Fifth Third Bancorp
(
FITB
) has recently inked a deal to buy back about $125 million of its
outstanding common stock. The share repurchase deal reached with
Credit Suisse International, a division of
Credit Suisse Group
(
CS
), is part of its capital plan that got the Federal Reserve's nod
in August this year and encompasses the repurchase of 100 million
shares.
As per the agreement terms, Fifth Third will pay $125 million
to Credit Suisse on November 9, 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 occur on or before February 7, 2013.
The Back Story
As a matter of fact, though a number of Wall Street giants
such as
U.S. Bancorp
(
USB
) and
Wells Fargo & Co.
(
WFC
), passed the stress test earlier this year with their proposed
capital plans, companies such as Fifth Third and
Citigroup Inc.
(
C
) faced a setback as the Fed objected to their capital plans and
these companies had to resubmit it again.
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 had already bought back
approximately 23 million shares for $350 million by October.
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.
Our Take
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 will 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.
CITIGROUP INC (C): Free Stock Analysis Report
CREDIT SUISSE (CS): Free Stock Analysis
Report
FIFTH THIRD BK (FITB): Free Stock Analysis
Report
US BANCORP (USB): Free Stock Analysis Report
WELLS FARGO-NEW (WFC): Free Stock Analysis
Report
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