Schaefer Feds Demand Divestiture

May 22, 2002
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GRAND RAPIDS — Before addressing the Economic Club of Grand Rapids last week, George Schaefer Jr., president and CEO of Fifth Third Bancorp, told the Business Journal that Fifth Third doesn't expect to close any of the 19 branch offices in Grand Rapids when it officially acquires Old Kent Bank early next month.

"Nor will there be any changes in the people that Old Kent customers have grown accustomed to dealing with day in and day out," Schaefer said.

Key managers will be staying on in West Michigan, northern Michigan, Detroit and Chicago markets. As David Wagner, Old Kent Financial Corporation chairman, president and CEO, put it, "the same people are going to be here running the company."

The Grand Rapids management team includes Kevin Kabat, who will be CEO of Fifth Third Grand Rapids; David Schneider, who will head retail banking; David Dams, commercial banking; Tom Godfrey; consumer banking; Tom Hilliker, investment advisers; and Bob Warrington, mortgages. Joseph Keating will serve as chief market strategist. Wagner will stay on as chairman and CEO of Fifth Third Bank/Michigan and also will sit on Fifth Third's board of directors.

Furthermore, all commitments Old Kent has made are going to be honored, Wagner said. "We're going to move forward in this market and in southeast Michigan and Chicago with the same commitments we've made to the communities in past years."

Fifth Third currently has 14 affiliate banks. When Old Kent is integrated into the system, affiliates will number 17, all of which will operate with a lot of autonomy, Schaefer said.

The people overseeing affiliate banks know what works best in their local markets, Schaefer remarked. For that reason, Fifth Third allows them to operate with a lot of independence in terms of making loan decisions, deciding how much will be contributed to the local arts fund or United Way, where they're going to put branches and what business lines they will expand.

"Then we make a horse race out of it," Schaefer said. "We try to make all of them be the best ones."

Wagner said the Fifth Third business model is different because each affiliate bank has its own board of directors and CEO.

"The local boards actually have legal and fiduciary responsibility," Wagner said. "That you just don't see in the other big regional banks within the local market."

Fifth Third tries to combine the best of both worlds, Schaefer said, by drawing on all the efficiencies of its large data processing operations while keeping local sales, service, marketing and customer contact at the community level.

"We try to keep that community bank spirit out here with the efficiencies of this big processing operation that we have," he said.

Due to the company's recent purchase of Ottawa Financial Corporation and its 27 Ameribank branches, coupled with pending acquisition of Old Kent, the Justice Department is requiring Fifth Third to divest itself of five branches in the Lakeshore area because of over concentration in some markets. Fifth Third is now in negotiations with the Justice Department and expects to announce in a couple of weeks which branches will be targeted for divestiture.

As Wagner sees it, those will be branch divestitures, not closures. Those offices divested of will be available to a new competitor, creating a more competitive banking environment in those areas, he said: "These will be new entrants, for the most part, that don't exist in those markets today. So from a community standpoint it's a positive thing."

There will be some obvious overlap between the former Ameribank and Old Kent branches, Schaefer acknowledged.

"If we have one on this street corner and one on that street corner, we'll pick the best street corner. In the scheme of nearly 1,000 offices, we're talking 10 to 15 maybe. Where two are close together and it's not the best site, you move down the street and put a big one in and consolidate the two into one. In most cases we haven't decided yet," he said.

As to the 1,400 jobs being cut here, Schaefer pointed out that Fifth Third is trying to hire 525 people across it affiliates.

"If you look at the net, the net is really 900. So right now for those 1,400 people there are a lot of jobs available. Some of them will involve relocating to other areas, which isn't real popular," he added.

Wagner said the two banks were trying to be as straightforward as possible with a number that represented the "worst case scenario" of blending the two companies. When the acquisition was announced last November, the expectation was of a 20 percent reduction in costs.

"We came back with a 16 percent reduction in full-time equivalent," Wagner said. "Since some of those people will likely accept jobs elsewhere in the system, the number will actually be less than that.

"We just don't know how much less until you actually sit down with each individual. The natural attrition in this market will encourage some people to take some of these jobs. We're working with individuals in trying to work through what is a difficult period."

Fifth Third brings to both Old Kent and Ottawa Financial its merchant processing business, which will mean a few more job openings in sales and support roles, Schaefer noted. Part time positions in Fifth Third affiliates would provide additional options for employment.

As he did later in his address to the Economic Club, Schaefer stressed that the merger adds about $1.5 billion in economic value to the Grand Rapids community.

"The market value of Old Kent before the merger was $3.5 billion. After the merger, it's $5 billion, roughly," Schaefer said. "Fifth Third has in effect invested $5 billion in the community, so that's $1.5 billion more. And that $1.5 billion is real money. That's wealth that has been created."

The community, as well as charitable organizations, will see a variety of economic benefits from that, Wagner added.

As Wagner pointed out, last year Fifth Third was named to the "100 Best Corporate Citizens" list of the top 650 firms in the country by Business Ethics magazine for being one of the country's most profitable and socially responsible major public companies. Fifth Third ranked 49th and was the only Midwestern bank to appear in the list's top 50.

Schaefer said Fifth Third and its employees gave some $17 million to charities last year, $14 million through Fifth Third's own charitable foundations, which serve all Fifth Third markets, not just Cincinnati. He said Fifth Third has a long history of philanthropy based on the idea that "a stronger community leads to a stronger bank."

One of the bank's recent endeavors, launched in 1999, is a three-year community development initiative called BLITZ that is providing $9 billion in funding for building, lending, investment and technology zones in markets Fifth Third serves.

Wagner believes the combined bank will have more resources to do more things in the community than Old Kent alone had before.

"Shareholders, by a vote of 90 percent plus, are saying this is a good thing, as are customers, by vote of opening more new accounts," he said. "Prospects are saying that the service and the products are good things. We listen to our customers, and our customers are saying this is a good thing."

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