Schaefer Outlines Fifth Third Operating Philosophy
GRAND RAPIDS — George Schaefer Jr., president and CEO of Fifth Third Bancorp, introduced more than 500 people to the Fifth Third operations philosophy Monday in a getting-to-know-you address at the Amway Grand Plaza before the Economic Club of Grand Rapids.
As Fifth Third’s acquisition of Old Kent Bank nears finalization, Schaefer came to town to outline transition plans and assure people that Fifth Third would be every bit as good a corporate citizen and community supporter as Old Kent Bank has been for 148 years.
The secret to sustaining Fifth Third’s performance track record has been local management accountability and local operating autonomy, he said.
“Our separate affiliate bank operating philosophy ensures that we remain responsive to changing market conditions and the needs of the local communities in which we operate,” Schaefer said. “Simply put, the best thing we can do for the Grand Rapids community is to ensure that we have a strong local bank that continues to grow profitably here.”
Fifth Third’s acquisitions over the past 26 years have grown it to $46 billion in assets and 668 offices. With the acquisition of Old Kent — expected to be approved April 2 — the bank will grow to nearly $70 billion in assets and 1,000 branch offices.
When Old Kent is blended in, Fifth Third will operate 17 regional affiliate banks, with Grand Rapids the second largest of them. The network will include more than 1,900 ATMs across Michigan, Illinois, Indiana, Ohio, Kentucky, Florida and Arizona. Forty-five branches and 102 ATMs will be located throughout metro Grand Rapids.
The combined result, Schaefer said, will be “the most attractive franchise in the Midwest” in terms of concentration in major metropolitan markets.
Fifth Third just completed its 27th year of uninterrupted earnings increases, the last 22 years of which earnings have increased at double-digit rates. Through periods of rising interest rates, high inflation, recessions, technological evolutions, different credit cycles and economic conditions over the years, Fifth Third has never failed to deliver as promised to its shareholders, Schaefer remarked.
Schaefer complimented Old Kent Chairman, President and CEO David Wagner and his management team for building a strong, high performing franchise and for Old Kent’s track record of creating shareholder value.
“I’m sure a significant portion of the wealth that has been created for Old Kent shareholders over the years stayed right here in the Grand Rapids area,” he said.
Before the acquisition announcement last November, Old Kent’s market capitalization was about $3.5 billion, Schaefer pointed out. Fifth Third offered Old Kent a closing price of nearly $5 billion.
“I’m very sure that a lot of that $1.5 billion premium that ended up with Old Kent shareholders is going to stay in this local economy through investment and through tax revenues. And I’m sure all the charitable contributions will increase significantly as a result of the $1.5 billion that’s been placed here,” he said.
He noted that rating agencies during the past year recognized the strength of the Fifth Third’s low-risk balance sheet, as Moody’s Investors Service upgraded the institution’s debt ratings from A1 to Aa3. The upgrade was “rewarding” given the present turbulence in the banking industry, he said.
The bank maintains one of the highest capital levels in the industry. Following the Old Kent acquisition, he said, the combined bank will have $6.5 billion in real tangible capital.
The Fifth Third mix includes retail and commercial banking, investment advisory services and data processing. Schaefer said this year the bank would concentrate on growing its investment management and data processing businesses.
Each banking center will follow the same operating platform so a customer can go to any Fifth Third branch anywhere and conduct any type of transaction, he said, adding that the bank expects to provide “unparalleled” service to both individual and business customers in Grand Rapids.
As for business customers, Fifth Third believes it will bring to Grand Rapids “the best mix of services for small businesses and middle market companies available anywhere,” he said.
“Unlike some of our competitors, we like all checking account customers. We don’t treat customers differently under a philosophy that one might be more profitable than another. From our totally free checking account to our high-end platinum account, we design products to appeal to every potential retail customer.”
Fifth Third is opening 2.5 times the number of new checking accounts each month than Old Kent alone opened last year.
Within the Fifth Third system, each affiliate bank has its own board of directors and each affiliate CEO is solely accountable for the operations in that market. All lines of business report to the local CEO, not to the home office in Cincinnati, Schaefer explained. Under the Fifth Third operating model, accountability and responsibility are driven down even further than the CEO level.
Each branch manager has an incentive for growth, customer satisfaction and for revenues, he said, and each branch office has a community-based lender empowered to make all lending decisions.
“We give our managers a profit-loss statement and tell them it’s their business to run,” Schaefer said. “We don’t profess to have a one-size-fits-all solution dictated by the home office. Fifth Third absolutely believes the best decisions are made by the people with local market experience and a clear stake in the outcome.”
An important distinction about Fifth Third, he said, is that all charitable and promotional expenditures related to West Michigan will be controlled in Grand Rapids. The local management team will also have the autonomy to work with local service providers such as law firms, real estate agents and contractors.
“We will value revenue growth and sales opportunities much more than we value cost saves,” Schaefer said. “We know it might be cheaper to centralize buying power for some services, but we’ve learned over the years that the local relationships will help us generate more revenues than cost saves could ever provide.”