By Jeff McKinney
The Cincinnati Enquirer

Internal accounting problems that Fifth Third Bancorp revealed last fall and hoped to wrap up with regulators before this year are bigger than the Cincinnati banking giant expected.

Fifth Third on Wednesday said it will take the company at least until June to finish identifying discrepancies that forced the company to take a $54 after-tax write-off in the third quarter last year.

The company, which talked about the delay in a conference call with Wall Street analysts, had initially expected to complete the bookkeeping probe in late December. It then told the Enquirer earlier that month that it hoped the investigation would be wrapped up by early this year.

The latest disclosure created more uncertainly about where Fifth Third is with the investigation - both with state and federal regulators it is working with to resolve the problem and with an internal audit that the bank itself launched.

Shares of Fifth Third dropped about 4 percent, or $2.39, to $59.42 Wednesday, the same day it posted a record annual profit of $1.6 billion for 2002, up 17 percent from a year earlier.

Fifth Third chief executive George A. Schaefer Jr. told Wall Street banking analysts, who frequently asked about the issue Wednesday in the conference call, that the bank expects some type of regulatory action tied to the probe. He could not say whether it would be "formal" or "informal."

The issue is tied to transactions in Fifth Third's accounting and trust operations that forced the company to take the write-off against profits in last year's third quarter. The error prompted the Securities and Exchange Commission, the Federal Reserve Bank of Cleveland and the Ohio Department of Financial Institutions to launch an informal probe. The issue involves investments that the bank made through its treasury operations, not customer accounts, the bank has said.

Fifth Third executives said the company was "too aggressive" on its prediction when it might finish its work, calling the issue much bigger than the nation's 14th-largest banking company expected.

The issue involves trying to detect problems with individual transactions in an investment portfolio worth $25 billion dating from March 2000 to September 2002, said Robbie Jennings, Fifth Third's spokeswoman. "I can tell you that given the size of the treasury clearing and other related settlement accounts, at $25 billion, it requires a great deal of time to review thoroughly."

She said Fifth Third is investing considerable resources to the review process and is optimistic that it can recover part of the amount it lost.

Since November, the bank has hired a second consulting firm and boosted its own internal auditing staff to 120 from 100 to help solve the problem.

Bert Ely, president of Ely & Co., a bank consulting firm in Alexandria, Va., said the extra time that the Fifth Third investigation is taking raises questions. He said it could mean that dollar discrepancies are larger than first expected, or additional problems could be found.

"There is no question that they are a top-flight banking company, and I hope they get it resolved,'' he said. "But it does raise some questions with investors and creates some uncertainty the longer this exists."

E-mail jmckinney@enquirer.com