AfE 2024
For many US regional banks, the priority in the first part of 2023 was simply survival. But for the very best, ambitions went much further than that. For its excellent financial performance, the product of wise decisions made years ago and the continued execution of an impressive strategy, Fifth Third is the US's best super-regional bank.
The bank had the rare distinction of seeing its stock trade up over 2023 to finish the year 5% higher while the stock of many peers fell. In shareholder returns, the bank is unsurpassed among its peers since 2019, topping the rankings on a one, three and five-year basis and showing how the bank can perform in a low and high-interest rate environment.
Unsurprisingly, analysts like the name too. CreditSights sees the bank as the strongest on a fundamental basis among the Category IV regional banks in the US and notes that its spreads trade closer to Category III institutions.
One equity analyst notes that the firm has made a virtue of under-promising and overdelivering, something that has helped the stock and driven the bank to trade at a best-in-class price to tangible book ratio of above 2.2 times at the time of writing.
It has been quite a journey for the institution from the dark days of the global financial crisis in 2008, when it had to sell off its Vantiv payments processing unit to recapitalize its balance sheet. But since then the focus on restoring stability to earnings and balance to exposures has paid off handsomely.
“We have been on an evolution since the crisis, from a business model that was higher growth but more volatile, to building a franchise whose priorities are stability, profit and growth,” says Tim Spence, Fifth Third’s chief executive.
The bank neatly cut its lending to stressful areas such as construction and commercial real estate well before fear rose in those sectors in recent years – it has the lowest concentration of commercial real estate as a percentage of total risk-based capital of any of its peers. And it has also shown smart decision making in its geographical capital allocation in the US, shifting efforts from its traditional but slowing midwest to the faster growing southeast.
Liquidity – the key concern that blew up around the March 2023 crisis that sank Silicon Valley Bank, Signature Bank and First Republic, and shook investor confidence in the sector – is another area where investors can breathe easily with Fifth Third. It is in a better situation than most peers and its loan to deposit ratio was an extremely conservative 70%.
The bank had the rare distinction of seeing its stock trade up over 2023 to finish the year 5% higher while the stock of many peers fell
“You never want to see fear in the market or to see banks fail, but the situation gave us the opportunity to demonstrate that the transformation of Fifth Third had taken hold,” says Spence.
The bank’s liquidity position was the obvious illustration of that. The bank grew deposits by 5% in 2023, the median among peers was flat and the industry as a whole was down 3%.
Observers of the bank put a lot of the credit for the bank’s recent stability at the door of Spence, who boasts an unconventional background for a bank chief executive given his early years in growth tech companies and a decade as a financial services specialist at consultancy Oliver Wyman. Appointed as chief executive of Fifth Third in 2022, he joined the bank in 2015 and had headed the consumer banking unit since 2018.
Spence’s supporters argue that his career path has enabled him to see the importance of technology not just as a way to reduce costs and increase efficiency but as something to sell to clients as a core banking product. There is no better example than Fifth Third Momentum, one of the very first fintech-like offerings within a mainstream bank in the US.