TBO.com - TBO is Tampa Bay Online

Fifth Third To Sell Stock, Businesses, Cut Dividend

ADVERTISEMENT

The Associated Press

Published: June 19, 2008

CINCINNATI - Fifth Third Bancorp., trying to shore up its capital base amid rising loan losses, said Wednesday it will slash its dividend by nearly two-thirds and try to raise $2 billion with a stock offering and the sale of some noncore businesses.

The regional bank also predicted second-quarter earnings would be far below Wall Street expectations. The bank cited the U.S. housing and credit crisis that has battered the pummeled sector. Fifth Third's key states for operations include Ohio, Michigan and Florida, all hit hard by the housing downturn.

Shares plummeted more than 15 percent to $10.36, a 52-week low, and at midday traded down $1.76 at $13.84, down 75 percent from their 52-week high of $43.20. The stock, which closed at $9.26, down $3.47, is at its lowest level in more than a decade.

Fifth Third is planning a $1 billion offering of convertible preferred shares. The bank didn't disclose a conversion price for the stock. Underwriters will have the option to purchase up to an additional $150 million in shares to cover over-allotments.

Fifth Third also plans to raise $1 billion by selling unspecified operations, and expects the sales will be completed over the "next several quarters."

The company is cutting its quarterly dividend to 15 cents from 44 cents. The smaller dividend will be paid on July 22, when the company will report second-quarter earnings, to shareholders of record on June 30.

Banks across the country have been forced to raise new capital, slash dividends and sell portions of their operations as they look for ways to build up capital bases severely eroded by losses tied to rising defaults among mortgages.

In a research note Tuesday, Goldman Sachs estimated U.S. banks have raised $120 billion in new cash, but that another $65 billion will likely be needed to cover mounting losses from loan portfolios.

"We are taking a number of significant steps to fortify our balance sheet and improve the quality and composition of our capital base," Kevin T. Kabat, president and chief executive, said in a statement. "We expect these actions to enable us to weather further depreciation in home prices as well as a significant weakening in economic activity relative to current levels."

Projected Profit 'Disappointing'

In a regulatory filing, Fifth Third said second-quarter earnings are expected to be 1 to 5 cents a share. Analysts surveyed by Thomson Financial were expecting 40 cents a share.

"Our bottom line results won't meet our expectations," Kabat said. "We are not satisfied with these results and know that they are as disappointing to investors as well."

Credit ratings agency Moody's Investors Service said Wednesday it placed Fifth Third's long-term deposit and debt ratings on review for a potential downgrade.

"Fifth Third's profitability and efficiency are likely to remain below our expectations because, in Moody's opinion, spreads on its loan portfolio will remain tight and provisions for loan losses will grow in the foreseeable future," Moody's analyst Peter Routledge said in a statement.
Kabat Takes Control Of Board

Fifth Third also said Wednesday that Kabat has been named chairman of the board of directors. Kabat replaces George Schaefer Jr., who announced in April he was retiring. He was succeeded last year as CEO by Kabat.

During the first quarter, Fifth Third's profit fell 19 percent, in large part because of increasing loan-loss reserves. The bank set aside $544 million to cover bad loans during the quarter, more than five times the $84 million set aside during the first quarter in 2007.

Fifth Third said it expects charge-off levels among loans to continue to rise into 2009, forcing it to set aside even more capital to cover losses created by the downturn in mortgage and real estate markets.

Charge-offs are loans written off as not being repaid.

The bank expects its charge-off ratio - which measures charge-offs as a percentage of the entire loan portfolio - will range between 1.6 percent and 1.65 percent for 2008. Fifth Third expects the ratio's annualized rate during the second half to be at about 1.7 percent.

During the first quarter, Fifth Third's charge-off ratio was 1.37 percent, up sharply from 0.39 percent during the first quarter of 2007.

Fifth Third operates 1,314 full-service banking centers in 12 states in the eastern United States.

Share this:

Loading Comments...

Email Print

ADVERTISEMENT