[Ed.: This article has been edited to reflect new information we have received since its original publication.]
The Wall Street Journal reported yesterday that Cincinnati-based Fifth Third Bancorp ranks nearly at the bottom of sixty-eight publicly traded U.S. banks in terms of return to shareholders. It appears that Fifth Third's high flying days of pumping up its stock as a cheap currency to buy competitors are over.
That was how four years ago Fifth Third became the largest bank in the Grand Rapids market. In April 2001 it gobbled up Old Kent Financial Corporation in a cozy deal that destroyed 1,300 local jobs while rewarding insiders by brushing a number of dubious transactions under the rug. But the party came to an end. Your intrepid executive director reported some of these insider shenanigans to the feds in March 2002. Six months later the Federal Reserve stopped the Fifth Third steamroller, opened an investigation of the bank's acquisition of Old Kent, and then ordered it to re-balance its books to account for $82 million in unreported losses.
These losses were the result of inflated values placed upon Old Kent assets that Fifth Third acquired. Immediately after the conclusion of the Federal Reserve's investigation in March 2003, Old Kent's former head honcho -- who had proposed, promoted, and executed the sale of Old Kent to Fifth Third and was richly rewarded upon the consummation of that deal -- disappeared from public life.
David Wagner, who rose to the top of the food-chain at Old Kent as its CEO and chairman and delivered Old Kent to Fifth Third, was rewarded with a lucrative sinecure at Fifth Third, where -- believe it or not -- he began his banking career. In the wake of the Federal Reserve's investigation he surrendered his posh post and later his seat on the Federal Reserve Board of Cleveland. He then retired to Florida. (What is it with all these dethroned Grand Rapids grandees making their way to Florida?)
As Fifth Third now tries to clean up the mess, the class-action hyenas -- ahem, I mean, lawyers -- have inundated the bank with several shareholder suits filed in the U.S. District Court in Cincinnati. One wonders when former Old Kent shareholders will pursue similar action alleging that Old Kent was sold on the cheap to Fifth Third. There also remains the nagging problem for Fifth Third that it has a major investment in The Boardwalk project, to which a huge environmental liability could attach totaling in the billions of dollars in response costs and penalties.
Whatever the future holds for Fifth Third, stock analysts remain less than impressed. It returned a loss to shareholders (based upon share price, distributions, and dividends) of -17.9% last year when banks as a group returned a +16.8% on average. The one-time shark is now a dog.