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Fifth Third Feels the Pinch

A flattening yield curve is reducing the profitability of its loans.
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The narrowing spread between long- and short-term interest rates claimed another casualty Thursday in Midwest lender

Fifth Third



The Cincinnati-based bank said in a filing Wednesday that the so-called flattening of the yield curve is eating into the profitability of its loans, a trend

observed earlier in the week by New Jersey-based

Commerce Bancorp

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"Fifth Third expects net interest income to decrease from last quarter with mid-single-digit annualized earning-asset growth impacted by double-digit basis-point contraction in the net interest margin," the company said. "Continued increases in liability costs and the prolonged flattening of the yield curve have had a greater-than-anticipated negative impact on both the net interest margin and net interest income in the third quarter."

The stock, which was downgraded at a handful of Wall Street firms Thursday, was recently down $1.75, or 4.3%, to $38.77.

The consensus estimate for third-quarter earnings at Fifth Third is 75 cents a share.

The bank's other main metrics were mixed, with core deposit growth up modestly from the second quarter. The company noted that attracting deposits remains "very competitive" and said it would make attracting and retaining accounts a significant focus.

"Given disappointing core deposit trends and a core focus on returns on invested capital, Fifth Third is continuing to reduce exposure to fixed-coupon mortgage-related assets in order to fund loan growth without corresponding increases in leverage in a difficult interest rate environment," it said.

Fifth Third reported "very good middle-market commercial market loan growth and continued strength in the level of consumer lending."