Fifth Third Bancorp
) is likely to recognize a pre-tax gain of approximately $225
million (around $145 million after-tax) in the second quarter of
2013 from the sale of its 15% stake in
). The proceeds from the sale are expected to aid Fifth Third in
repurchasing its own common shares.
Notably, Vantiv has priced a secondary offering of 38.6 million
shares of its Class A common stock, which are sold by
shareholders. Of the total, Fifth Third sold 15.6 million shares.
Moreover, out of the shares sold by selling shareholders in the
offering, Vantiv would repurchase 17.5 million shares. Therefore,
following these transactions, Fifth Third would record an
approximate 15% drop in its ownership position in Vantiv.
The stake sale by Fifth Third comes on the heels of the approval
of its capital plan by the Federal Reserve under the
Comprehensive Capital Analysis and Review process in Mar 2013.
Stake Sale in Detail
Following this secondary offering of 15.6 million shares of Class
A common stock, around 54.6 million Class B units of Vantiv
Holding LLC would continue to be held by Fifth Third. These may
be exchanged for Vantiv's Class A common stock and a warrant,
which are exercisable as well as exchangeable into Vantiv's Class
A common stock.
The remaining economic interest of Fifth Third in Vantiv's future
earnings would be approximately 28%. Fifth Third realized $140
million (pre-tax) under the equity method earnings in the fourth
quarter of 2012 from its ownership in Vantiv, while first-quarter
2013 results included a pre-tax benefit of $34 million on the
valuation of the warrant, held by Fifth Third in Vantiv.
Notably, the underwriters of the offering have an option to buy
an additional 2.1 million shares of Vantiv's Class A common
stock, including 0.8 million shares from Fifth Third. This option
is 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 restricted to a maximum of 5% 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 following a joint venture
that was initiated between Advent International and Fifth Third
Bank, a subsidiary of Fifth Third. The company was named Vantiv
in Jun 2011. Notably, Vantiv Inc. opted for an initial public
offering of Class A shares of the company. The offering was
completed on Mar 21, 2012.
Any measures that would help optimize the balance sheet and share
buybacks is encouraging and represent an efficient use of funds.
Such actions would help create value for shareholders.
Going forward, with a diversified traditional banking platform,
Fifth Third remains well poised to benefit from a recovering
economy along its footprints. Its traditional commercial banking
franchise, diverse revenue mix, improved credit quality and
enhanced capital position serve as positive catalysts for the
stock. Further, we believe that its capital deployment activities
will boost shareholders' confidence.
However, a low interest-rate environment, regulatory issues as
well as competitive pressures are the headwinds.
Fifth Third currently carries a Zacks Rank #3 (Hold). Some better
performing banks include
JPMorgan Chase & Co.
State Street Corporation
), with a Zacks Rank #2 (Buy).
FIFTH THIRD BK (FITB): Free Stock Analysis
JPMORGAN CHASE (JPM): Free Stock Analysis
STATE ST CORP (STT): Free Stock Analysis
VANTIV INC-A (VNTV): Free Stock Analysis
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