Fifth Third Bank 2008 Annual Report Download - page 24

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
22 Fifth Third Bancorp
may have an impact on Fifth Third’s business, financial condition,
results of operations or the price of its common stock.
New proposals for legislation continue to be introduced in the
U.S. Congress that could further substantially increase regulation
of the financial services industry. Federal and state regulatory
agencies also frequently adopt changes to their regulations and/or
change the manner in which existing regulations are applied. Fifth
Third cannot predict whether any pending or future legislation
will be adopted or the substance and impact of any such new
legislation on Fifth Third. Additional regulation could affect Fifth
Third in a substantial way and could have an adverse effect on its
business, financial condition and results of operations.
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 could
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.
The financial services industry is highly competitive and
creates competitive pressures that could adversely affect
Fifth Third’s revenue and profitability.
The financial services industry in which Fifth Third operates is
highly competitive. Fifth Third competes not only with
commercial banks, but also with insurance companies, mutual
funds, hedge funds, and other companies offering financial
services in the U.S., globally and over the internet. Fifth Third
competes on the basis of several factors, including capital, access
to capital, products, services, transaction execution, innovation,
reputation and price. Over time, certain sectors of the financial
services industry have become more concentrated, as institutions
involved in a broad range of financial services have been acquired
by or merged into other firms. In fiscal 2008, this trend
accelerated considerably, as several major U.S. financial
institutions consolidated, were forced to merge, received
substantial government assistance or were placed into
conservatorship by the U.S. Government. These developments
could result in Fifth Third’s competitors gaining greater capital
and other resources, such as a broader range of products and
services and geographic diversity. Fifth Third may experience
pricing pressures as a result of these factors and as some of its
competitors seek to increase market share by reducing prices.
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.
Pursuant to the standardized terms of the CPP described
previously, among other things, Fifth Third has agreed to institute
certain restrictions on the compensation of certain senior
management positions, which could have an adverse effect on
Fifth Third’s ability to hire or retain the most qualified senior
management. It is possible that the U.S. Treasury may, as it is
permitted to do, impose further requirements on Fifth Third. If
Fifth Third is unable to attract and retain qualified employees, or
do so at rates necessary to maintain its competitive position, or if
compensation costs required to attract and retain employees
become more expensive, Fifth Third’s performance, including its
competitive position, could be materially adversely affected.
If Fifth Third is unable to grow its deposits, it may be
subject to paying higher funding costs.
The total amount that Fifth Third pays for funding costs is
dependent, in part, on Fifth Third’s ability to grow its deposits. If
Fifth Third is unable to sufficiently grow its deposits, it may be
subject to paying higher funding costs. This could materially
adversely affect Fifth Third’s earnings and results of operations.
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 typically 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.