Fifth Third Bancorp
) recently inked a deal to repurchase about $100 million of its
outstanding common stock. The share repurchase agreement reached
with Credit Suisse International, a division of
Credit Suisse Group
), comes as part of its prior announced capital plan that got the
Federal Reserve's nod in August this year and encompasses the
repurchase of 100 million shares.
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The deal was made public through a filing with the Securities and
Exchange Commission late last week. As per the agreement terms,
Fifth Third will pay $100 million to Credit Suisse on December
19, 2012 and anticipates to receive a significant number of
shares then. However, the final settlement for the actual number
of shares that Fifth Third would receive is likely to take place
on or before March 14, 2013.
The Back Story
Earlier this year, though a number of Wall Street big shots like
Wells Fargo & Co.
) passed the stress test with their proposed capital plans,
companies such as Fifth Third and
) faced a setback as the Fed objected to their capital plans and
they had to resubmit it.
However, ushering in good news for the shareholders of Fifth
Third, its revised capital plan through March 2013 received the
Fed's approval in August, which included a possible increase in
its dividend in the third quarter as well as share buybacks. The
approval justified the company's capital strength.
Following this, the board of directors of Fifth Third approved a
new share buyback authorization of 100 million shares. This
replaced the previous authorization from 2007 that had 14 million
shares remaining. The company's capital plan includes potential
share repurchases of up to $600 million through the first quarter
of 2013, plus any incremental buybacks related to any after-tax
gains from the
Fifth Third had already bought back approximately 23 million
shares for $350 million by October. Further, in November, the
company entered into an accelerated share repurchase transaction
with a counterparty pursuant to which it agreed to purchase
approximately $125 million of its outstanding common stock.
As a matter of fact, earlier this month, Fifth Third Bancorp
announced that it 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 Vantiv
Inc. The company intends to use the proceeds for buying back its
own common shares.
In addition to the positive development on the share buyback
front, in September, Fifth Third also announced a 25% hike in its
third quarter dividend on its common shares that increased to 10
cents per share from 8 cents paid earlier. The enhanced dividend
was paid in October.
The Fed's objection to a number of elements in Fifth Third's
capital plan, including increases in its quarterly common
dividend and the initiation of common share repurchases, had put
the company on the back foot and weakened its competitive
position to some extent. Therefore, a positive development on
that front is encouraging and this is expected to inspire
investors' confidence in the stock.
Fifth Third currently retains its Zacks #3 Rank, which translates
into a short-term Hold rating. Considering its fundamentals, we
have a long-term Neutral recommendation on the stock.
We believe that Fifth Third's current capital plan is encouraging
and its effort to reward its shareholders will be applauded by
the investors. However, we do not expect any notable revisions in
estimates following this news as they already incorporate the
impact of the company's current share buyback program.