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
planned Target "Well-Capitalized"
issuance range Minimum
Tier 1 capital ratio 8.5% 8-9% 6%
Total capital ratio 12.2% 11.5-12.5% 10%
Tangible equity ratio 6.3% 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 http://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 http://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 http://www.sec.gov or on the Fifth
Third's Web site at http://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
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CONTACT:
Media, +1-513-579-5439; Institutional
Investors, +1-513-534-4546; or Shareholders, +1-866-670-0468
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