Fifth Third and First Charter, Revisited

A little less than one year has passed since the Federal Reserve approved Fifth Third‘s acquisition of First Charter.

It is safe to say that things haven’t gone as expected.  Back in April 2008, Fifth Third agreed to pay $1.1 billion for the North Carolina bank.  It was a price that some said was a bit high, but nonetheless, it was an opportunity to get into some enviable markets in North Carolina – Charlotte, Asheville, and Raleigh-Durham.

Now, Fifth Third is trading at $1.47.  Its market capitalization is only $849 million.  That is less than the acquisition price of First Charter.  The bank still has assets of $126 billion, but they are being severely discounted in value.  It is pretty hard to say that an acquisition has been accretive under these circumstances.

Investors in First Charter had an option of taking shares or cash when the transaction was finalized.  Shares were valued at $31.  Its been quite a fast ride down for those holders.

More trouble could be on the way for other big banks, of course.  Christoper Whalen’s conversation with Henry Blodgett suggests that both B of  A and Citi will go into some form of government receivership before the end of 2009.  Depositors will be satisfied, he suggests, but a good resolution for bond holders might be even 50 cents on the dollar.  Its time, he says, “for an adult conversation.”