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Fifth Third Bank records charge against earnings for COVID-19 loan losses

Bank has $14B in loans in 'high impact' industries
In a first, Fifth Third offers early retirement
Posted at 11:47 AM, Apr 21, 2020
and last updated 2020-04-21 20:02:19-04

CINCINNATI — Fifth Third Bancorp recorded a pre-tax charge against earnings of $518 million in its second quarter, as the Cincinnati-based bank braces for loan and lease losses related to COVID-19.

The bank gave extensive detail to investors Tuesday to demonstrate that its “current expected credit losses” represent just 2.13 percent of its total loan and lease portfolio. CEO Greg Carmichael said the bank has a much healthier balance sheet now, compared to the last financial crisis in 2008.

“The unprecedented nature of the environment that we are operating in today undoubtedly reprioritizes our focus to the significant and ongoing actions we are taking for our customers, our employees, and our communities,” Carmichael said in a press release. "We are leveraging our balance sheet strength to help solve the spiraling economic effects of this health crisis, and we will continue to respond rapidly and do what is necessary to help mitigate the effects of the downturn.”

Fifth Third revealed that it has $14 billion in outstanding loan balances in “COVID-19 high impact industries.” That’s 11.7 percent of its total loan portfolio.

Among the industries impacted, Fifth Third has $2 billion in casino loans, $1.9 billion in loans to restaurants and $1.9 billion in loans to non-essential retailers. Its commercial real estate portfolio includes $1.6 billion in loans to shopping malls and lifestyle centers.

Chief Financial Officer Tayfun Tazun said Fifth Third’s loan loss reserves assume the U.S. economy will take up to three years to fully recover from the pandemic.

“In our mind the current fiscal and monetary policies are likely to cushion the second- and third-quarter impacts but are not going to be necessarily providing a significant support to the latter years,” he said. “So our reserve levels … do reflect a slowly recovering economy rather than a V-shaped recovery.”

The bank also provided an update on its small-business lending activities through the Paycheck Protection Program, which was part of the Coronavirus stimulus package. The $350 billion loan program ran out of funding last week amid criticism that large restaurants secured jumbo-sized loans of up to $20 million while many small businesses were shut out.

“Very few of our loans were in that $9-to-$10 million range,” Carmichael said. “We did a good job of serving … smaller businesses in general.”

As Congress contemplates allocating another $300 billion to the program, Carmichael said the money will go quickly.

"Most bankers would agree the additional $300 billion is not going to be adequate to serve the total demand that’s out there,” he said. “We think the demand will continue to outpace available funds.”