CINCINNATI, June 18 OH-FifthThird-capital
CINCINNATI, June 18 /PRNewswire-FirstCall/ -- Fifth Third Bancorp today
announced actions to strengthen its capital position in light of continued
deterioration in credit trends during the second quarter of 2008 and its view
that conditions are unlikely to improve in the near-term. The Company's board
of directors has approved the following actions:
-- The planned issuance of $1 billion in Tier 1 capital in the form of
convertible preferred shares.
-- A reduction in the quarterly dividend level. The Company declared its
second quarter cash dividend on its common stock and set the level at
$0.15 per share, a reduction from the previous $0.44 per share
quarterly level. The new dividend is payable on July 22, 2008, to
holders of record on June 30, 2008.
-- The anticipated sales of certain non-core businesses that, if
successfully completed, would supplement common equity capital by an
estimated additional $1 billion or more. Fifth Third owns several non-
strategic businesses that are not significantly synergistic with its
core financial services businesses. We expect these transactions to be
completed over the course of the next several quarters.
In conjunction with these actions and a more difficult operating
environment, Fifth Third is revising its capital targets and is now targeting
an 8 to 9 percent range for its Tier 1 capital ratio. The convertible
preferred share issuance and dividend reduction will allow us to readily meet
our higher Tier 1 capital ratio target throughout the remainder of 2008. We
believe, given the uncertainty with respect to trends in the economy and
credit environment, that proceeding with the sale of certain non-core
businesses will ensure we remain within our capital ratio target as we move
through 2009.
We expect our Tier 1 capital ratio at the end of the second quarter of
2008 to be approximately 8.5 percent, which includes the impact of the First
Charter acquisition and related purchase accounting adjustments, which reduced
tangible equity ratios by approximately 55 bps. This second quarter ratio does
not include a potential reduction of approximately 20 basis points to the Tier
1 capital ratio that would result from an accounting charge to earnings
related to leveraged leases in the second quarter of 2008, if we conclude that
we are required to record a charge, as discussed more fully in a Form 8-K
filed today with the Securities and Exchange Commission.
For future quarters, we have re-evaluated our capital ratios under a range
of scenarios for the credit environment. As part of the analysis of the
capital actions described above, we considered the possibility of further
deterioration in the second half of 2008, as well as continuation and
acceleration of more severely stressed conditions through 2009. While viewed
as unlikely, even if 2009 charge-off levels were to exceed 2008 expected
charge-offs by up to 85 percent, we would expect our Tier 1 capital ratio to
remain within the targeted 8 to 9 percent range. Our current outlook for 2008
net charge-offs is approximately 160 to 165 bps of total loans and leases,
with second half 2008 net charge-offs of approximately 170 bps annualized. We
currently expect the year-end 2008 ratio of reserves to loans and leases to
exceed 2 percent, with the actual amount subject to changes in credit trends
and reserve modeling. Additionally, we currently expect 2009 net charge-offs
to be higher than 2008 levels and provision expense to continue to exceed
charge-offs, resulting in continued growth in our loan loss reserves. The
expectations outlined in this paragraph apply irrespective of whether we
ultimately determine it is appropriate to recognize an accounting charge to
earnings relating to our tax position associated with leveraged leases,
referenced in the preceding paragraph and discussed more fully later in the
Form 8-K filed today.
The following table outlines the Company's expected second quarter 2008
capital ratios reflecting the reduction in the second quarter dividend payable
and the planned $1 billion convertible preferred share offering. The ratios do
not include the benefit of the anticipated asset sales, which would be
approximately 85-90 bps depending on the ratio at issue, or the possible
effect of a second quarter 2008 charge related to leveraged leases outlined
more fully in the Form 8-K filed today. In conjunction with the planned
convertible preferred share offering, the Company has replaced its previous
tangible common equity target with a tangible equity target reflecting the
presence of preferred shares within its capital structure. The tangible common
equity ratio at the end of the second quarter of 2008 is expected to be
approximately 5.4 to 5.5 percent.
Including Regulatory
plannedTarget "Well-Capitalized"
issuancerange Minimum
Tier 1 capital ratio 8.5% 8-9% 6%
Total capital ratio 12.2%11.5-12.5% 10%
Tangible equity ratio6.3% 6-7% n/a
"We are taking a number of significant steps to fortify our balance sheet
and improve the quality and composition of our capital base," said Kevin T.
Kabat, president and CEO of Fifth Third Bancorp. "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. These
actions reflect our commitment to protect the health and strength of Fifth
Third.
Many areas of our business are performing well as demonstrated by our pre-
provision earnings before taxes in the quarter, which are expected to grow in
excess of 10 percent from a year ago. However, our bottom line results won't
meet our expectations. We are not satisfied with these results and know that
they are as disappointing to investors as well.
We recognize that our dividend payments are important to our
shareholders," Kabat continued. "The decision to reduce the dividend was
difficult, but we are confident it is the right step to take in light of our
expected levels of earnings over the near-term and the benefits of building
capital at a higher pace during this part of the current credit and economic
cycles. Companies retain earnings to support the growth of their businesses
and to provide support for difficult times such as these. This is a time where
retaining more of our earnings is appropriate. While we cannot predict when
the housing market or the economy will improve, we expect that as conditions
normalize and credit costs decline our future earnings generation levels would
permit increased dividend payments.
While our earnings are being reduced by provision expense, these
provisions - which we estimate will be approximately $350-375 million greater
than net charge-offs for the second quarter - will build our allowance for
loan and lease losses to absorb inherent losses in our portfolio.
One of Fifth Third's significant strengths is that we have a number of
assets and businesses that on a stand-alone basis, are valued at significantly
higher price/earnings multiples than bank stocks generally, and have
maintained their value during the market events of the past year or more.
These businesses are profitable, but we continually evaluate their role within
our business portfolio, relative to their market value, as part of our overall
strategic planning activities. These businesses give us a meaningful level of
flexibility, and clearly provide an efficient means of building a very strong
capital position in a short period and delivering longer-term value for our
investors," Kabat concluded.
Other Matters
Goldman, Sachs & Co. served as capital advisor in Fifth Third's capital
planning.
Other Events
We have filed with the Securities and Exchange Commission today a Form 8-K
containing additional information regarding the matters discussed in the press
release.
We expect to report second quarter 2008 earnings on July 22, 2008. The
earnings announcement will be available at www.53.com at approximately 6:30 AM
ET. We will host a conference call at approximately 8:30 AM ET the morning of
the release to discuss results.
Fifth Third Bancorp is a diversified financial services company
headquartered in Cincinnati, Ohio. The Company has $111 billion in assets,
operates 18 affiliates with 1,314 full-service Banking Centers, including 102
Bank Mart(R) locations open seven days a week inside select grocery stores and
2,333 ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee,
West Virginia, Pennsylvania, Missouri, Georgia and North Carolina. Fifth Third
operates five main businesses: Commercial Banking, Branch Banking, Consumer
Lending, Investment Advisors and Fifth Third Processing Solutions. Fifth Third
is among the largest money managers in the Midwest and, as of March 31, 2008,
has $212 billion in assets under care, of which it managed $31 billion for
individuals, corporations and not-for-profit organizations. Investor
information and press releases can be viewed at www.53.com. Fifth Third's
common stock is traded on the NASDAQ(R) National Global Select Market under
the symbol "FITB."
FORWARD-LOOKING STATEMENTS
This report contains or incorporates estimates and statements that we
believe are "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder,
and Section 21E of the Securities Exchange Act of 1934, as amended, and Rule
3b-6 promulgated thereunder. These statements relate to our financial
condition, results of operations, plans, objectives, future performance or
business. They usually can be identified by the use of forward-looking
language such as "will likely result," "may," "are expected to," "is
anticipated," "estimate," "forecast," "projected," "intends to," or may
include other similar words or phrases such as "believes," "plans," "trend,"
"objective," "continue," "remain," or similar expressions, or future or
conditional verbs such as "will," "would," "should," "could," "might," "can,"
or similar verbs. You should not place undue reliance on these statements, as
they are subject to risks and uncertainties, including but not limited to
those described in this prospectus supplement, the accompanying prospectus or
the documents incorporated by reference, including the risk factors set forth
in our most recent Annual Report on Form 10-K. When considering these forward-
looking statements, you should keep in mind these risks and uncertainties, as
well as any cautionary statements we may make. Moreover, you should treat
these statements as speaking only as of the date they are made and based only
on information then actually known to us.
There are a number of important factors that could cause future results to
differ materially from historical performance and these forward-looking
statements. Factors that might cause such a difference include, but are not
limited to: (1) general economic conditions and weakening in the economy,
specifically, the real estate market, either national or in the states in
which Fifth Third, one or more acquired entities and/or the combined company
do business, are less favorable than expected; (2) deteriorating credit
quality; (3) political developments, wars or other hostilities may disrupt or
increase volatility in securities markets or other economic conditions; (4)
changes in the interest rate environment reduce interest margins; (5)
prepayment speeds, loan origination and sale volumes, charge-offs and loan
loss provisions; (6) our ability to maintain required capital levels and
adequate sources of funding and liquidity; (7) changes and trends in capital
markets; (8) competitive pressures among depository institutions increase
significantly; (9) effects of critical accounting policies and judgments and
the use of estimates for results of current or future periods; (10) changes in
accounting policies or procedures as may be required by the Financial
Accounting Standards Board or other regulatory agencies; (11) legislative or
regulatory changes or actions, or significant litigation, adversely affect
Fifth Third, one or more acquired entities and/or the combined company or the
businesses in which Fifth Third, one or more acquired entities and/or the
combined company are engaged; (12) ability to maintain favorable ratings from
rating agencies; (13) fluctuation of Fifth Third's stock price; (14) ability
to attract and retain key personnel; (15) ability to receive dividends from
its subsidiaries; (16) the potentially dilutive effect of future acquisitions
on current shareholders' ownership of Fifth Third; (17) effects of accounting
or financial results of one or more acquired entities; (18) difficulties in
combining the operations of acquired entities; (19) ability to secure
confidential information through the use of computer systems and
telecommunications networks; and (20) the impact of reputational risk created
by these developments on such matters as business generation and retention,
funding and liquidity.
Additional information concerning factors that could cause actual results
to differ materially from those expressed or implied in the forward-looking
statements is available in the Bancorp's Annual Report on Form 10-K for the
year ended December 31, 2007, filed with the United States Securities and
Exchange Commission (SEC). Copies of this filing are available at no cost on
the SEC's Web site at www.sec.gov or on the Fifth Third's Web site at
www.53.com. Fifth Third undertakes no obligation to release revisions to these
forward-looking statements or reflect events or circumstances after the date
of this report.
SOURCE Fifth Third Bancorp
