June 18 (Bloomberg) -- Fifth Third Bancorp., Ohio's second- largest lender, will cut its dividend and raise $2 billion in capital after nine quarters of lower profit. The lender fell as much as 16 percent.

Earnings may be as little as 1 cent to 5 cents a share in the second quarter excluding additional charges, the Cincinnati- based bank said in a regulatory filing today. Analysts surveyed by Bloomberg had predicted an average of more than 40 cents. The lender will sell subsidiaries and preferred convertible stock, the company said.

Fifth Third's plan may signal a new wave of capital raising by financial companies as they tally second-quarter damage from the housing slump. U.S. banks may need another $65 billion as losses and writedowns extend into the first quarter of 2009, Goldman Sachs Group Inc. analysts said in a note yesterday. Fifth Third's first-quarter profit fell 19 percent as the bank increased loss provisions more than sixfold.

The bank dropped $1.80 to $10.93 at 9:37 a.m. in New York Stock Exchange composite trading. The lender has plunged 70 percent over 12 months before today.

The cost of uncollectible loans in 2009 will be higher than this year, and the bank will need to hold more money in reserve, with the second-quarter provision ranging from $700 million to $725 million. The quarterly dividend was slashed to 15 cents a share from 44 cents.

The bank lowered the dividend ``in light of our expected levels of earnings over the near-term and the benefits of building capital at a higher pace during this part of the current credit and economic cycles,'' Chief Executive Officer Kevin Kabat said in a statement.

Management Shift

Kabat is taking over the chairman's duties for the company, Fifth Third said. George A. Schaefer Jr. retired yesterday as planned, the bank said. James Hackett was named lead director.

Fifth Third said the funds would raise its Tier 1 capital ratio to 8.5 percent, above the regulatory minimums. The new estimate doesn't include a potential $250 million charge the lender might be forced to take as a result of losing a tax case tied to how the company accounted for leasing transactions.

Loans that Fifth Third doesn't expect to be paid back would be $340 million to $350 million, the lender said in the filing. Nonperforming assets in the second quarter will be 40 percent to 45 percent higher than the first quarter, Fifth Third said.

Fifth Third joins the list of banks and securities that have raised more than $300 billion to shore up their balance sheets after losses tied to mortgage and debt markets.

Kabat said at a conference May 12 that the company had ``taken steps'' to make loans to ``the right people,'' and that it might take time for the results to become apparent.

Reversing Course

``We haven't had the need, we don't foresee the need, to resort to any kind of significant common equity raise which we've seen a few in the industry need to do recently,'' Kabat said then.

Fifth Third is the last of Ohio's three largest banks to raise capital, following National City Corp. and KeyCorp.

National City, the state's largest bank, raised $7 billion after its strategy of buying banks in Florida at the peak of the real estate boom backfired. Chief Executive Officer Peter Raskind said at a May 21 conference that the fresh capital was a ``real game-changer'' and said it would help the bank repair damage from its home equity, construction and subprime mortgage holdings.

KeyCorp said earlier this month it was selling $1.65 billion in convertible and common stock after losing its own leasing tax case. The bank said it expected a second-quarter charge of $1.1 billion to $1.2 billion and increased its provision for loan losses that quarter by $600 million.

Fitch Ratings downgraded Fifth Third one level, saying the move ``reflected deteriorating trends in asset quality, expectations for elevated levels of problem assets in the near term and a decline in profitability.'' Fitch said the new capital will provide a ``needed cushion'' for the lender.

Fifth Third said it would decide by June 30 whether it would be able to win an appeal on its leasing case, and that the potential $250 million charge ``would be required to address any downside risk related to the tax treatment of our leveraged leases,'' Fifth Third said in a filing.

Goldman Sachs is leading the banks arranging the stock offering, and will work with Credit Suisse Group AG and Merrill Lynch & Co.

To contact the reporter on this story: Linda Shen in New York at lshen21@bloomberg.net

Last Updated: June 18, 2008 09:48 EDT