Fitch lowers Fifth Third Bancorp rating

Fitch Ratings on Tuesday downgraded the long-term issuer default rating of Fifth Third Bancorp and its subsidiary to "A-" from "A" and said the rating outlook is "Negative."

Fitch removed the ratings from "Rating Watch Negative" where they had been placed last month as part of the ratings agency's U.S. bank review.

Fitch analysts cited the current and expected asset quality deterioration, resulting earnings pressure, and continued economic stress and uncertainty in the Cincinnati bank holding company's markets.

The regional bank _ which operates more than 1,300 branches primarily in the Midwest and South _ has taken positive steps to address its credit challenges, such as exiting problematic lending sectors, tightening underwriting criteria, and selling or transferring to sale approximately $1.6 billion in loans, Fitch analysts said.

It has issued $1 billion in common stock and has exchanged about $700 million of its preferred stock for common stock.

Despite those efforts, Fitch expects the company to report continued deterioration in asset quality which will make it difficult for Fifth Third to return to profitability in 2009.

In the first quarter, Fifth Third posted a narrower-than-expected loss of $26 million, or 4 cents a share.

The company has cut its quarterly dividend to 1 cent from 44 cents and has also sold a majority stake of its payments processing business to private-equity firm Advent International.

Fitch said the asset sale helps the company's capital but lessens the diversity of its revenue.

Shares of Fifth Third fell 2.4 percent, or 16 cents, at $6.59 in morning trading.