Fifth Third posts 2Q profit on unit sale gain

CINCINNATI - Fifth Third Bancorp posted a profit for the second quarter, thanks to a $1.1 billion gain from the sale of controlling interest in its processing business.

The regional bank would have had a loss without the gain but not as much as analysts expected. Its shares rose 14 percent Thursday.

Fifth Third said its profit available to common shareholders was $856 million, or $1.15 per share, in the April-June period. It lost $202 million, or 37 cents a share, in the same period a year ago.

Excluding extraordinary items, Fifth Third would have lost about $200 million in the latest quarter, CEO Kevin Kabat said. That is about 27 cents per share.

Analysts polled by Thomson Reuters, on average, expected a loss of 34 cents per share. The estimates typically exclude extraordinary items.

Fifth Third shares rose $1 to close at $8.01, after reaching $8.28 earlier in the session. Its shares had not crossed $8 since June 12 and are up from a 52-week low of $1.01 on Feb. 20. That traded as high as $21 on Sept. 19, 2008.

Credit trends "remain difficult and signals regarding future trends are somewhat mixed at this point" because unemployment remains high although housing inventories are falling, Kabat told investors in a conference call.

However, "mixed is better than deteriorating everywhere," Kabat said.

"While things remain challenging, we've seen some signs that the environment may be beginning to stabilize," he said. "Loan losses will have to trend lower to create consistent earnings, and that may be a quarter or two away."

Net loan charge-offs increased to $626 million from $344 million a year ago. Kabat said he expects loan losses to increase moderately in the third quarter, with higher commercial real estate charge-offs partially offset by lower consumer charge-offs.

Fifth Third was among the nation's 19 largest banks required to undergo a "stress test" to determine which ones might be vulnerable to a worsening recession, and was told it needed to $1.1 billion in new capital.

Fifth Third said it exceeded that by $650 million through the sale of $1 billion in common stock, converting 63 percent of its preferred shares into common stock through a cash and stock tender. In the current quarter, the company is selling its Visa Inc. common shares for an after-tax benefit of about $206 million.

Michigan and Florida, primary expansion targets as Fifth Third moved out of its Cincinnati-area base, continued to drag down earnings. Those two states were responsible for 54 percent of Fifth Third's commercial construction losses, 45 percent of commercial mortgage losses and 75 percent of residential mortgage charge-offs, the company said.

Fifth Third Bancorp. has 16 affiliates with offices in 12 states, mainly in the Midwest and South.

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