Fifth Third Bancorp business jet losses still worry other lenders


NOTE: The below originally appeared as the editorial in our July 24 One Minute Week newsletter. To find out more, and sign up for free, please click here.

If Fifth Third Bank has not been forced to re-instate their first quarter earnings in April we would probably never have known that it had taken a $30 million business jet impairment. The bank made the write-down after reviewing operating leases on medium and large cabin aircraft.

Several weeks later, investors have forgotten – Fifth Third Bancorp’s shares only lost 4 cents (or 0.02%) that day and rose quickly the next day – but the aircraft finance market is still reacting.

“I did not hear about Fifth Third until June, but now everyone is talking about it,” says the head of aircraft finance at one US bank.

The fact that the bank choose to take an upfront impairment – rather than over the life of the lease – suggests that values had fallen by a significant amount. The impairments were for leases that will not expire until 2017 or later. This means that most of them will have been agreed after the 2008 market crash. Fifth Third was a keen buyer of aircraft deals in the syndication market so may have acquired some leases that were originated by others.

Fifth Third’s announcement has not led to banks pulling out of business jet finance or refusing to close deals they had committed to. But there does appear to be less bank appetite for operating leases.

“You can bet that every CEO of a bank that finances aircraft knew about Fifth Third’s impairment straight away,” says the head of aircraft finance at another US institution. “You can be sure that other portfolios are being looked at.”

Fifth Third deserves credit for being conservative, but other financiers may wish they had not been so public with their impairment.