Fifth Third BancorpFITB

Morningstar Rating

Stock Research and Analysis

by Maclovio Pina

For many years Fifth Third was a stable and fairly profitable Midwestern bank, operating a mix of interest-earning and fee-producing businesses. Its average return on equity was nearly 18% until 2007, when provisions for loan losses started skyrocketing Read more

Bulls Say

About half of Fifth Third's net revenue comes from its stable fee income stream, including its very profitable payment processing business, which will continue to provide some protection against interest rate movements despite the bank's reduced stake.

Fifth Third has historically enjoyed a superior efficiency ratio of 55%. This means that more revenue trickles down to the bottom line instead of being spent on operational expenses. Read more

Bears Say

Fifth Third's current footprint comprises some of the nation's slowest-growing states, which may lead the bank to expand outside its area of expertise or venture into other riskier business lines.

Credit quality is getting worse for Fifth Third, and we expect loan losses will depress returns for the next couple of years.

With about 20% of loans in Michigan, Fifth Third's performance is closely tied to the state's future, which heavily depends on the domestic auto industry's fate. Read more

Strategy

Although Fifth Third has a long history of acquisitions, it is now focusing on improving credit quality and stemming loan losses, which we think is sensible. It is suspending some of its riskier lending Read more

Management

We think the grim outlook for the bank's credit quality and low growth prospects in most of its current footprint will test management's ability to return Fifth Third to prosperity. Although the economic downturn in some of its markets is not the bank's Read more

Profile

With about $110 billion in assets, Fifth Third Bancorp has a sizable presence in the Midwest and Southeast through its 1,300 branches. It has several business segments that Read more

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