Fifth Third, one of the larger mid-Western banks (that our good friend Tom works for) has announced plans to raise $2 billion ($1 billion in stock sales and $1 billion in divestitures) in fresh capital and a cut to the dividend to shore up its balance sheet in the wake of the mortgage meltdown. Regional banks are feeling the pinch from credit losses similar to those that side-swiped Bear Stearns and other investment banks earlier in the crisis.
For those that think we’re near the end of this I hope that these articles continue to highlight the ongoing severity of the credit crunch and that we’re continuing to see the fallout across the country in all aspects of the finance sector and across the economy in general.
From CNNMoney.com:
Fifth Third Bancorp (FITB) announced it plans to sell $1 billion in convertible preferred stock, sell noncore operations and slash its dividend by 66%, becoming the latest regional bank to take steps in boosting capital levels as credit losses continue to mount.
Fifth Third also sees full-year net charge-offs of 1.6% to 1.65%, with the second-half of 2008 coming in around 1.7%. Charge-offs are seen rising further in 2009 and the need for additional growth in loan-loss reserves.
Kabat noted that while “many areas of our business are performing well…our bottom-line results won’t meet our expectations. We are not satisfied with these results and know that they are as disappointing to investors as well.”
Meanwhile, Fifth Third said it anticipated divestitures, which the company didn’t identify, during the next several quarters, would boost capital by at least $1 billion.
Regional banks have been the latest to focus on potential capital raisings and dividend cuts after many of the nation’s biggest banks did so earlier this year. A research note from Freidman, Billings, Ramsey said Tuesday that deteriorating commercial loans will lead to outright losses in the portfolios of regional banks, and that management and investors aren’t fully appreciating the risk.
The MBA’s mortgage application index fell nearly 10% last week driven down by the highest interest rates in a year. High rates, coupled with declining property values and tighter underwriting guidelines continue to put pressure on the mortgage market.
From Bloomberg:
Mortgage applications in the U.S. declined last week, led by a slump in refinancing as borrowing costs surged.
The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan fell 8.8 percent to 507.9 from 557.1 the prior week. The index reached a six-year low of 502.3 last month. The group’s purchase index decreased 4.4 percent and its refinancing gauge lost 15 percent.
Prospective buyers are holding off as rising foreclosures add to the glut of properties on the market and force home values down even more. Sales will probably remain depressed as lenders restrict credit, and concern over inflation boosts mortgage rates.
“The increase in mortgage rates is decidedly negative for the housing outlook,” said Michelle Meyer, an economist at Lehman Brothers Holdings Inc. in New York. “Higher rates strain affordability, suggesting home prices may have to fall further to provide an offset.”
The average rate on a 30-year fixed-rate loan rose to 6.57, the highest level since June 2007, from 6.24 percent. At the current rate, monthly borrowing costs for each $100,000 of a loan would be $637, up $69 from the year’s low reached in January.
The average rate on a 15-year fixed mortgage increased to 6.14 percent from 5.78 percent, while the rate on a one-year adjustable mortgage jumped to 7.22 percent, the highest level since December 2000, from 6.87 percent.