By Jeff McKinney
The Cincinnati Enquirer

The outlook for first-quarter profits at Fifth Third Bancorp will be reduced by about $20 million, as the Cincinnati-based regional banking giant adopts accounting practices that will change how it accounts for the cost of stock options for executives.

A Wall Street banking analyst who follows Fifth Third played down the expense, saying it would not change the company's steady earnings growth or hurt its stock.

"I don't see this as a big deal at all," said Michael Plodwick of Blaylock & Partners in New York. "It doesn't change their fundamental outlook and won't affect the future earnings power of Fifth Third."

The accounting change, according to a filing with the Securities and Exchange Commission, will reduce Fifth Third's first-quarter profits by $20 million, or 4 cents a share. Fifth Third is expected to report first-quarter results April 15.

As part of its filing, Fifth Third also said it expects to close on its acquisition of Franklin Financial Corp., a bank holding company based in suburban Nashville, in the second quarter. Fifth Third said it is filing regulatory applications to finalize the transaction, first announced in July 2002.

The statement gave some analysts hope that a regulatory order blocking the bank from making acquisitions - something that has hurt Fifth Third's stock for the past year - could be lifted by the end of this quarter, though Fifth Third said Thursday that it has not received such verification.

The options move, which Fifth Third first mentioned in its 2003 annual report in February, will change how the company accounts for the cost of stock it pays to about 5,000 employees, mainly officers.

All publicly traded U.S. companies are required to begin using the method next year.

First Third is adopting the fair value accounting method for stock options early and said the measure would be implemented retroactively beginning in the first quarter.

Neal Arnold, Fifth Third's chief financial officer, said the change would reduce profits for 2004 by $80 million and for 2003 by about $91 million. The change will reduce Fifth Third's future quarterly share earnings by 3 cents to 4 cents. The bank also restated earnings to reflect how it accounted for stock options for the last 10 years. Fifth Third earned $1.75 billionlast year.

Arnold said Fifth Third would get a tax deduction for how it accounts for stock options expense.

As part of its filing, Fifth Third also said the company is selling the third-party merchant division of Fifth Third Bank Processing Solutions to TransFirst, a Dallas-based electronic processing firm, for an undisclosed amount.

E-mail jmckinney@enquirer.com