Changing times at Fifth Third

Not long after I arrived in Cincinnati in late 1991, a fresh-faced cub reporter straight out of journalism school, I was assigned to cover banking.

So I set out to interview the presidents of the two largest locally owned banks at the time. At Star Bank, I encountered Ollie Waddell, a courtly and courteous CEO who conducted a seminar on the industry.

Then I crossed Fountain Square to Fifth Third Bank and met George Schaefer, and got exactly the opposite experience. Schaefer was anything but courtly. He was smart, fast-talking, intense, driven. After our talk, he tried to sign me up for a checking account.

Six months later, on the day before Good Friday in 1992, Schaefer and Waddell found themselves in a battle. Fifth Third had offered to acquire Star for $40 a share. When Star turned it down, Fifth Third took the offer public, a breach of Cincinnati corporate etiquette that sparked a public war of words that took several years to die down.

Fifth Third's attempt failed, and Waddell has long since retired. But lately I've been reliving those memories as I read about Fifth Third. The bank has grown exponentially.

It has reached $104.6 billion in assets, has 1,106 branches and is expanding operations from Chicago to Florida.

But it clearly is a bank in transition. In 2003, it endured a rebuke from its regulators, including an agreement that forced it to halt acquisitions for nearly a year. In response, the bank beefed up its internal accounting and compliance.

And the old guard, the executive corps that drove Fifth Third to those heights, is leaving. Last week, it was executive vice president Neal Arnold, the former chief financial officer. Within the last two years, top executives Bob Niehaus, Mike Baker and Steve Schrantz have left the bank. Before that was Mike Keating. Several from that list, at one point or another, had been viewed as potential successors to Schaefer.

If you viewed this as a signal that Fifth Third could soon be sold, well, let's just say you're not alone.

Fifth Third's stock price, long viewed as its currency for acquisitions, has suffered as well, dropping nearly one-third since early 2004 and now hovering about $41 per share.

It wasn't always that way.

For years, Fifth Third was one of the stars in the banking industry. It had the lowest costs, and it cross-sold customers like no other bank. It was, as the commercial said, "The hardest working bank you'll ever need."

That was more than a slogan. It was a strategy. By working so hard and selling so much, Fifth Third could keep its costs low and its stock price high. That not only allowed it to use stock to buy smaller banks - it made Fifth Third "too rich to buy."

That means if a big bank from New York or Los Angeles or Charlotte wanted to buy Fifth Third, it would have to pay a huge premium for those shares. And since Fifth Third didn't have a lot of fat to trim, the buyer couldn't cut a bunch of jobs or close a bunch of branches after a sale to recoup its costs.

The strategy served Fifth Third well. As other banks sold and bought and merged, Fifth Third continued on the independent track. The old Central Trust Bank had long since been owned by PNC Corp. Star Bank merged with Firstar, then with U.S. Bank. Just last year, Provident Bank sold to Cleveland's National City Corp.

Fifth Third, with the driven Schaefer at the helm, has held out and held on.

But here's the point.

In 2005, that contrast between Schaefer and Waddell really no longer exists. More important, the contrast between Fifth Third and every other bank also is disappearing fast. Every bank CEO, and every bank, is fast-talking, intense and driven. They all concentrate on selling new accounts and cutting their costs and using services-for-fees to boost their profits and stock price.

If imitation is indeed a form of flattery, then Schaefer and Fifth Third should feel awfully good, because the entire industry has followed their lead. And it wasn't just Schaefer. Before him, it was Clem Buenger, and before Buenger, it was Bill Rowe. It's been a distinguished corporate culture there.

So where does that leave Fifth Third now?

With the stock down over the last five years, the inevitable chatter has started about a big money-center bank coming in to buy Fifth Third.

Whether that deal is inevitable, I don't know. But with the stock performance, it's a heck of a lot more likely than it was two years ago.

Look for a response from Fifth Third soon. The bank won't change its central message, but instead will try to repackage both its image and its strategy.

they say change is good. For Fifth Third, we'll soon find out.

What are people saying about mortgages today:

Rates on 30-year mortgages edged down last week to a seven-month low. Mortgage-giant Freddie Mac reported Thursday that 30-year, fixed-rate mortgages fell to 6.3 percent, down slightly from 6.31 percent two weeks ago. It put rates at the lowest level since they were at 6.24 percent the first week of March.

Bank of Hawaii, Central Pacific Bank, Territorial Savings Bank and Wells Fargo Home Mortgages all cut their 30-year mortgage rates to 5.75 percent this week.

Most people think of a mortgage as a means to an end. After all, you buy a house, not a home loan. But a mortgage is much more than the path to homeownership. It is a financial instrument that must be managed, just like any other financial investment.