Back to top

Analyst Blog

This page is temporarily not available.  Please check later as it should be available shortly. If you have any questions, please email customer support at support@zacks.com or call 800-767-3771 ext.  9339.

On Monday, Fifth Third Bancorp (FITB - Analyst Report) announced redemption of trust preferred securities (TruPS) worth $862.5 million yet again, after declaring its plan to redeem $575 million in TruPS only last week.

Fifth Third’s decision to redeem TruPS follows the announcement of the new capital rules by the Federal Reserve in June 2012. As per the new proposal, the TruPS issued prior to May 19, 2010 would not be considered for the calculation of Tier 1 capital ratio.

This time around, TruPS redemption by Fifth Third will include the redemption of 7.250% TruPS issued by Fifth Third Capital Trust VI with a scheduled maturity date of November 15, 2067. It stated that these would be redeemed at $25 per TruPS.

The redemption amount will also include accrued and unpaid distributions until the redemption date arrives. Fifth Third will use its existing available cash to fund the redemptions.

The TruPS redemption will take place on August 8, 2012, with Wilmington Trust Company, a subsidiary of M&T Bank Corporation (MTB - Analyst Report), as the paying agent.

Similar Actions

With these TruPS redemptions, Fifth Third joined the bandwagon of major financial institutions that have made their own announcements of TruPS redemptions in the recent weeks.

Recently, TCF Financial Corporation (TCB - Analyst Report) came up with the announcement of redeeming $115 million in TruPS while Bank of America Corporation (BAC - Analyst Report) announced $3.9 billion in TruPS redemption.

Moreover, The PNC Financial Services Group Inc. (PNC - Analyst Report) announced that it will redeem trust preferred securities (TruPS) worth $967.5 million in total. JPMorgan Chase & Co. (JPM - Analyst Report) also declared its plan to redeem about $9 billion in TruPS in July. Further, Citigroup Inc. (C - Analyst Report), whose extra capital deployment request was rejected by the Fed, has also announced the redemption of TruPS.

Conclusion

The redemption of TruPS is a strategic fit as such moves provide banks with the opportunity to lower their interest expenses. Moreover, it will also help in satisfying the regulatory norms since according to the Dodd-Frank Act, from 2013, banks will no longer be able to consider these securities as regulatory capital.

Notably, according to the 2012 stress-test results, Fifth Third received permission to continue its quarterly common dividend at 8 cents per share and redeem up to $1.4 billion in certain TruPS. Moreover, the company was allowed to make share buybacks from the gains of the Vantiv IPO, formerly Fifth Third Processing Solutions, LLC. As a result, recently, the company bought back shares worth $75 million.

We believe that with a diversified traditional banking platform, Fifth Third remains well poised to benefit from a recovering economy. Its traditional commercial banking franchise and solid market share in key markets should bode well going forward. Strategic capital actions also may garner positive results. Regulatory issues and competitive pressures are the headwinds for the stock.

Fifth Third currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we also maintain a long-term Neutral recommendation on the stock.

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

Learn more

Start for as little as $4.50 per trade.

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
KNIGHTSBRIDG VLCCF 14.32 +14.19%
E*TRADE FINA ETFC 22.55 +4.88%
QUESTCOR PHA QCOR 83.22 +3.93%
BNC BANCORP BNCN 17.81 +2.77%
LAKE SHORE G LSG 0.79 +2.46%