As heirs apparent to Fifth Third Bancorp bigwig George Schaefer fell by the wayside as his go-go strategy of gobbling up smaller banks stalled exposing managerial and financial problems at the big bank from Cincinnati (click here for links to these stories), opportunity beckoned for Kevin Kabat. This past week he got the nod and is now the chief executive officer of the Fifth Third empire.
Kabat was a top executive at Old Kent Bank who helped his boss David Wagner, the CEO and chairman of that venerable Grand Rapids institution, deliver the bank to Fifth Third at the climax of Schaefer's acquisition campaign during 2000-2002. One important job Kabat did for Wagner and Fifth Third was quelling a pre-merger shareholder suit threatened by key directors of Old Kent who were disgusted with Wagner's performance, especially his mismanagement of the bank's mortgage business, that had made Old Kent weak enough to be bought out. That suit would have aired out all the dirty laundry during Wagner's regime, including irregular lending practices to Grand Rapids "players", and probably would have also put the spotlight on Fifth Third's dubious due diligence in buying up smaller banks.
No small thing what Kabat did. One of the directors was furious enough with Wagner to call him a "crook". By pacifying discontent, Kabat prevented a lawsuit that could have put the kibosh on Fifth Third's acquisition of Old Kent. So it went through. However, Schaefer's go-go strategy caught up with him after that. Old Kent was too big for Fifth Third to digest easily, and loose management of the merger finally caught the attention of the feds. The Federal Reserve investigated the merger starting in September 2002 and gave Fifth Third its verdict in March 2003. The feds only slapped Schaefer on the wrist, but they also stopped the Fifth Third merger steamroller -- but only after Schaefer got his big prize, Old Kent Bank. (Wagner, however, paid a big penalty when Schaefer ousted him from Fifth Third in April 2003 under the pretext of early retirement.)
The stock market analysts also took a closer look at Fifth Third as a consequence, and they found problems that sent the Cincinnati bank's shares into a nosedive. By October 2005 the crash in Fifth Third's stock sliced the share price in half (from its peak in 2002), destroying almost $20 billion in shareholder value. Schaefer was in hot water, and his lieutenants fell on their swords for him. By this time Kabat had made his way to Fifth Third headquarters in Cincinnati. With no clear successor to Schaefer left, and other banks looking to exploit the weakness at the top of Fifth Third to acquire it, in June 2006 Schaefer tapped Kabat to be his second-in-command and heir apparent. After all, if it hadn't been for Kabat keeping all the dirt swept under the rug until after the merger was completed, Schaefer may have never gotten his hands on Old Kent Bank.
In accepting his rise to the top spot last week, Kabat thanked all those who had made that possible, with one curious exception -- David Wagner.