STATE OF TURMOIL

BWC drops Fifth Third Bank after investment losses of $9.7 million

7/30/2005

COLUMBUS -- Bad numbers caused the Ohio Bureau of Workers' Compensation yesterday to fire a sixth investment manager, Fifth Third Bank.

Buying stock in multibillion dollar companies such as investment bank Goldman Sachs and electronics retailer Best Buy, the Cincinnati-based financial services giant lost $9.7 million of the bureau's total $110 million investment.

"In the case of Fifth Third, the past performance was not positive. It was weak, very weak," said Richard Ennis, a principal at Ennis Knupp and Associates, the consultant hired to evaluate bureau investments after a procession of scandals involving rare coins and an offshore hedge fund.

To combat the losses, Fifth Third decided to shuffle its investment team earlier this year, a fact that also hurt the bank during Ennis Knupp's review of 144 bureau managers.

Based on guidance from Ennis Knupp and a three-person review team appointed by Gov. Bob Taft, the bureau has begun to shed its subpar investment advisers.

Mr. Ennis said that his Chicago-based firm is still in the process of examining roughly 70 investment managers, some of which could be dismissed during the next several months.

In addition to starting the liquidation of its $50 million rare-coin investment with Tom Noe, the bureau recently fired MDL Capital Management, which squandered $215 million in a Bermuda hedge fund.

Since June, it has ended poor investments in a hedge fund run by American Express, domestic stocks by National City subsidiary Allegiant Asset Management, and foreign stocks by Oechsle International Advisors.

In a two-paragraph written statement, Keith Wirtz, senior vice president and chief investment officer at Fifth Third, declined to comment several times on the bank's dismissal in order to preserve its client confidentiality agreement with the bureau.

The bank's asset management division controls $22.7 billion. It received an initial $50 million from the bureau in 1997 to invest in small cap stocks, companies whose market capitalization are beneath $10 billion.

Fifth Third collected another $50 million from the bureau in January, 2001, and switched its focus to large cap stocks, companies such as Teva Pharmaceuticals and Texas Instruments. Bureau officials allocated $10 million more to Fifth Third in February, 2002. It subtracted $50 million from the investment this May in order to meet operational cash requirements.

With a combined loss of $9.7 million since the move into large cap stocks, the investment lagged behind the Standard & Poor's 500, a stock index and benchmark that returned $4.6 million during the same time frame.

Bureau spokesman Jeremy Jackson said he could not explain why the bureau stuck with Fifth Third despite the losses, which have already been written off by the $14.3 billion insurance fund for injured workers. He said the bureau preferred to focus on reforming investment procedures.

"As we go forward, the goal is to modernize our operations and put into place a system where we can more aggressively monitor the performance of our investment managers."

Contact Joshua Boak at:

jboak@theblade.com

or 419-724-6050.