Fifth Third Moves to Shore Up Capital

Citing declining home prices and deteriorating credit trends, Cincinnati-based Fifth Third Bancorp has announced several moves aimed at strengthening its capital position. Fifth Third said it plans to issue $1 billion of convertible preferred shares to shore up its Tier 1 capital, reduce its quarterly dividend from $0.44 per share to $0.15 per share, and sell certain noncore businesses. The company said it has revised its target Tier 1 capital ratio to 8%-9%. Meanwhile, Fitch Ratings downgraded the long- and short-term Issuer Default Ratings, among others, of Fifth Third and its principal bank subsidiaries. The long-term IDRs were downgraded from AA-minus to A-plus, the short-term from F1-plus to F1. The downgrades were attributed to "the company's deteriorating trends in asset quality, expectations for elevated levels of problem assets in the near term, and a decline in profitability.... The majority of credit weakening is concentrated in Michigan and Florida, and centered in the home equity, homebuilder/developer, and residential mortgage portfolios."