On Sep 5, 2013, we reaffirmed our long-term recommendation on
Fifth Third Bancorp
) at Neutral based on its diversified traditional banking
platform, organic growth and strong capital base. However,
regulatory issues coupled with fundamental pressures on the
banking sector might act as deterrents to the company's
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Fifth Third's second-quarter 2013 adjusted earnings per share
came in at 44 cents, in line with the Zacks Consensus Estimate.
Moreover, the results were in line with the prior-quarter
Including the benefit of $76 million pre-tax ($49 million
after-tax, or 5 cents per share) on the valuation of the warrant
which Fifth Third holds in Vantiv and $242 million pre-tax ($157
million after-tax, or 17 cents per share) on the sale of shares
of Vantiv, the company reported net income of $594 million or 66
cents per share in the reported quarter.
Lower net charge-offs and reduced nonperforming assets were the
positives for the quarter. Moreover, increase in loans and
deposits reflect the company's organic growth. Further, top-line
improvement and a strong capital position acted as the tailwinds.
However, escalated non-interest expenses depicted undisciplined
expense management, while increase in provision for loans and
leases was a headwind.
As a significant capital market player, Fifth Third could benefit
from the material growth of the global capital markets. Its
strong consumer and commercial banking franchise and growing
asset management business are also set to benefit from the
cyclical recovery in the U.S. economy. Management's preference
for organic growth over acquisitions will be beneficial with
respect to cost and execution risk, over the long term.
However, low short-term interest rates along with persistent
narrow spreads at the short end of the yield curve continue to
negatively impact net interest margin. Therefore, NIM reduced 21
basis points year over year to 1.13% in the first half of 2013.
Though interest rates have started rising, attributed to lower
yields on certain earning assets, NIM is expected to remain under
For Fifth Third, the Zacks Consensus Estimate for 2013 jumped
9.7% to $1.93 as 14 out of 18 estimates moved higher over the
last 60 days. For 2014, 5 out of 20 estimates moved north,
lifting the Zacks Consensus Estimate by 0.6% to $1.75 over the
same time frame. Currently, Fifth Third carries a Zacks Rank #3
Other Major Banks to Consider
Some major regional banks that are worth considering include
) with a Zacks Rank #1 (Strong Buy), while
M&T Bank Corporation
Wells Fargo & Company
) carry a Zacks Rank #2 (Buy).