Fitch Affirms Fifth Third Bancorp's LT IDR at 'A' Following Large Regional Bank Review

NEW YORK--()--Fitch Ratings has affirmed Fifth Third Bancorp's (FITB) ratings at 'A/F1'. The Rating Outlook remains Stable. The affirmation reflects the company's good earnings profile, solid capital and liquidity profiles, and moderating credit trends.

The rating action follows a periodic review of the large regional banking group, which includes BB&T Corporation (BBT), Capital One Financial Corporation (COF), Comerica Incorporated (CMA), Fifth Third Bancorp (FITB), Huntington Bancshares Inc. (HBAN), Keycorp (KEY), M&T Bank Corporation (MTB), MUFG Americas Holdings Corporation (MUFG), PNC Financial Services Group, Inc. (PNC), Regions Financial Corporation (RF), SunTrust Banks Inc. (STI), US Bancorp (USB), Wells Fargo & Company (WFC), and Zions Bancorporation (ZION).

Company-specific rating rationales for the other banks are published separately, and for further discussion of the large regional bank sector in general, refer to the special report titled 'Large Regional Bank Periodic Review,' to be published shortly.

KEY RATING DRIVERS - IDR, Viability Rating (VR) and Senior Debt

Fitch affirmed FITB's Issuer Default Rating (IDR) reflecting the company's good earnings profile, solid capital and liquidity profiles, and moderating credit trends. FITB's earnings historically have outpaced peer averages supported by strong efficiency levels, and good fee-based revenues sources. Earnings have been impacted recently due to litigation reserve builds and a slowdown in mortgage refinancing revenues, somewhat offset by reserve releases, which are expected to diminish over time. FITB expects its full-year 2014 core return on assets ROA to be approximately 1.15%, which appears attainable. Though this is considerably lower than its pre-crisis average, it is still viewed as good given the challenging interest rate environment.

FITB's management is viewed as in line with other large regional banks, a management team with a high degree of depth and experience. Strategic objectives are clearly articulated, and FITB has done a good job in meeting financial targets.

FITB's capital profile remains solid with an estimated Tier 1 common ratio under Basel III of 9.3%, well above the fully phased-in requirement of 7%, though a tad below large regional peer averages. Historically FITB has managed capital conservatively with above-average levels of tangible common equity relative to peers. Fitch expects that FITB, along with its other large regional banking peers, will manage capital conservatively in the post-financial crisis environment.

FITB remains predominately core funded, with core deposits (defined as total deposits less jumbo deposits) representing 82% of total funding as of June 30, 2014. Similar to industry trends, FITB's funding profile is strong, partially reflective of a weak economic recovery. Further, holding company liquidity remains robust with considerable cash balances, and no near-term maturities until 2016.

Although the company's non-performing assets (NPAs) are elevated from historical levels, actual losses have been manageable as of late, and reserve levels are still relatively high. Further, a large percentage of the accruing troubled debt restructurings (included in NPAs) are current on principal and interest payments. Excluding troubled debt restructurings (TDRs), FITB's level of NPAs to loans and foreclosed real estate falls slightly below peer averages.

FITB reported higher crisis-era losses than its peers, due to weak economic conditions in Michigan before the crisis started, and its exposure to Florida. Fitch notes that FITB did make some needed decisions early on to mitigate risk, including some early exits of homebuilder or developer lending, and brokered home equity, as well as suspending non-owner-occupied CRE lending for a time.

RATING SENSITIVITIES - IDR, VR and Senior Debt

Given FITB's ratings at the higher end of the ratings spectrum for the large regional banks, Fitch does not anticipate any further ratings upward momentum over the near- to intermediate-term given the high absolute levels. Further upward ratings movement would be predicated on a material decline in overall problem asset levels, combined with an above-average earnings profile. Further, while FITB's capital profile is currently considered adequate in light of its risk profile, any upgrade in ratings would likely also be dependent on an above-average capital profile which would provide more than ample loss cushion for unexpected losses.

Conversely, a reversal in FITB's superior earnings profile and asset quality trends, combined with a material deterioration in the liquidity and capital profile could pressure FITB's earnings. FITB has also recently announced strategic initiatives to increase its capital market offerings, in line with efforts at a couple of other large regional banks. Although Fitch expects securities business will remain relatively low relative to overall revenues for FITB and the other large regional banks, an outsized reliance on this more volatile income stream could be viewed negatively from a ratings perspective.

The substantial unrealized gain in Vantiv is not included in FITB's equity or capital; however, Fitch currently views the ownership stake in Vantiv favorably. While Fitch expects FITB to wind down its ownership in the company over time, Vantiv-related items can impact quarterly earnings. A complete divestiture would lessen the volatility in earnings; however, Vantiv-related earnings contributed a healthy 16% of pretax income in 1H'14. Without reinvestment or other organic opportunities, FITB's earnings profile could be adversely affected following a complete divestiture and, consequently, its earnings.

KEY RATING DRIVERS - HOLDING COMPANY

FITB's IDR and VR are equalized with those of its operating companies and banks, reflecting its role as the bank holding company, which is mandated in the U.S. to act as a source of strength for its bank subsidiaries. Ratings are also equalized reflecting the very close correlation between holding company and subsidiary default probabilities.

RATING SENSITIVITIES - HOLDING COMPANY

Should FITB's holding company begin to exhibit signs of weakness, demonstrate trouble accessing the capital markets, or have inadequate cash flow coverage to meet near-term obligations, there is the potential that Fitch could notch the holding company IDR and VR from the ratings of the operating companies. This is viewed as unlikely, though, for FITB given the strength of the holding company liquidity profile.

Fitch is now considering introducing a rating differential between the holding company and bank in the U.S. due to structural changes in the sector and the evolving regulatory landscape, as described in the special report 'U.S. Bank HoldCos & OpCos: Evolving Risk Profiles', dated March 27, 2014. Given Fitch's views that FITB may not receive a long-term debt requirement, its ratings may not be affected as a result of Fitch's evolving review regarding notching.

KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR

FITB has a Support Rating of '5' and Support Rating Floor of 'NF'. In Fitch's view, FITB is not systemically important and therefore, the probability of support is unlikely. IDRs and VRs do not incorporate any support.

RATING SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR

FITB's Support Rating and Support Rating Floor are sensitive to Fitch's assumption as to capacity to procure extraordinary support in case of need.

KEY RATING DRIVERS - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

Subordinated debt and other hybrid capital issued by FITB and by various issuing vehicles are all notched down from FITB or its bank subsidiaries' VRs in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss severity risk profiles.

RATING SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

The ratings of subordinated debt and other hybrid capital issued by FITB and its subsidiaries are primarily sensitive to any change in FITB's VR.

KEY RATING DRIVERS - LONG- AND SHORT-TERM DEPOSIT RATINGS

FITB's uninsured deposit ratings are rated one notch higher than the company's IDR and senior unsecured debt because U.S. uninsured deposits benefit from depositor preference. U.S. depositor preference gives deposit liabilities superior recovery prospects in the event of default.

KEY RATING SENSITIVITIES - LONG- AND SHORT-TERM DEPOSIT RATINGS

The ratings of long- and short-term deposits issued by FITB and its subsidiaries are primarily sensitive to any change in FITB's long- and short-term IDRs.

Fitch has affirmed the following ratings:

Fifth Third Bancorp

--Long-term IDR at 'A'; Outlook Stable;

--Viability Rating at 'a';

--Preferred stock at 'BB+';

--Senior debt at 'A';

--Subordinated debt at 'A-';

--Short-term IDR at 'F1';

--Short-term debt at 'F1';

--Support at '5';

--Support floor at 'NF'.

Fifth Third Bank

--Long-term IDR at 'A'; Outlook Stable;

--Viability Rating at 'a';

--Senior debt at 'A';

--Subordinated debt at 'A-';

--Long-term deposits at 'A+';

--Short-term IDR at 'F1';

--Short-term deposits at 'F1';

--Support at '5';

--Support floor at 'NF'.

Additional information is available on www.fitchratings.com.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria (Jan. 31, 2014');

--'Rating FI Subsidiaries and Holding Companies (Aug. 10, 2012');

--'Assessing and Rating Bank Subordinated and Hybrid Securities Criteria (Jan. 31, 2014');

--'U.S. Bank HoldCos & OpCos: Evolving Risk Profiles (March 27, 2014');

--'U.S. Banking Quarterly Comment: 2Q14 (July 23, 2014');

--'Index Trend Analysis - 2Q14 (Fitch Fundamentals Index Falls to Neutral) (July 15, 2014');

--'Risk Radar Global 3Q14 (September 15, 2014').

Applicable Criteria and Related Research:

Risk Radar Global 3Q14

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=773568

Index Trend Analysis - 2Q14 (Fitch Fundamentals Index Falls To Neutral)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=752428

U.S. Banking Quarterly Comment: 2Q13

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=714018

U.S. Bank HoldCos & OpCos: Evolving Risk Profiles

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=742096

Assessing and Rating Bank Subordinated and Hybrid Securities Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732137

Rating FI Subsidiaries and Holding Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=891954

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Primary Analyst:
Julie Solar, +1-312-368-5472
Senior Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Doriana Gamboa, +1-212-908-0865
Director
or
Committee Chairperson:
Joo-Yung Lee, +1-212-908-0560
Managing Director
or
Media Relations:
Brian Bertsch, New York, +1-212-908-0549
brian.bertsch@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Julie Solar, +1-312-368-5472
Senior Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Doriana Gamboa, +1-212-908-0865
Director
or
Committee Chairperson:
Joo-Yung Lee, +1-212-908-0560
Managing Director
or
Media Relations:
Brian Bertsch, New York, +1-212-908-0549
brian.bertsch@fitchratings.com