Catching up with Fifth Third Bancorp

Several things have happened since we last posted about Fifth Third Bancorp,  the $119 billion financial holding company that operates more than 1,300 bank branches in 12 states.

At the end of last year, Cincinnati-based Fifth Third got $3.4 billion through the Treasury Department's Troubled Asset Relief Program in exchange for preferred shares of stock and warrants.

As noted in this recent filing with the Securities and Exchange Commission, the company announced that Charles Drucker, its executive vice president, had resigned to become the president and chief executive of Fifth Third Processing Solutions LLC.

That announcement was made simultaneously with the news that Boston-based private equity firm Advent International Corp. had purchased a 51 percent stake in Fifth Third's processing business.  Fifth Third is expected to gain about $1.0 billion after taxes on the transaction. 

In late June, Bloomberg reported that Fitch Ratings downgraded Fifth Third Bancorp's long-term Issuer Default Rating (IDR) from A to A-.  The article said in part:

Although Fitch views FITB's capital raise favorably, Fitch anticipates that FITB will face elevated levels of credit costs over the next several quarters and pressured levels of core profitability.

FITB has been battling significant ongoing asset quality issues since late 2007 due to extremely challenging residential housing markets in its footprint, most notably in Florida and Michigan. FITB's problem loan portfolios include the homebuilder, brokered home equity, and Florida residential mortgage books, which represent approximately 9% of loans. FITB has taken positive steps to address its credit challenges, such as exiting problematic lending sectors, tightening underwriting criteria, and selling/transferring to sale approximately $1.6 billion in loans. Despite FITB's efforts to deal with its high level of problem assets, Fitch expects FITB to report continued deterioration in asset quality which will make it difficult for the company to return to profitability in 2009.

In a few days, we'll get an idea of the company's progress.  On July 23, Fifth Third will hold a conference call to discuss its second quarter earnings.