This is a securities class action lawasuit against Fifth THird Bancorp, certian officers and directors and certain underwriters.
This securities case covers all securities of FIfth Third Bancorp, with a subclass of preferred stock holders who invested in a specific offering. These preferred securities are called "7.25% Trust Preferred Securities".
The class action complaint asserts that during the Class Period, Fifth Third issued materially false and misleading statements concerning the quality of:
(1) Fifth Third's Tier 1 capital:
(2) the relevant ratios and sufficiency of its Tier 1 capital;
(3) the necessity to take net charge-offs stemming from increasing credit losses; and
(4) the need to shore up capital due to Fifth Third's exposure to poorly performing real estate markets in the Mid-West region.
The class action complaint further alleges that Trust Preferred Securities were sold to the investing public in the Offering pursuant to a Prospectus that negligently omitted material information. The statements made in the Company's Prospectus contained material omissions because, at the time of the Offering, Fifth Third was already suffering from several adverse factors that were not revealed and or adequately addressed in the document. The omitted information included, but is not limited to, failure to disclose:
(a) Fifth Third's exposure to certain poorly performing real estate markets, including Florida, Ohio, and Michigan, and the extent to which this exposure was materially increasing;
(b) Fifth Third's growing exposure to late payments and defaults on mortgages and other non-performing loans, and the extent to which this exposure was materially increasing;
(c) the extent of the decline in the quality of Fifth Third's Tier 1 capital base;
(d) the deteriorating credit trends and increasing expenses, including negative trends, in Fifth Third's consumer loan portfolio, including the extent of the increase in late payments and defaults;
(e) the negative trends in Fifth Third's home equity and commercial construction loans, and the extent to which there was a decrease in the value of the underlying assets and an increase in late payments and defaults ;and
(f) the deterioration in the credit quality of its loans.
Certain of the adverse factors affecting Fifth Third's business were first revealed on June 18, 2008, before the market opened. At that time, Fifth Third issued a press release stating that it was forced to cut its quarterly dividend by 66.0%, to 15 cents from 44 cents a share, and had to sell non-core businesses for at least $1.0 billion in extra capital. Fifth Third also stated it planned to raise $1.0 billion through an offering of convertible preferred shares, which would prove dilutive to common shareholders. Fifth Third further stated that earnings would be reduced by a provision expense expected to be between $350.0 million and $375.0 million greater than net charge-offs for the second quarter.
"Our bottom line results won't meet our expectations. We are not satisfied with these results and know that they are as disappointing to investors as well," Fifth Third said. Fifth Third also revised its capital targets to an 8.0% to 9.0% range for its Tier 1 capital ratio and projected a second-quarter Tier 1 capital ratio of 8.5%, which includes the impact of its First Charter acquisition and related accounting adjustments. The projection did not, however, include a possible reduction of 20 basis points from charges on earnings related to leveraged leases in the second quarter. Fifth Third now expects 2008's ratio of reserves to loans and leases to exceed 2.0% and anticipates an even higher ratio in 2009.
These disclosures caused Fifth Third's common stock to decline 27%, to close on June 18, 2008 at $9.26 per share on very heavy volume. Fifth Third's stock had traded as high as $28 per share in February, 2008. The Trust Preferred Securities also traded sharply lower and closed at $16.35 per share, 34% below their October 2007 offering price.
Name (Stock Symbol)
Fifth Third Bancorp (FITC)
Fifth Third Bancorp is a diversified financial services company. As of December 31, 2008, it operated 18 affiliates with 1,307 full-service banking centers, including 92 Bank Mart locations open seven days a week inside select grocery stores and 2,341 Jeanie automated teller machines (ATMs) in the midwestern and southeastern regions of the United States. Fifth Third Bancorp operates through five business segments: Commercial Banking, Branch Banking, Consumer Lending, Fifth Third Processing Solutions (FTPS) and Investment Advisors.
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