The original class action lawsuit was filed on behalf of all persons who purchased the securities of Fifth Third Bancorp against the Company and its president and chief executive officer, alleging violations under the Securities Exchange Act of 1934.
This action is also brought on behalf of a sub-class (the “Sub-Class”) of Class members who purchased $750,000,000 (in aggregate liquidation amount) of 7.25% Trust Preferred Securities, liquidation amount $25 per security, which were registered pursuant to an automatic shelf registration statement on Form S-3 (SEC File Nos. 333-141560 and 333-141560-03) filed with the Securities and Exchange Commission on March 26, 2007, (the “Trust Preferred Securities”), the sale of which to investors was in an initial public offering which became effective on or about October 25, 2007, Fifth Third Capital Trust VI (the “Offering”) [NYSE FTB-PB or FTBPB], seeking to pursue remedies under Sections 11 and 15 of the Securities Act of 1933 (the “Securities Act”), 15 U.S.C. §§ 77k and 77l. The Securities Act claim is also bought against the underwriters of Fifth Third Capital Trust VI preferred securities, Citigroup Global Markets Inc.; Merrill Lynch, Pierce, Fenner & Smith Incorporated; Morgan Stanley & Co. Incorporated; UBS Securities LLC.; Banc of America Securities LLC; and Credit Suisse Securities (USA) LLC.
The Complaint asserts that during the Class Period, FITB issued materially false and misleading statements concerning the quality of the Company’s Tier 1 capital, the relevant ratios and sufficiency of its Tier 1 capital, the necessity to take net charge-offs stemming from increasing credit losses, and the need to shore up capital due to the Company’s exposure to poorly performing real estate markets in the Mid-West region.
This Complaint further alleges that Trust Preferred Securities were sold to the investing public in the Offering pursuant to a Prospectus that negligently omitted material information. The statements made in the Company’s Prospectus contained material omissions because, at the time of the Offering, FITB was already suffering from several adverse factors that were not revealed and or adequately addressed in the document. The omitted information included, but is not limited to, failure to disclose (a) the Company’s exposure to certain poorly performing real estate markets, including Florida, Ohio, and Michigan, and the extent to which this exposure was materially increasing; (b) the Company’s growing exposure to late payments and defaults on mortgages and other non-performing loans, and the extent to which this exposure was materially increasing; (c) the extent of the decline in the quality of the Company’s Tier 1 capital base; (d) the deteriorating credit trends and increasing expenses, including negative trends, in the Company’s consumer loan portfolio, including the extent of the increase in late payments and defaults; (e) the negative trends in the Company’s home equity and commercial construction loans, and the extent to which there was a decrease in the value of the underlying assets and an increase in late payments and defaults and (f) the deterioration in the credit quality of its loans.
The Company’s president and chief executive officer, and FITB’s underwriters could have – and should have – discovered the material misstatements and omissions in the Company’s Prospectus prior to its filing with the SEC and distribution to the investing public. They, instead, failed to do so as a result of a negligent and grossly inadequate due diligence investigation.
Certain of the adverse factors affecting FITB’s business were first revealed on June 18, 2008, before the market opened. At that time, the Company issued a press release stating that it was forced to cut its quarterly dividend by 66.0%, to 15 cents from 44 cents a share, and had to sell non-core businesses for at least $1.0 billion in extra capital. The Company also stated it planned to raise $1.0 billion through an offering of convertible preferred shares, which would prove dilutive to common shareholders.
The Company further stated that earnings would be reduced by a provision expense expected to be between $350.0 million and $375.0 million greater than net charge-offs for the second quarter. Our bottom line results won't meet our expectations. We are not satisfied with these results and know that they are as disappointing to investors as well, the Company said.
The Company also revised its capital targets to an 8.0% to 9.0% range for its Tier 1 capital ratio and projected a second-quarter Tier 1 capital ratio of 8.5%, which includes the impact of its First Charter acquisition and related accounting adjustments. The projection did not, however, include a possible reduction of 20 basis points from charges on earnings related to leveraged leases in the second quarter.
The Company now expects 2008's ratio of reserves to loans and leases to exceed 2.0% and anticipates an even higher ratio in 2009.
These disclosures caused the Company’s common stock to decline 27%, to close on June 18, 2008 at $9.26 per share on very heavy volume. The Company’s stock had traded as high as $28 per share in February, 2008.
The Trust Preferred Securities also traded sharply lower and closed at $16.35 per share, 34% below their October 2007 offering price.
On December 15, 2008, Chief Judge Sandra S. Beckwith granted the motion to consolidated three related cases. The next day, Judge Beckwith also granted the motion to appoint The Pension Trust Funds and Edwin B. Shelton to serve as Co-Lead Plaintiffs also approved their selection of Co-Lead Counsel. On April 3, 2009, the lead plaintiffs filed a Consolidated Complaint. The defendants responded by filing a motion to dismiss the Consolidated Complaint.
On August 10, 2010, Defendants’ motion to dismiss and supplemental motion to dismiss were granted in part and denied in part. Specifically the Court ordered the Plaintiffs’ motion to file an amended consolidated class action complaint was moot; Plaintiffs’ motion to strike is moot; Defendants’ motion to dismiss the Section 11 claims based on the failure to plead scienter with particularity was denied; Plaintiffs’ motion to file a sur-reply brief is well-taken and was granted.
On September 30, 2010, the plaintiffs filed an Amended Consolidated Class Action Complaint.
On December 20, 2012, a Joint Notice of Settlement and Motion to Stay Proceedings were entered into the docket that outlined a mediation conference conducted on December 10, 2012, about the parties reaching a settlement in principle. The Settlement was preliminarily approved by the Court on June 19, 2013. On November 19th, the Court issued an Order granting final approval of the Settlement and dismissing this case with prejudice. This was followed the next day by an Order awarding Attorneys' fees and expenses.