Sunday, March 19, 2000
Investors scorn city's 'old' firms
BY JOHN J. BYCZKOWSKI
The Cincinnati Enquirer
Fifth Third Bancorp's stock had a good week last week, rising more than $14 to close at $60.25 a share. But that only begins to make up for what the stock has lost since November.
The bank is one of a dozen local public companies — Cincinnati's elite corporate citizens — that have seen the total value of their shares drop by more than $1 billion in the past year. Since peaking Nov. 17 at $75.44 a share, Fifth Third's market capitalization — the total dollar value of all its stock — is down $4.6 billion.
That's not what the bank's investors are used to. Since 1990, Fifth Third stock has grown an average of 31 percent annually. Neal Arnold, the bank's chief financial officer, said the recent slide doesn't change the way the bank is run. But, “given a choice, we'd rath er have the stock go up.”
So would every other major public company in Cincinnati. Of 18 companies that had market caps above $1 billion last year, every one is down. In all, employees and shareholders of Cincinnati's 18 largest public companies have seen their wealth held in those stocks slashed by $117 billion since the beginning of last year — even if the loss is just on paper.
Procter & Gamble has lost about $80 billion in market cap since Jan. 12, reducing what was a $155.7 billion company to $75.8 billion (market cap is figured by multiplying outstanding shares times the share price).
But that's only part of the story: P&G has long been one of a basket of Cincinnati companies considered by the locals to be good, solid-growth companies. P&G, Fifth Third, Cintas, Cincinnati Financial, Kroger and a few others for decades have been good bets for local investors.
“They are stalwarts,” said Declan O'Sullivan of the investment firm O'Sullivan & Sims in downtown Cincinnati. “They're something you depend upon. They deliver the goods all the time. They're always considered to be well managed, highly regarded internally and externally.”
And one more thing: “Every single one of those is on the floor,” he said.
Joining P&G and Fifth Third, Kroger is off $12.2 billion, Federated Department Stores is off $3.6 billion, Omnicare is off $2.2 billion, Cinergy is off $2 billion, Cintas is off $1.9 billion, Cincinnati Financial is off $1.9 billion. And that's after the Dow Jones Industrial Average's 780-point blastoff Wednesday and Thursday, leading to the index's best week since 1984.
Even Comair, acquired by Delta Air Lines in January, was sold for $500 million below its peak.
While the Dow is off 10 percent from its peak in January, 16 of Cincinnati's 18 largest companies are off more than that. Nine are off more than a third. Many began sliding early last year and haven't recovered.
These stocks have individual reasons for being down. Rising interest rates depressed bank stocks, Fifth Third included. The property and casualty business has been cutthroat, and Cincinnati Financial isn't down as much as others in its industry.
The one thing they all have in common: They're all “old economy” companies, exactly the stocks that for much of the past 12 months have been out of favor.
“I think people are somewhat perplexed at the emergence of the new economy,” said Lou Ginocchio, branch manager of broker A.G. Edwards & Sons in downtown Cincinnati. Cincinnati's biggest companies “all fit into the old economy.”
Some of the stock drops feed off each other. Fifth Third dropped, and Cincinnati Financial owns 15.6 percent of the bank, so its shares dropped also.
For many of these companies, employee ownership of stock is part of their cultures. Mr. Arnold said 77 percent of Fifth Third's 11,600 employees — 4,700 in Cincinnati — own company stock directly. All employees get grants of restricted stock, which require them to remain with the company for a period of time before they own the stock.
At Cincinnati Financial, not only is stock ownership by employees encouraged, but selling is discouraged. “We want the management to be fairly large owners, because we feel that sends a great message to the rest of the investment community,” said Ken Stecher, the company's senior vice president and treasurer.
Buying a house? Rather than sell stock, Mr. Stecher said, the company encourages employees to use their stock as collateral for loans. He said he's never sold a share in 27 years with the company.
With billions of dollars of paper wealth evaporating, there's the potential for consumers to cut spending and put the brakes on the red-hot econ omy. So how are local shareholders reacting?
“I would think people would be a little skeptical, and in a holding pattern,” said Dianna Grubenhoff, manager of Fifth Third's Madeira branch. “But they're spending. I haven't seen any slowdown in loan demand.”
Local stockholders “are certainly less than ebullient,” Mr. Ginocchio said. “They're perplexed, but they're trying to understand better what has happened.
“But they also believe in these companies, and it's borne out by the order flow we've received, and I'm sure every brokerage in town.”
In other words, they're buying. Dave Hertl, branch manager for the downtown office of discount broker Quick & Reilly Inc., said the office opened thousands of new accounts after P&G stock dropped by one-third March 7.
“We're getting a tremendous amount of people just walking in the door and buying,” he said. “Last week, we did a couple of thousand trades in P&G (stock), and 90 percent of them were buys.”
The story has been the same with many local stocks, but not all. When Broadwing Inc. — the new incarnation of Cincinnati Bell — eliminated its dividend in August, Mr. Hertl said he saw many shareholders dump the stock.
Though investors are showing their faith by buying many of these stocks, “I don't know when they're going to come back,” Mr. Ginocchio said.
Added Mr. Hertl: “Some of these stocks may not warrant people buying them just because they're down. Some stocks drop for a reason.”
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