Fifth Third Bank 2006 Annual Report Download - page 26

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Fifth Third Bancorp
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Fifth Third could suffer if it fails to attract and retain skilled
personnel.
As Fifth Third continues to grow, its success depends, in large part,
on its ability to attract and retain key individuals. Competition for
qualified candidates in the activities and markets that Fifth Third
serves is great and Fifth Third may not be able to hire these
candidates and retain them. If Fifth Third is not able to hire or
retain these key individuals, Fifth Third may be unable to execute
its business strategies and may suffer adverse consequences to its
business, operations and financial condition.
Fifth Third and/or the holders of its securities could be
adversely affected by unfavorable ratings from rating
agencies.
Fifth Third’s ability to access the capital markets is important to its
overall funding profile. This access is affected by the ratings
assigned by rating agencies to Fifth Third, certain of its affiliates
and particular classes of securities they issue. The interest rates
that Fifth Third pays on its securities are also influenced by, among
other things, the credit ratings that it, its affiliates and/or its
securities receive from recognized rating agencies. A downgrade to
Fifth Third’s, or its affiliates’, credit rating will affect its ability to
access the capital markets, increase its borrowing costs and
negatively impact its profitability. A ratings downgrade to Fifth
Third, its affiliates or their securities could also create obligations
or liabilities to Fifth Third under the terms of its outstanding
securities that could increase Fifth Third’s costs or otherwise have
a negative effect on Fifth Third’s results of operations or financial
condition. Additionally, a downgrade of the credit rating of any
particular security issued by Fifth Third or its affiliates could
negatively affect the ability of the holders of that security to sell the
securities and the prices at which any such securities may be sold.
Fifth Third’s stock price is volatile.
Fifth Third’s stock price has been volatile in the past and several
factors could cause the price to fluctuate substantially in the future.
These factors include:
• Actual or anticipated variations in earnings;
• Changes in analysts’ recommendations or projections;
• Fifth Third’s announcements of developments related to
its businesses;
• Operating and stock performance of other companies
deemed to be peers;
• Actions by government regulators;
• New technology used or services offered by traditional
and non-traditional competitors; and
• News reports of trends, concerns and other issues related
to the financial services industry.
Fifth Third’s stock price may fluctuate significantly in the future,
and these fluctuations may be unrelated to Fifth Third’s
performance. General market price declines or market volatility in
the future could adversely affect the price of its common stock,
and the current market price of such stock may not be indicative of
future market prices.
Fifth Third’s ability to receive dividends from its subsidiaries
accounts for most of its revenue and could affect its liquidity
and ability to pay dividends.
Fifth Third Bancorp is a separate and distinct legal entity from its
subsidiaries. Fifth Third Bancorp receives substantially all of its
revenue from dividends from its subsidiaries. These dividends are
the principal source of funds to pay dividends on Fifth Third
Bancorp’s stock and interest and principal on its debt. Various
federal and/or state laws and regulations limit the amount of
dividends that Fifth Third’s bank and certain nonbank subsidiaries
may pay. Also, Fifth Third Bancorp’s right to participate in a
distribution of assets upon a subsidiary’s liquidation or
reorganization is subject to the prior claims of that subsidiary’s
creditors. Limitations on Fifth Third Bancorp’s ability to receive
dividends from its subsidiaries could have a material adverse effect
on Fifth Third Bancorp’s liquidity and ability to pay dividends on
stock or interest and principal on its debt.
Future acquisitions may dilute current shareholders’
ownership of Fifth Third and may cause Fifth Third to
become more susceptible to adverse economic events.
Future business acquisitions could be material to Fifth Third and it
may issue additional shares of common stock to pay for those
acquisitions, which would dilute current shareholders’ ownership
interest. Acquisitions also could require Fifth Third to use
substantial cash or other liquid assets or to incur debt. In those
events, it could become more susceptible to economic downturns
and competitive pressures.
Difficulties in combining the operations of acquired entities
with Fifth Third’s own operations may prevent Fifth Third
from achieving the expected benefits from its acquisitions.
Inherent uncertainties exist in integrating the operations of an
acquired entity. Fifth Third may not be able to fully achieve its
strategic objectives and operating efficiencies in an acquisition. In
addition, the markets and industries in which Fifth Third and its
potential acquisition targets operate are highly competitive. Fifth
Third may lose customers or the customers of acquired entities as a
result of an acquisition. Future acquisition and integration activities
may require Fifth Third to devote substantial time and resources
and as a result Fifth Third may not be able to pursue other
business opportunities. These factors could contribute to Fifth
Third not achieving the expected benefits from its acquisitions
within desired time frames, if at all.