Fifth Third Bancorp
) announced redemption of trust preferred securities (TruPS) worth
$862.5 million yet again, after declaring its plan to redeem $575
million in TruPS only last week.
Fifth Third's decision to redeem TruPS follows the announcement
of the new capital rules by the Federal Reserve in June 2012. As
per the new proposal, the TruPS issued prior to May 19, 2010 would
not be considered for the calculation of Tier 1 capital ratio.
This time around, TruPS redemption by Fifth Third will include
the redemption of 7.250% TruPS issued by Fifth Third Capital Trust
VI with a scheduled maturity date of November 15, 2067. It stated
that these would be redeemed at $25 per TruPS.
The redemption amount will also include accrued and unpaid
distributions until the redemption date arrives. Fifth Third will
use its existing available cash to fund the redemptions.
The TruPS redemption will take place on August 8, 2012, with
Wilmington Trust Company, a subsidiary of
M&T Bank Corporation
), as the paying agent.
With these TruPS redemptions, Fifth Third joined the bandwagon
of major financial institutions that have made their own
announcements of TruPS redemptions in the recent weeks.
TCF Financial Corporation
) came up with the announcement of redeeming $115 million in TruPS
Bank of America Corporation
) announced $3.9 billion in TruPS redemption.
The PNC Financial Services Group Inc.
) announced that it will redeem trust preferred securities (TruPS)
worth $967.5 million in total.
JPMorgan Chase & Co.
) also declared its plan to redeem about $9 billion in TruPS in
), whose extra capital deployment request was rejected by the Fed,
has also announced the redemption of TruPS.
The redemption of TruPS is a strategic fit as such moves provide
banks with the opportunity to lower their interest expenses.
Moreover, it will also help in satisfying the regulatory norms
since according to the Dodd-Frank Act, from 2013, banks will no
longer be able to consider these securities as regulatory
Notably, according to the 2012 stress-test results, Fifth Third
received permission to continue its quarterly common dividend at 8
cents per share and redeem up to $1.4 billion in certain TruPS.
Moreover, the company was allowed to make share buybacks from the
gains of the Vantiv IPO, formerly Fifth Third Processing Solutions,
LLC. As a result, recently, the company bought back shares worth
We believe that with a diversified traditional banking platform,
Fifth Third remains well poised to benefit from a recovering
economy. Its traditional commercial banking franchise and solid
market share in key markets should bode well going forward.
Strategic capital actions also may garner positive results.
Regulatory issues and competitive pressures are the headwinds for
Fifth Third currently retains a Zacks #3 Rank, which translates
into a short-term Hold rating. Considering the fundamentals, we
also maintain a long-term Neutral recommendation on the stock.
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