Fifth Third to raise $2 billion, cut dividend

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Fifth Third, one of the larger mid-Western banks (that our good friend Tom works for) has announced plans to raise $2 billion ($1 billion in stock sales and $1 billion in divestitures) in fresh capital and a cut to the dividend to shore up its balance sheet in the wake of the mortgage meltdown. Regional banks are feeling the pinch from credit losses similar to those that side-swiped Bear Stearns and other investment banks earlier in the crisis.

For those that think we’re near the end of this I hope that these articles continue to highlight the ongoing severity of the credit crunch and that we’re continuing to see the fallout across the country in all aspects of the finance sector and across the economy in general.

From CNNMoney.com:

Fifth Third Bancorp (FITB) announced it plans to sell $1 billion in convertible preferred stock, sell noncore operations and slash its dividend by 66%, becoming the latest regional bank to take steps in boosting capital levels as credit losses continue to mount.

Fifth Third also sees full-year net charge-offs of 1.6% to 1.65%, with the second-half of 2008 coming in around 1.7%. Charge-offs are seen rising further in 2009 and the need for additional growth in loan-loss reserves.

Kabat noted that while “many areas of our business are performing well…our bottom-line results won’t meet our expectations. We are not satisfied with these results and know that they are as disappointing to investors as well.”

Meanwhile, Fifth Third said it anticipated divestitures, which the company didn’t identify, during the next several quarters, would boost capital by at least $1 billion.

Regional banks have been the latest to focus on potential capital raisings and dividend cuts after many of the nation’s biggest banks did so earlier this year. A research note from Freidman, Billings, Ramsey said Tuesday that deteriorating commercial loans will lead to outright losses in the portfolios of regional banks, and that management and investors aren’t fully appreciating the risk.