Fifth Third Bancorp (FITB) is the latest bank to repay the bailout money. The company has fully paid its $3.4 billion in outstanding Troubled Asset Relief Program (TARP) funds.
The repayment was financed by proceeds from recent equity and debt offerings, in addition to funds from available resources. Last December, Huntington Bancshares Inc. (HBAN) and First Horizon National Corp. (FHN) also reimbursed their TARP loans.
Fifth Third repurchased all 136,320 shares of its Series F Preferred Stock, originally issued in December 2008 under TARP’s Capital Purchase Program. The company 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.
However, the U.S. Treasury continues to hold warrants to purchase 43,617,747 shares of Fifth Third’s common stock at an initial exercise price of $11.72 per share. The company now plans to evaluate the potential to purchase those warrants or otherwise. Previously, Fifth Third had paid a total of $340.8 million in dividends to the Treasury on the preferred shares.
The Treasury has expended around $245 billion as direct financial support to banks. With the TARP repayment by Fifth Third, the Treasury has been able to recoup roughly $243 billion and currently estimates that the bank programs within TARP would fetch a $20 billion profit to taxpayers.
While the larger Wall Street banks had repaid the TARP money earlier in 2009 and 2010, the regional banks shied away due to continued high levels of losses in their loan portfolio. Also, the economy remained under stress. However, the recent repayment of the TARP loan by a number of these banks can be viewed as a sign of economic recovery and inspires our confidence in the financial system.
We are encouraged to see the aggressive credit management efforts by Fifth Third and expect it to see an improvement in credit quality in the upcoming quarters. The company reported fourth quarter net income available to common shareholders of $270 million or 33 cents per share, ahead of the Zacks Consensus Estimate of 25 cents.
Results also compared favorably with net income of $175 million or 22 cents per share in the prior quarter and a net loss of $160 million or 20 cents in the prior-year quarter.
Though the regulatory issues are expected to remain an overhang, going forward, we expect Fifth Third’s diverse revenue stream, opportunistic expansion and cost containment measures to support its earnings. The TARP loan repayment is essentially a positive for the company removing restrictions on both financial and executives’ pay package flexibility that the company was subject to upon being a TARP receiver.
Fifth Third shares are maintaining a Zacks #3 Rank, which translates into a short-term Hold recommendation.
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