Fifth Third 4Q Pre-Tax Profit To Take $68 Million In Charges
January 05 2012 - 10:39AM
Dow Jones News
Fifth Third Bancorp (FITB) said Thursday it would take $68
million in charges to pre-tax income in its just-completed fourth
quarter tied to a swap arrangement on Visa Inc.'s (V) class B
shares.
The charge follows an announcement by Visa two weeks ago that it
would set aside $1.6 billion to cover potential litigation losses,
a move the credit-card processor said would dilute the value of
class B shares.
Visa's class B shares are held only by U.S. banks. The shares
were set up to protect Visa's class A holders against potential
liability from lawsuits Visa and the banks faced. Visa puts its
litigation reserves into an escrow account and the class B shares
are diluted.
Fifth Third, which funnels sizable volume of credit card
payments through Visa, used to hold a 4% stake but, like many
banks, sold its B shares in 2009. The Cincinnati bank then entered
into a total return swap agreement in which the bank will make or
receive payments based on changes in the value of Class B
shares.
On Thursday, Fifth Third said it expects Visa's action to result
in an increase the fair value of the swap liability -- which
triggers a loss on a bank's balance sheet. It would be forced to
pay its counterparty an extra $64 million in the first quarter, and
that payment and change in value on its liabilities will reduce
noninterest income by $54 million in the just-completed fourth
quarter.
The bank will also increase its own litigation reserves for its
membership in the card association by $14 million.
Analysts polled by Thomson Reuters expect the bank to earn
$341.6 million in net income in the fourth quarter.
Fifth Third also took a $17 million charge tied to the class B
shares in the third quarter.
Visa's move means the litigation account has about $4.3 billion
set aside to handle about 50 lawsuits filed since 2005. The suits,
which also target MasterCard Inc. (MA), are from merchants who
argue the card processors have violated antitrust laws by fixing
the fees retailers pay to accept their cards. The suits also name
large banks.
A trial date for the cases, which have been consolidated in U.S.
District Court for the Eastern District of New York, has been set
for September 2012, but analysts have speculated a settlement is
likely to occur before then.
-By David Benoit and Matthias Rieker, Dow Jones Newswires;
212-416-2458; david.benoit@dowjones.com
-Andrew Johnson contributed to this report.
Fifth Third Bancorp (NASDAQ:FITB)
Historical Stock Chart
From May 2024 to Jun 2024
Fifth Third Bancorp (NASDAQ:FITB)
Historical Stock Chart
From Jun 2023 to Jun 2024