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July 1, 2009
Share ThisFifth Third disposes majority stake in processing unit
On June 30, Fifth Third Bancorp (FITB) sold a 51% stake in its processing business to Advent International, the leading global buyout firm. The deal is valued at $2.35 billion, before any valuation adjustments.
The deal was announced in March this year. Fifth Third will retain the remaining 49% stake in the new company and will also keep its credit card issuing business, including retail credit card and commercial multi-card services.
We are encouraged with this transaction, as it will enable Fifth Third to focus more on its core business while boosting its Tier 1 common equity.
Fifth Third will realize a pre-tax gain of around $1.7 billion or $1.0 billion post-tax on the transaction. Approximately $1.2 billion will be contributed from this transaction to the bank's Tier 1 equity. The company has recently raised $1 billion of capital from its stock offering and completed the tender offer for its preferred shares. The company exchanged $696.2 million in its depository shares which represent 62.9% of the aggregate liquidation amount of its depositary shares. The transaction resulted in the issuance of approximately 60,121,124 shares of common stock and the payment of $229.8 million in cash.
Last week, Fitch Ratings downgraded the long-term issuer default rating of Fifth Third Bancorp and its subsidiary to "A-" from "A" with a negative outlook. Prior to that, Standard & Poor's lowered ratings of 18 banks, including Fifth Third, Wells Fargo & Co (WFC), Huntington Bancshares (HBAN), U.S. Bancorp (USB), KeyCorp (KEY) and Citizens Republic Bancorp (CRBC). Standard & Poor's reduced the bank's counterparty credit rating to "BBB" from "A-" with a negative outlook.
However, we are encouraged with the capital bolstering initiatives of Fifth Third and continue to view its shares a Hold, as we think that asset quality deterioration and the impact of a recessionary economy will restrict earnings in the coming quarters.
Read the full analyst report on "FITB"
Read the full analyst report on "WFC"
Read the full analyst report on "HBAN"
Read the full analyst report on "USB"
Read the full analyst report on "KEY"
Read the full analyst report on "CRBC"
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