Magazine article American Banker

No Deals: Agency Probes Have Fifth Third on Hold

Magazine article American Banker

No Deals: Agency Probes Have Fifth Third on Hold

Article excerpt

Four months after declaring itself back in the merger game, Fifth Third Bancorp disclosed Friday that federal regulators are investigating the company and have imposed a moratorium on future acquisitions.

Fifth Third's accounting woes are well known on Wall Street. On Sept. 10 it announced that it would take an $82 million pretax charge for the third quarter in connection with errors it made in its bond portfolio. However, news of the investigations and the sidelining of one of the industry's most successful dealmakers distressed investors.

The $78 billion-asset Cincinnati company said Friday that the Federal Reserve Bank of Cleveland had halted its effort to purchase the Nashville-based Franklin Financial Corp. That deal, announced in July, heralded Fifth Third's return to acquisitions after taking time off to integrate its $23 billion purchase of Old Kent Financial of Grand Rapids, Mich., last year.

The delay, in addition to the disclosure that the Securities and Exchange Commission and the Cleveland Fed are conducting "informal" investigations into Fifth Third's financial missteps caused investors to dump the stock. Shares sank as much as 11% in early trading Friday before recovering to close down 8.17% for the day.

Fifth Third, which many analysts say has exemplary management, said it complied with both regulators' requests and voluntarily revealed that it had received their confidential letters.

In an interview Friday, Paul Reynolds, Fifth Third's general counsel, said it was important to let investors and the public know about the issue. "Our effort was to be transparent and open and honest with our filings in this environment. It is critical that we maintain our integrity."

Jason Goldberg, an analyst with Lehman Brothers, said other companies revealing similar news may have suffered a worse fate in the market. …

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