Fifth Third Bancorp
) is likely to recognize a pre-tax gain of approximately $140
million (around $91 million after-tax) in the fourth quarter of
2012 from the sale of its 15% stake in
). The proceeds would help Fifth Third in buying back its own
Further, Fifth Third decided to prepay $1 billion of FHLB term
debt as part of its efforts to optimize balance sheet and
liability costs. The maturity date of the debt was January 5,
It would lead to a prepayment charge of around $135 million
pre-tax while net interest savings through the maturity date is
likely to be around the same amount. This would reflect a benefit
of around $40-45 million in annual net interest income and a gain
of about 4 basis points in net interest margin.
Stake Sale in Detail
As a matter of fact, following this secondary offering of 12.5
million shares of Class A Common Stock, around 71.5 million Class
B units of Vantiv Holding LLC would continue to be held by Fifth
Third. These may be exchanged for Vantiv Inc.'s Class A common
stock and a warrant which is exercisable as well as exchangeable
into Vantiv Inc.'s Class A Common Stock.
The remaining economic interest of Fifth Third in Vantiv's future
earnings would be approximately 33.6%. Fifth Third realized $25
million (pre-tax) under equity method earnings in the third
quarter of 2012 from its ownership in Vantiv. However, the sale
would result in a reduction of around 15% to the earnings.
As a matter of fact, Fifth Third's plan to buyback its common
shares with the gain from Vantiv's shares sale already got the
Federal Reserve's nod in March 2012. Therefore, following the
settlement of this transaction, the company intends to make a
repurchase agreement with a counterparty to buyback its own
shares with the Vantiv gain.
Notably, the underwriters of the offering have been granted an
option to buy up to an additional 1.2 million shares of Vantiv
Inc.'s Class A Common Stock at Fifth Third's share sale price.
This would be only for covering over-allotments and exercisable
for 30 days from the pricing date. However, if exercised, the
impact on Fifth Third is likely to be limited to a maximum of 10%
of the impact from the initial sale.
The Back Story
U.S.-based Vantiv, formerly known as Fifth Third Processing
Solutions ("FTPS"), is a payment processing company dealing with
more than 12.9 billion payment transactions valued at $426
Fifth Third had spun-off FTPS in 2009 after which a joint venture
was initiated between Advent International and Fifth Third Bank,
a subsidiary of Fifth Third. The company was named Vantiv in June
2011. Notably, Vantiv Inc. opted for an initial public offering
of Class A shares on the company. The offering was completed on
March 21, 2012.
Earlier in 2012, Fifth Third completed the buyback of its shares
worth $75 million, which was made as per regulatory approval that
the company had received in March and was supported by the
realized gains from the Vantiv IPO.
Any measures that would help optimize balance sheet as well as
share buybacks is encouraging and represent an efficient use of
funds. Such actions would help create value for shareholders.
For Fifth Third, which currently retains a Zacks #3 Rank
(implying a short-term Hold rating), this is could serve as a
slight positive, resulting in modest upward estimate revision.
This, in turn, could help Fifth Third achieve a better Zacks
FIFTH THIRD BK (FITB): Free Stock Analysis
VANTIV INC-A (VNTV): Free Stock Analysis
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