Fifth Third Bancorp (FITB) was finally able to exit from the Treasury’s Troubled Asset Relief Program (TARP) with the purchase of warrants that were held by the Treasury. Fifth Third repurchased the warrants for approximately $280.0 million. The warrants were issued to the Treasury as part of their efforts to bailout the company through TARP.
The repurchase follows the full repayment of $3.4 billion in outstanding TARP funds that was financed by proceeds from equity and debt offerings, in addition to funds from available resources. In fact, Fifth Third had said that it was evaluating the potential to purchase the warrants, which gave the right to purchase 43,617,747 shares of Fifth Third Bancorp common stock at $11.72 per share.
The purchase of warrant is a strategic fit for Fifth Third as it removed the chance of further dilution of the common stock. Besides Fifth Third, companies such as National Penn Bancshares Inc. (NPBC), Lakeland Bancorp Inc. (LBAI) and Bridge Capital Holdings (BBNK) also repaid TARP funds yesterday.
In January, Fifth Third reported better-than-expected fourth quarter 2010 earnings that came in at 33 cents per share, ahead of the Zacks Consensus Estimate of 25 cents. The results were primarily driven by better-than-expected improvement in credit metrics. The company reported a drop in delinquencies and provisions for loan losses. Revenue numbers also came in satisfactorily.
Fifth Third went for a public offering of $1.7 billion of its common stock, following an announcement to pay back the TARP loan in January 2011. While the repayment of TARP dues is positive removing government overhang, the dilutive impact from the stock offering for that repayment cannot be ignored either. Additionally, there remain concerns over the regulatory issues.
Yet its diverse revenue mix and credit quality improvement augur well. But we would like to see substantial top-line improvement before becoming extremely positive on the stock and considering the current economic environment along its footprint, such expansion remain elusive in the near term.
Fifth Third currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering its fundamentals we have a long-term Neutral rating on the stock.
BRIDGE CAP HLDG (BBNK): Free Stock Analysis Report
FIFTH THIRD BK (FITB): Free Stock Analysis Report
LAKELAND BANCRP (LBAI): Free Stock Analysis Report
NATL PENN BCSHS (NPBC): Free Stock Analysis Report
Zacks Investment Research
