On Thursday, Cincinnati-based
Fifth Third Bancorp
) announced its plan to exit its mutual fund business after vending
most of the assets. Fifth Third Asset Management Inc. (FTAM), the
asset management subsidiary of Fifth Third, entered into two
definitive agreements to sell off its mutual fund assets. However,
the company will continue as sub-advisor to some of the mutual
Under the first agreement,
Federated Investors Inc.
), one of the largest investment managers, will acquire money
market assets worth $5 billion from four Fifth Third money market
funds. These assets will be merged by Federated into its existing
four Federated money market funds having same investment
The second deal was entered with Cincinnati-based Touchstone
Advisors Inc., a unit of Western & Southern Financial Group. As
per the agreement, Touchstone will acquire assets of 16 stock and
bond mutual funds worth $3 billion from Fifth Third. At the closing
of the transaction and completion of the acquisition of certain
assets from Old Mutual Asset Management, Touchstone's assets under
management will increase to $13 billion.
Both the deals await certain regulatory approvals, though the
terms were not disclosed. Moreover, agreements are anticipated to
be closed in the third quarter of 2012 and are expected not to have
a material impact on Fifth Third's results.
Money market fund managers are under pressure ailing to
lingering low interest rates environment and increasing tight
regulations. Therefore, Fifth Third came up with the plan of
selling mutual fund assets to minimize risk and grow its business
in strategically important segments.
The completion of deals will aid FTAM concentrate on core
strengths by providing institutionally managed active asset
management strategies. Moreover, the company will now be able to
offer a wider choice of investment products to its clients.
For a long time, Federated has been working with banks to offer
investment products according to the needs of the clients.
Therefore, Federated's experience coupled with Fifth Third's
proficiency in credit analysis and fundamental research will help
Fifth Third in the evolution of these assets. Moreover, Federated
looks forward to many such opportunities to provide cream services
to its clients.
Further, increased assets under management give Touchstone
various new fund offerings that would benefit its clients.
Of late, the Fed assured Fifth Third that it does not have any
objection to the capital actions of Fifth Third including the
continuation of its quarterly common dividend of 8 cents per share
and redemption of up to $1.4 billion in certain trust preferred
The Fed has not raised any objection regarding the company's
strategy of repurchasing common shares at par with any after-tax
gains realized by Fifth Third from the sale of Vantiv Inc. common
shares by either Fifth Third or Vantiv.
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 think that the
company's proactive steps will help it navigate through these.
Fifth Third currently retains a Zacks #3 Rank, which translates
into a short-term 'Hold' rating. Considering the fundamentals, we
also maintain our long term "Neutral" rating on the stock.
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