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Fifth Third to Pay around $4M to S&P for Contract Damages


Cincinnati-based financial and multi-bank holding company, Fifth Third Bancorp FITB has been alleged of breaking contract with S&P Global Market Intelligence, a leading provider of financial and industry data to participants of global financial markets. According to the lawsuit filed in the U.S. District Court in Cincinnati last week, S&P has asked the court to order the bank to pay no less than $3.885 million in damages, resulting from the termination of contract with S&P.

Per the lawsuit, Fifth Third had inked a deal with S&P to avail its services in 2009. Additionally, in the beginning of 2010, the bank signed a contract with S&P to analyze the fees, income, billing and payment practices deployed by Fifth Third in its commercial loan portfolio as well as assist in improving the same.

Further, in Oct 2013, the bank’s executive vice president in-charge of commercial banking – Greg Kosch – told S&P that he had referred S&P to another bank, signifying how it helped the bank to build an additional $33 million on its commercial loan portfolio. In addition, Fifth Third’s business banking unit also started using S&P’s service on Kosch’s recommendation. Moreover, the lawsuit highlights S&P’s claim that the results it generated for the bank’s commercial loan portfolio were appreciated by Fifth Third.

Notably, the bank signed a deal with S&P, whereby the contract, due to terminate at the end of 2013, would be stretched for an additional year, if S&P assisted Fifth Third in generating an extra $7.5 million during a calendar year. However, at the end of 2015, the bank sent an email to S&P regarding termination of the contract, claiming that S&P did not create an additional $7.5 million during 2015. Notably, at the end of Mar 2016, Fifth Third considered the contract as terminated when it stopped providing information on its commercial loan to S&P.

On the other hand, S&P alleges that Fifth Third did not notify them appropriately as mandated under the contract. In fact, it had generated more than $7.5 million for Fifth Third as extra value during each year of the agreement and expects to continue generating the same in the future. Further, S&P stated that the bank continued to pay $150,000–$170,000 per month to S&P in the period leading up to the contract’s termination.

Moreover, S&P alleges that Fifth Third’s lawyers’ adherence to its “erroneous legal interpretations and incorrect factual assertions” triggered the lawsuit. However, Fifth Third’s spokesman – Larry Magnesen – declined to comment on the matter.

Our Viewpoint

Fifth Third is the nation’s 13th biggest and largest locally-based bank. The company’s ongoing strategic efforts are likely to boost its efficiency and revenue over the long run. Further, the bank remains focused on improving its several fee avenues, including capital markets capabilities. Moreover, its third-quarter results were impressive with the bottom line improving 44% on a year-over-year basis and net income available to common shareholders climbing 37% year over year.

Though regulatory issues are a concern for Fifth Third, given its potential impact on the company’s profitability, the current probable legal fine represents a minuscule portion of the bank’s profit and would hardly affect its bottom line.

Fifth Third currently carries a Zacks rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Other Stocks to Consider

The Charles Schwab Corporation SCHW sports a Zacks Rank #1 and has a decent earnings surprise history. Further, the company’s stock has gained around 18.8% so far this year on the NYSE.

The Bank of New York Mellon Corporation BK and Comerica Incorporated CMA, with a Zacks Rank #2, boasts a decent earnings surprise history. So far this year, share prices for the companies have been up more than 15.0% and around 48.6%, respectively.

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