The stock of Fifth Third Bancorp (ticker symbol: FITB) is dropping like a rock today on the NASDAQ exchange. It's down two bucks this morning at around $38 per share. That puts the bank's stock at nearly half of its $75 per share peak in 1999 when it began the process of acquiring Old Kent Bank. Since closing the Old Kent deal in April 2001, there's been nothing but bad news for the big bank from Cincinnati, which has been dogged with a federal investigation, a class-action shareholder suit, and the prospect of a $40 billion environmental liability, all stemming from that transaction.
The collapse of Fifth Third's stock price is worse news for it than it would be for other banks, because Fifth Third has depended upon an inflated stock value to grow by using its shares like currency to buy other banks. Cheaper stock sinks that growth strategy, which had helped to mask problems with Fifth Third's loosey-goosey controls over assets it took over from acquired banks.
The immediate cause of Fifth Third's freefall today was its downgrading as an investment by the five top financial advisors on Wall Street. Even at its recent trading range in the low forties, Fifth Third was still an expensive stock on a P/E basis compared to other banks. So the word from the advisors set off wave after wave of institutional selling of Fifth Third's stock. As for a more fundamental cause of Fifth Third's demise, in August its shareholders motioned the U.S. district court in Dayton, Ohio, to approve the settlement of the class-action suit mentioned above. On Tuesday the presiding judge convened a closed meeting between Fifth Third and the shareholders' attorneys. No news has come out of that meeting, but it is likely that the details of the payment by Fifth Third to shareholders was hammered out in it.
Meanwhile, Fifth Third's development company for the Boardwalk project at the north end of downtown, 940 Monroe L.L.C., remains on the hook for huge environmental liabilities for dumping 26,000 tons of hazardous waste in the middle of the city. Moreover, state and federal law enforcement has not closed the books on the bank's role in that dumping - and all this is just the tip of the iceberg of the foulness arising from Fifth Third's snatching of Old Kent three years ago. The big bank is now beginning to reap the whirlwind for its profligacy.