Fifth Third Bank 2011 Annual Report Download - page 158

156 Fifth Third Bancorp
otherwise constitute brokerage activities under the securities laws.
Those exemptions include conducting brokerage activities related
to trust, fiduciary and similar services, certain services and also
conducting a de minimis number of riskless principal
transactions, certain asset-backed transactions and certain
securities lending transactions. The Bancorp only conducts non-
exempt brokerage activities through its affiliated registered
broker-dealer.
Emergency Economic Stabilization
On October 3, 2008, in response to the stresses experienced in the
financial markets, the Emergency Economic Stabilization Act
(“EESA”) was enacted. EESA authorizes the Secretary of the
Treasury to purchase up to $700 billion in troubled assets from
financial institutions under the Troubled Asset Relief Program or
TARP. Troubled assets include residential or commercial
mortgages and related instruments originated prior to March 14,
2008 and any other financial instrument that the Secretary
determines, after consultation with the Chairman of the Board of
Governors of the Federal Reserve System, the purchase of which
is necessary to promote financial stability.
Capital Purchase Program
Pursuant to its authority under EESA, Treasury created the TARP
Capital Purchase Program (“CPP”) under which the Treasury
Department was authorized to invest up to $250 billion in senior
preferred stock of U.S. banks and savings associations or their
holding companies. Qualifying financial institutions could issue
senior preferred stock with a value equal to not less than 1% of
risk-weighted assets and not more than the lesser of $25 billion or
3% of risk-weighted assets.
In connection with the issuance of the senior preferred,
participating institutions were required to issue to Treasury
immediately exercisable 10-year warrants to purchase common
stock with an aggregate market price equal to 15% of the amount
of senior preferred.
On December 31, 2008, the Bancorp entered into a Letter
Agreement (including the Securities Purchase Agreement—
Standard Terms incorporated by reference therein, the “Purchase
Agreement) with Treasury pursuant to which the Company issued
and sold to Treasury for an aggregate purchase price of
approximately $3.4 billion in cash: (i) 136,320 shares of the
Bancorp’ s Fixed Rate Cumulative Perpetual Preferred Stock,
Series F, having a liquidation preference of $25,000 per share (the
“Series F Preferred Stock), and (ii) a ten-year warrant to purchase
up to 43,617,747 shares of the Bancorp’ s common stock, no par
value per share, at an initial exercise price of $11.72 per share.
In the Purchase Agreement, the Bancorp agreed that, until
such time as Treasury ceases to own any debt or equity securities
of the Bancorp acquired pursuant to the Purchase Agreement, the
Bancorp would take all necessary action to ensure that its benefit
plans with respect to its senior executive officers comply with
Section 111(b) of EESA as implemented by any guidance or
regulation under the EESA that had been issued and was in effect
as of the date of issuance of the Series F Preferred Stock and the
Warrant, and agreed to not adopt any benefit plans with respect
to, or which covers, its senior executive officers that do not
comply with the EESA.
On February 2, 2011 the Bancorp repurchased the Series F
Preferred Stock issued to the U.S. Treasury pursuant to TARP.
On March 16, 2011, the Bancorp repurchased the warrant issued
to the U.S. Treasury.
Regulatory Reform
On July 21, 2010, President Obama signed into law the Dodd-
Frank Act, which is aimed, in part, at accountability and
transparency in the financial system and includes numerous
provisions that apply to and/or could impact the Bancorp and its
banking subsidiary. The Dodd-Frank Act implements changes
that, among other things, affect the oversight and supervision of
financial institutions, provide for a new resolution procedure for
large financial companies, create a new agency responsible for
implementing and enforcing compliance with consumer financial
laws, introduce more stringent regulatory capital requirements,
effect significant changes in the regulation of over the counter
derivatives, reform the regulation of credit rating agencies,
implement changes to corporate governance and executive
compensation practices, incorporate requirements on proprietary
trading and investing in certain funds by financial institutions
(known as the “Volcker Rule”), require registration of advisers to
certain private funds, and effect significant changes in the
securitization market. In order to fully implement many
provisions of the Dodd-Frank Act, various government agencies,
in particular banking and other financial services agencies are
required to promulgate regulations. Set forth below is a
discussion of some of the major sections the Dodd-Frank Act and
implementing regulations that have or could have a substantial
impact on the Bancorp and its banking subsidiary. Due to the
volume of regulations required by the Dodd-Frank Act, not all
proposed or final regulations that may have an impact on the
Bancorp or its banking subsidiary are necessarily discussed.
Financial Stability Oversight Council
The Dodd-Frank Act creates the Financial Stability Oversight
Council (“FSOC”), which is chaired by the Secretary of the
Treasury and composed of expertise from various financial
services regulators. The FSOC has responsibility for identifying
risks and responding to emerging threats to financial stability. On
December 29, 2011, a rule was proposed (with a sixty-day
comment period) to assess a fee on large banks and financial
institutions to cover the expenses of the Office of Financial
Research and FSOC. The fees would also cover certain expenses
incurred by the FDIC. Under the proposal, bank holding
companies with at least $50 billion in assets and foreign banks
with at least $50 billion in assets in the U.S. would be assessed a
semiannual fee, the size of which has yet to be determined.
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