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On Monday, Cincinnati-based Fifth Third Bancorp (FITB - Analyst Report) announced its exit from the mutual fund business after vending most of the assets. Fifth Third Asset Management Inc. (FTAM), the asset management subsidiary of Fifth Third, completed two transactions to sell off its mutual fund assets, which was announced in April. However, the company will continue as sub-advisor to some of the mutual funds.
Money market fund managers are under pressure owing to the lingering low interest rate environment and tightening regulations. Therefore, Fifth Third came up with the plan of selling mutual fund assets to minimize risk and bolster its business in strategically important segments.
Under the first agreement, Federated Investors Inc. (FII - Analyst Report), one of the largest investment managers, acquired money market assets worth $4.4 billion from four Fifth Third money market funds. These assets were merged into four existing Federated money market funds, which have the same investment objectives.
The second deal was completed with Cincinnati-based Touchstone Advisors Inc., a unit of Western & Southern Financial Group. As per the agreement, Touchstone has acquired assets of 16 stock and bond mutual funds worth $3 billion from Fifth Third. The consummation of the acquisition took the total sum of Touchstone’s funds to 47 and total assets under management to $13.5 billion.
After-Effects of the Deals
The completion of the deals has aided FTAM to concentrate on its core strengths by providing institutionally managed active asset management strategies. Moreover, the company will now be able to offer a wider range of investment products to its clients.
For a long time, Federated has been working with banks to offer investment products to fit the needs of the clients. Therefore, Federated’s experience coupled with Fifth Third’s proficiency in credit analysis and fundamental research will help the latter in the evolution of these assets. Moreover, Federated looks forward to many such opportunities to provide quality services to its clients.
Further, increased assets under management give Touchstone various new fund offerings that would benefit its clients. These acquisitions, however, are not expected to have a material impact on Fifth Third’s results.
Going forward, we believe that a diversified traditional banking platform positions Fifth Third well for future growth. Though a tepid economic recovery, a low interest rate environment as well as regulatory changes remain the major headwinds, we believe that the company’s proactive steps will help it sail through these adversities.
Fifth Third currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. However, considering the fundamentals, we maintain a long term Neutral rating on the stock.