Fifth Third Bank 2010 Annual Report Download - page 136

134 Fifth Third Bancorp
Program (the “SCAP”). The SCAP exam evaluated the
projected level and quality of each institution’s capital during
specified economic scenarios through the end of 2010, which
included a baseline scenario, reflecting a consensus estimate of
private-sector forecasters, and a more adverse scenario,
reflecting an economic situation more severe than is generally
anticipated.
On May 7, 2009, the Bancorp announced its SCAP results.
The results of the SCAP assessment indicated that the
Bancorp’s Tier 1 Capital and Total Risk-Based Capital ratios
were expected to continue to exceed the levels required to
maintain a “well-capitalized” status under the more adverse
scenario as defined by the assessment. As a result, the Bancorp
was not required to raise additional overall capital. The SCAP
results did indicate that the Bancorp’s Tier 1 common equity
would be required to be augmented to maintain a capital buffer
above the newly required four percent threshold of the Tier 1
common equity ratio under the more adverse scenario of the
assessment. The total amount required, prior to considering
activities by the Bancorp since the end of the fourth quarter of
2008, was $2.6 billion. After considering such activities,
including the sale of the Bancorp’s processing business, the
indicated additional net Tier 1 common equity required was
$1.1 billion. During the second quarter of 2009, in order to raise
additional capital to augment Tier 1 common equity, the
Bancorp completed a $1 billion common stock offering and an
exchange of a portion of its Series G preferred stock. As a result
of the common stock offering, the exchange of the preferred
stock, and the sale of its processing business, the Bancorp
exceeded its Tier 1 common equity requirement under the
SCAP assessment by approximately $650 million. Additionally,
in July of 2009, the Bancorp sold its Visa, Inc. Class B common
shares resulting in an additional net $206 million benefit to
equity.
Regulatory Reform
On July 21, 2010 President Obama signed into law the Dodd-
Frank Act. The Dodd-Frank Act is aimed, in part, at
accountability and transparency in the financial system and
includes a numerous provisions that apply to and/or could
impact the Bancorp and its subsidiary bank. Some of the
provisions of the Dodd-Frank Act are set forth below.
Financial Stability Oversight Council
The Dodd-Frank Act creates the Financial Stability Oversight
Council, which is chaired by the Secretary of the Treasury and
composed of expertise from various financial services
regulators. The Financial Stability Oversight Council has
responsibility for identifying risks and responding to emerging
threats to financial stability.
Executive Compensation
The Dodd-Frank Act provides for a say on pay for shareholders
of all public companies. Under the Dodd-Frank Act, each
company must give its shareholders the opportunity to vote on
the compensation of its executives at least once every three
years. The Dodd-Frank Act also adds disclosure and voting
requirements for golden parachute compensation that is payable
to named executive officers in connection with sale
transactions.
The Dodd-Frank Act requires the SEC to issue rules
directing the stock exchanges to prohibit listing classes of
equity securities if a company’s compensation committee
members are not independent. The Dodd-Frank Act also
provides that a company’s compensation committee may only
select a compensation consultant, legal counsel or other advisor
after taking into consideration factors to be identified by the
SEC that affect the independence of a compensation consultant,
legal counsel or other advisor.
The SEC is required under the Dodd-Frank Act to issue
rules obligating companies to disclose in proxy materials for
annual meetings of shareholders information that shows the
relationship between executive compensation actually paid to
their named executive officers and their financial performance,
taking into account any change in the value of the shares of a
company’s stock and dividends or distributions.
The Dodd-Frank Act provides that the SEC must issue
rules directing the stock exchanges to prohibit listing any
security of a company unless the company develops and
implements a policy providing for disclosure of the policy of
the company on incentive-based compensation that is based on
financial information required to be reported under the
securities laws and that, in the event the company is required to
prepare an accounting restatement due to the material
noncompliance of the company with any financial reporting
requirement under the securities laws, the company will recover
from any current or former executive officer of the company
who received incentive-based compensation during the three-
years period preceding the date on which the company is
required to prepare the restatement based on the erroneous data,
any exceptional compensation above what would have been
paid under the restatement.
The Dodd-Frank Act requires the SEC, by rule, to require
that each company disclose in the proxy materials for its annual
meetings whether an employee or board member is permitted to
purchase financial instruments designed to hedge or offset
decreases in the market value of equity securities granted as
compensation or otherwise held by the employee or board
member.
Corporate Governance
The Dodd-Frank Act clarifies that the SEC may, but is not
required to promulgate rules that would require that a
company’s proxy materials include a nominee for the board of
directors submitted by a shareholder.
The Dodd-Frank Act requires stock exchanges to have
rules prohibiting their members from voting securities that they
do not beneficially own (unless they have received voting
instructions from the beneficial owner) with respect to the
election of a member of the board of directors (other than an
uncontested election of directors of an investment company
registered under the Investment Company Act of 1940),
executive compensation or any other significant matter, as
determined by the SEC by rule.
Additionally, the Dodd-Frank Act includes a number of
provisions that are targeted at improving the reliability of credit
ratings. The SEC has been charged with adopting various rules
in this regard.
Consumer Issues
The Dodd-Frank Act creates a new Bureau of Consumer
Financial Protection, which will be housed within the Federal
Reserve System but which will be independent. The Bureau of
Consumer Financial Protection will have the authority to
implement regulations pursuant to numerous consumer
protection laws and will have supervisory authority, including
the power to conduct examination and take enforcement
actions, with respect to depository institutions with more than
$10 billion in consolidated assets. The Bureau of Consumer
Financial Protection will also have new authority, among other