Monday, November 10, 2008

In The Ashes

The smoke of the credit crisis wreckage is wafting downwind to the national banks, where National City has already crashed and burned along with other majors such as Lehman Brothers, WaMu and Wachovia. Fifth Third Bancorp lies smoldering in the ashes, not quite on fire, but still ready to catch aflame at any moment.

Fifth Third Bancorp posted a second consecutive quarterly loss as homebuilders and developers fell behind on loans and the value of the Ohio bank’s stakes in Fannie Mae and Freddie Mac deteriorated.

Fifth Third Chief Executive Office Kevin Kabat said:

“We are not immune to disruptions in the capital markets and weakening economic conditions” “Higher credit costs once again drove bottom-line results that no one here is satisfied with.”

The quarter included pretax charges of $51 million on Fifth Third’s Fannie and Freddie stakes, $45 million tied to Visa Inc.’s settlement with Discover Financial Services and $27 million for costs of bank-owned life insurance policies.

So the charge-offs and write-downs spread out among the Fannie/Freddie situation, the Visa-Discover settlement and employee insurance plans to the tune of $123M. Still, no CEO could say anything to drive the point home quite like a glimpse of the bank’s loan-loss reserves. Witness:

Fifth Third set aside $941 million for loan and lease losses, up from $139 million a year earlier. Net charge-offs quadrupled to $463 million.

In June it raised $1.1 billion of capital, slashed its dividend 66 percent, and set plans to raise another $1 billion through asset sales.


Chief Executive Kevin Kabat said the bank was evaluating whether to participate in U.S. Treasury Secretary Henry Paulson’s plan to inject $250 billion into the banking system. “We would also expect to reevaluate our plans and activities with respect to pursuing a current sale of non-core assets as part of our capital plan,” he said.

We can safely say the bank has evaluated participating in the $700B rape and plunder of the American taxpayer. Now they are just evaluating how to sanitize the participation.

Some bank has to survive the credit crisis, and with the way things are going, it may as well be Fifth Third. Forget about the third quarter losses and write-downs; the $2.1B in new capital trumps $941M for the loan-loss buildup and $243M in write-downs. While we’re at it, remember that Cleveland-based competitor National City has oh-so-conveniently imploded.

From where it currently sits, all Fifth Third has to do is stay alive by performing the appropriate favors and collecting tax payers’ cash and stay in cash letting the credit crunch burns itself out and wind blow the smoke clear.

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