Fifth Third Bancorp is embarking on a major deposit-gathering campaign for its 17 regional banks.

The Cincinnati company, which is buying Old Kent Financial Corp. in Grand Rapids, Mich., for $4.9 billion, is juicing up employee-targeted incentives to bring in more deposits and sell more fee-based products and loans. That’s one part of a new strategy putting heavy emphasis on individual branches’ sales and profitability.

Fifth Third chief financial officer Neal E. Arnold said in a speech at an investor conference in Florida last week that deposits are an undervalued business but that they can be “a great opportunity” for many banks if they are “aggressively pursued.”

“The No. 1 profit-driving force is not lending, but deposits,” Mr. Arnold added.

That may be easy to say now that problem loans are on the rise and hurting profits at bigger banking companies. But sales-driven retail strategies have been good earnings pick-me-ups for such Fifth Third rivals as Firstar Corp. of Milwaukee.

The deal to buy Old Kent, which is set to close in the second quarter, should strengthen the deposit push, Mr. Arnold said. Fifth Third’s “totally free checking” product was integral to the bank’s 17% profit increase last year and is to be added to the Old Kent network.

Mr. Arnold said at the Palm Beach, Fla., conference, sponsored by Sandler O’Neill and Partners, that Fifth Third’s strategy takes into account the question of “how to keep the company small” by putting accountability for profits at the local level to encourage managers to be more entrepreneurial.

Joseph Duwan, an analyst at Keefe, Bruyette & Woods, said Fifth Third is “a big believer of empowering at the local level.” He added that a “hands-on management style and high level of incentives will minimize integration risks” of the Old Kent purchase.

But other observers say Fifth Third faces some challenges instilling its loan and deposit sales culture into Old Kent.

“Old Kent is one of the most efficient banks,” and that lets its salespeople compete on price, said Jon Balkind, an analyst with Fox-Pitt, Kelton. “It will take some time to build momentum,” he said.

Fifth Third says its market shares in Illinois, Michigan, and Ohio, will be close to 10% upon completion of the Old Kent deal. The combined company would have assets of $69.1 billion, deposits of $43.8 billion, and more than 980 branches.

“If you look, we have excellent coverage in key midwestern states,” Mr. Arnold said. “There are tremendous opportunities to increase revenue growth.”

Fifth Third made a good decision to expand in the Midwest, Mr. Balkind said. “They are picking up very healthy market shares in Michigan. They are well positioned to be successful.”

Addressing the topic du jour — credit quality —Mr. Arnold said there were no near-term concerns.

“If a problem should arise,” he said, “we will find a way to pay for it.”


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