DBRS Places Fifth Third Bancorp Ratings Under Review with Negative Implications

DBRS has today placed the long-term ratings of Fifth Third Bancorp and its operating bank subsidiaries (collectively Fifth Third or the Company), including Fifth Third’s Issuer & Senior Debt rating of AA (low) and Fifth Third Bank subsidiary short-term ratings of R-1 (high), Under Review with Negative Implications. At the same time, Fifth Third Bancorp’s short-term R-1 (middle) rating is confirmed with a Stable Trend.

The review reflects DBRS’s view that Fifth Third has struggled with steepening credit costs from deteriorating asset quality for the past year. The $4.6 billion of loan loss provisions taken in 2008 ($2.4 billion in 4Q08 alone) were nearly twice the Company’s adjusted income before taxes and provisions of roughly $2.4 billion. The weakening in loan quality continues to be primarily in residential real estate mortgages, while homebuilder and residential development loans in Michigan and Florida have contributed the highest losses. While Fifth Third has already charged-off a substantial amount of loans in this credit cycle, DBRS believes that significant amounts of potential losses remain embedded in their portfolios, especially given the macroeconomic challenges within the Company’s footprint, especially rising unemployment. Furthermore, the extremely difficult operating environment for financial institutions is likely to constrain revenue growth and produce elevated expenses and charges in the near term.

DBRS’s review will focus on Fifth Third’s asset quality, financial performance and franchise value. Additionally, the review will also consider the Company’s plans to manage reserves and preserve capital as well as reviewing prospective financial performance in the near to medium term.

DBRS notes that the review could potentially result in a one-notch downgrade if the review of current performance and near- to medium-term trends suggest performance and metrics more fitting of the next lower rating range of A (high). DBRS intends to conclude the review within 60 days.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Banks and Bank Holding Companies Operating in the United States, which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.