Wednesday, March 26, 2003

5/3 chief fields tough questions



By Jeff McKinney
The Cincinnati Enquirer

Coming off a banner year in profitability and industry-leading growth, Fifth Third Bancorp found itself on the defensive Tuesday at its annual shareholders meeting.

George Schaefer Jr., Fifth Third's president and chief executive, spent much of the meeting responding to questions from investors who wanted quick answers about the Cincinnati banking giant's accounting review with regulators.

Since the bank revealed the probe Nov. 15, its stock has fallen 15.9 percent, more than the 3.4 percent the Standard & Poor's Bank Index of 29 members - including Fifth Third - has fallen in the same time. The stock closed at $52.59 Tuesday, up 65 cents.

A few investors asked Schaefer questions ranging from when the review with federal and state regulators would be completed to whether that probe would stop the bank from closing on its pending $240 million stock acquisition of Tennessee's Franklin Financial Corp. by the proposed Tuesday closing date.

One shareholder, a woman who would identify herself only as "Liz," repeatedly asked Schaefer why the review hadn't already ended; why the bank hadn't updated investors on its status; and why the bank's stock value dropped so much recently. She said she owns about 80,000 Fifth Third shares.

Schaefer responded that federal and state regulators have completed an extensive review of some of the bank's accounting matters. He said Fifth Third hopes to enter into a formal written agreement with regulators by Monday.

That agreement would wrap up the investigation by the Securities and Exchange Commission, Federal Reserve Bank of Cleveland and Ohio Department of Financial Institutions. Authorities are looking at transactions in the Fifth Third's accounting and trust operations.

The discrepancies forced the company to take a $54 million write-off against third-quarter profits last year.

The issue involves investments the bank made through its treasury operations, not customer accounts, the bank has said.

The review has left a dark cloud over Fifth Third's stock, long one of the most highly valued and profitable of all major U.S. bank stocks. The company has lost about $2.8 billion in market value since the review was launched, although Fifth Third in January posted record 2002 profits of $1.6 billion, up 49.5 percent from the previous year.

The questions came after a Schaefer slide-show that illustrated the bank's tremendous growth last year in all business lines, despite a weak economy and bearish stock market.

Schaefer also told investors that Fifth Third has only a 7 percent market share in its core five-state Midwestern footprint of Ohio, Michigan, Indiana, Illinois and Kentucky. He said that in the bank's three largest markets - Chicago, Detroit and Cleveland - Fifth Third has only about 4 percent market share.

"Fifth Third is a much bigger company than it was just a few years ago, but there is tremendous opportunity for growth in our markets and we'll continue to focus on that,'' Schaefer said.

E-mail jmckinney@enquirer.com.



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