A BANK JOB, INDEED

The September 5th edition of Forbes magazine ran an article about the continuing troubles of Cincinnati-based Fifth Third Bancorp, which acquired local business icon Old Kent Bank four years ago.  The magazine titled the article “Bank Job”, but I’m not sure it knew now close to the mark that title was.  The article summarized the financial difficulties of Fifth Third in the wake of crackdown by the feds in 2002, but it didn’t describe what provoked the feds to investigate in the first place.  It was L.A.W.’s complaint to the U.S. Justice Department that a real bank job took place when Fifth Third acquired Old Kent Bank.

As reported in the last installment of “The Fixer”, former Fifth Third executive David Wagner became chairman and CEO of Old Kent Bank.  During his tenure there he took this once-solid bank and ran it into the ground.  The most serious problem Wagner got Old Kent into was letting the failing Amway become far too much in hock with it.  To solve that problem Wagner used his chairmanship of Blodgett hospital to clear the way for Amway founder Rich DeVos to merge Blodgett with Butterworth, of which DeVos was chairman, to create Spectrum Health Corporation.  DeVos would then have control over nearly a one billion dollars in combined hospital reserves which could be diverted into projects and property he owned to help pay back Amway’s debts to Old Kent.

The hospital scam didn’t work out for Wagner and DeVos as planned, so Old Kent needed a bail-out.  (Of course, all of us healthcare rate-payers in River City are still stuck with the bill for their destruction of competition between Butterworth and Blodgett.)  So Wagner put a for-sale sign on Old Kent.  But, he did not intend to sell off the bank to the highest bidder.  Instead Wagner wanted to deliver Old Kent into friendly hands who would overlook the problems with Amway and other fiascos he caused in exchange for getting Old Kent on the cheap.  (In other words, at the expense of Old Kent shareholders.)  To this end, Wagner had an ace up his sleeve, his former employer Fifth Third.  Whether by design or circumstance, he had Old Kent ready to serve up to Fifth Third by 1999.

Fifth Third promised Wagner a huge bounty of more than $30 million for bagging Old Kent.  Meanwhile, the looting of Old Kent by insiders began ahead of the formal merger of the two banks.  One crooked deal was the financing of the Boardwalk project (evidence of which Assistant City Attorney Daniel Ophoff possesses but refuses to release, despite a Freedom of Information Act lawsuit filed by yours truly against the City), which the bank took an ownership stake in.  The biggest fallout from that bank fraud was the illegal dumping of 26,000 tons of toxic waste at the Monroe Avenue Water Filtration Plant and other locations northeast of Grand Rapids.  That alone has tied Fifth Third to a potential $40 billion liability in environmental penalties and clean-up costs.

Because of Wagner’s shenanigans at Old Kent, many of the assets Fifth Third acquired from Old Kent upon completion of the merger in April 2001, like the Boardwalk project, were significantly overvalued.  That gave Fifth Third shareholders the misimpression that the bank was more valuable than it actually was.  By March 2002, L.A.W. filed a declaration of bank fraud with the U.S. Justice Department reporting these problems.  By September 2002, the Federal Reserve Bank of Cleveland launched an investigation of Fifth Third, which found that the bank’s financial controls during its devouring of Old Kent were scandalously loose and allowed a lot of crappy and even illicit Old Kent deals get buried by the merger.  The feds forced Fifth Third to take a relatively modest write-off of $82 million for impaired assets.  What hurt more was forcing regulatory controls upon Fifth Third which stopped its buy-it-and-bury-it merger strategy dead in its tracks.  The continuing inflation of Fifth Third’s stock price depended upon the bank gobbling other banks faster than the problems of loose financial controls could catch up with it.

Consequently Fifth Third’s stock price has tumbled by about a third, destroying billions in shareholder value.  Little wonder, the class-action hyenas have a big shareholder liability suit pending against Fifth Third in the U.S district court down in Cincinnati.  Also, little wonder about how angry Fifth Third is with us – especially with us still hanging that $40 billion in environmental liability over it and its Boardwalk development company.  The bottom line, folks, is that Fifth Third is disreputable corporation still operating on the screw-the-shareholders mentality that sunk the executives of Enron, Adelphia, Tyco, and the other crooked enterprises of the go-go years of the late bull market.