Cinci-based FITB continues weak performance

Posted By on September 15, 2005

FITB 1 year chart
Cincinnati-based Fifth Third Bancorp (FITB) slipped more than 6% this Thursday morning after a disappointing financial update and seven … SEVEN … analyst downgrades. Not only did P&G warn that the consumer business was weak, Delta Airline file for bankrupcy protection, but the once well run bank is now exposing its weak management as banking conditions tighten.

In a filing with the Securities and Exchange Commission released ahead of a presentation to analysts late Wednesday, the company said it expected compression in net interest margins as the direction of interest rates hurt its business.

The issue of net interest margins also hurt the company’s second-quarter results reported in July. It added that despite modest growth is several businesses, it expected expenses to rise due to increased marketing and technology costs.

“While we had fairly low expectations going into the quarter, we found the underlying trends disappointing and seriously question our “buy” thesis on the stock and as a result we are downgrading the stock to “hold,” Citigroup analyst Keith Horowitz wrote Thursday.

Fifth Third shares (FITB: news, chart, profile) fell 6.2% to $39 in pre-market trading.

Citi trimmed its rating on the shares to hold from buy, trimmed its 2005 earnings per share estimate to $2.95 from $3.02, and cut its price target to $41 from $46.

Fifth Third said it expects it third-quarter net interest income fall from second quarter levels. “Continued increases in liability costs and the prolonged flattening of the yield curve have had a greater than anticipated negative impact on both the net interest margin and net interest income in the third quarter,” the company said in its filing.

Analysts at CIBC World Markets downgraded the shares to neutral from outperform early Thursday, citing the unexpectedly high margin compression, as well as modest deposit growth.

“Our thesis on the shares that strong loan growth would offset continued modest net interest margin compression has clearly been wrong, as the compression has been more than modest,” CIBC analysts said in their Thursday report.

However, they also noted that given the shares’ “substantial underperformance” over the last few year, they could benefit in the short term from increased speculation the company may be bought.

CIBC cut its 2005 EPS estimate for Fifth Third to $2.93 from $3.02, and cut its target price for the share by $10, to $38 from $48.

Prudential analysts also downgraded the shares Thursday, cutting their rating to underweight from neutral, and trimming its 2005 earnings per share estimate to $2.90 from $3, and its 2006 estimate to $3.10 from $3.30.

In one of the most dire comments from analysts Thursday, Prudential’s Michael Mayo wrote, “The new news raises issues not only about future earnings but also about the degree that management – much of which is newly reconfigured – has control over the numbers.”

Mayo’s report highlighted, among other issues, that 5 of the top 6 executives at the firm, all except the CEO, are new in their positions since 2004.

“While the company has a deep management bench, the turnover does raise some red flags as to whether the relentless focus on daily execution and meeting sales targets is hurting employee morale, especially during difficult market conditions,” Mayo wrote.

AG Edwards also downgraded Fifth Third and cut its earnings estimates. It now rates the share hold. It expects Fifth Third to earn $2.92 cents a share in 2005, down from a previous estimate of $3 a share.

“We simply think there are better ideas in the regional bank/thrift group. This is not a sell call, as we see value here longer-term, but the risk/reward just isn’t compelling enough to warrant fresh money to the stock,” AG Edwards analyst David George concluded Thursday.


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  1. lacking in consistency, constancy, or visible order, disconnected; fitful: desultory conversation.
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