auditors. Our external auditors review the document at the local office and also with their national office for their concurrence and review. This process is usually completed around the 8th of the following month. We incorporate the changes, prepare the document for edgarization and file with the Commission. This process is highly efficient, maximizing the knowledge base of our staff as they prepare reports to each of our constituents. We believe that this process reduces our risk of errors and utilizes our staff in the most productive manner.
To achieve the Commission's goal of a 30-day reporting deadline our only option would be to hire additional staff that would prepare our quarterly report concurrently with the preparation of our other financial reporting requirements. If we were to add additional staff to work exclusively on our Form 10-Q filings, the total cost would be in the range of $225 to $275 thousand per year. Irrespective of the cost, we would run the risk that two different groups preparing similar information may not be consistent with each other. The discipline that is currently in place reduces our risk of errors in reporting since the information for each of the documents is reviewed by the same groups and compared with one another to ensure that there is consistency. We consider this to be a high risk, especially in light of the Commission's recently issued proposed rule change on providing an estimated six pages related to critical accounting policies along with the impact of ranges of estimates. We do not believe that accelerating the Form 10-Q filings by 15 days justifies the expense of additional staffing nor achieves the Commission's desire for registrants to provide more accurate and robust disclosures. Therefore, we propose that the current 45-day filing deadline be left unchanged.
With respect to our annual report, we currently finalize the preparation of this report within 75 days of our fiscal year-end. With tighter deadlines for external reviews, we would be able to file within 70 days of our year-end. This would not require any additional staffing nor add any additional costs. We would support a change in the filing of our Form 10-K to 70 days from the current 90 days.
In addressing your specific questions, we have the following comments.
Accelerating filing dues dates:
Shortening the due date for the annual report will provide the more detailed information of that filing to investors and the markets without compromising the accuracy or the extent of financial information. Shortening the due dates of quarterly filings will jeopardize the accuracy and may cause registrants to reduce the amount of voluntary disclosure in order to ensure compliance with the basic requirements of the regulations. It has been our recent experience that the investment community is more interested in the voluntary disclosures provided by registrants than the "boilerplate" regulatory required disclosures. As an example, our disclosure for the allowance for credit losses was 4 pages long in our first quarter 2002 Form 10-Q. It describes in far greater detail than that required by the regulations, the various components of our allowance and the activity occurring during the period. It would not be possible to complete the preparation of all of this detail in a 30-day filing period. During our review process, it is often decided to provide further detail in order to ensure that we have communicated properly the impact of an event that has occurred during the period, whether it is likely that such an event would occur in the future and what impact that information would have on the investing public. This is not a process that benefits from technological advances but one that benefits from the judgment that management utilizes to ensure that the investing public has as much information as possible to make the correct investing decision. A far greater concern is that the review process will be compromised, erroneous information will be published, and investors will make decisions based on this erroneous information, only to discover later, when the company has restated this information, that the decision was incorrect.
As we indicated above, we would support a shorter filing period for the annual report, while leaving unchanged the filing period for the quarterly reports.
Impact of Accelerating Filing Deadlines
If the Commission adopts its current proposal to accelerate the filing deadlines it would create a significant burden for us to meet the April 30, 2003 filing deadline for our March 31, 2003 Form 10-Q. We would suggest that the Commission transition to such a timetable no sooner than April 30, 2004, allowing us to make significant changes to our internal and external reporting requirements and recruiting and training personnel.
We sincerely hope that our comments will provide the Commission with some further insights into the reporting season process. If you would like to discuss our comments with us further, you may contact David Anderson at 415-765-2905 or myself at 415-765-2742.
Jacqueline F. Bean
Senior Vice President and Manager,
Accounting Policy and Financial Reporting