Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=101309
Story Retrieval Date: 5/22/2013 3:54:22 AM CST
Fifth Third Bancorp, battered by a dramatic jump in bad loans, swung to an $81 million quarterly loss and widely missed analyst expectations. But the regional bank’s stock inched up less than a percent to $12.25, apparently benefiting in part from the company’s disclosure that it may apply for government assistance to purchase some of its securities.
The Cincinnati-based company lost $81 million, or 14 cents per diluted share, in the third quarter ended Sept. 30, compared with a profit of $325 million, or 61 cents a share, in the year-earlier period. Analysts expected earnings of 21 cents per diluted share, according to Zacks Investments Research..
The provision for loan losses was $941 million, almost seven times the $139 million it allocated a year earlier. The company charged off four times the amount of loans, $463 million from $115 million in the year-earlier period. The bank’s net charge off of 2.17 percent of average loans and leases, up from 1.66 percent in the first quarter and from 0.60 percent in the year-ago period, was “substantially above our expectations,” said analyst R. Scott Siefers of Sandler O’Neill + Partners LP in a note today. The bank attributed the losses primarily to defaulted consumer residential real estate loans and commercial residential builder and developer loans concentrated in Michigan and Florida.
The company said the quarterly loss was also partly a result of a drop in value in preferred shares in Fannie Mae and Freddie Mac, a settlement with Visa Inc. and Discover Financial Services and a charge related to one of its bank-owned life insurance policies. The results included a 5 cent benefit from a legal settlement.
Revenues increased 24 percent for the quarter to $1.79 billion from $1.44 billion, with interest income up 41 percent to $1.07 billion from $760 million a year earlier. The rise in interest income was due largely to $215 million related to the purchase of First Charter Corp. in the second quarter. Noninterest income rose 5 percent to $717 million from $681 million.
“The bottom line is that our existing capital levels, our existing significant cushion and our access to capital give us confidence that our capital positioning is more than adequate to withstand a significant deterioration in losses,” said Kevin T. Kabat, Fifth Third’s chairman, president and chief executive, in an analyst call. The bank said it has not engaged in subprime lending, option adjustable rate mortgages, credit default swaps or collateralized debt obligations.
Siefers said in his research note that while much higher provision for loan losses contributed significantly to the quarterly loss, capital levels “still appear strong.” He expects “the stock to remain under some near-term pressure as investors digest this quarter’s higher provision and its potential impact on forward EPS estimates.”
For the nine months, the bank earned $3 million on $4.94 billion in revenue.
The company did not release a formal earnings outlook, due to uncertainty in how the U.S. Treasury’s financial rescue plan will affect liquidity and credit in the market. The bank said it is considering applying to the Treasury to have some of its securities purchased. “We are in the process of evaluating this opportunity and considering an application,” the company said.
Analysts expect 26 cents per diluted share in the quarter and 65 cents for the full year, according to Zacks.