Fifth Third Offers Senior Notes (DB) (FITB) (JPM) (MS)

Zacks

Last Friday, Fifth Third Bancorp (FITB) announced the public offering of its senior notes worth $500 million. The 10-year senior notes bear a coupon rate of 3.5% and were sold at 99.306% of the principal amount.

Fifth Third expects the offering to complete on March 7, 2012, subject to customary closing conditions. The joint book-running managers for the offering are Deutsche Bank Securities Inc., a unit of Deutsche Bank AG (DB), J.P. Morgan Securities LLC a division of JPMorgan Chase & Co. (JPM), and Morgan Stanley & Co. LLC, a part of Morgan Stanley (MS). Senior co-managers for the offering are Fifth Third Securities, Inc. and Credit Suisse Securities (USA) LLC.

The notes for the offering are senior unsecured obligations of Fifth Third and are assigned an 'A-' by Fitch Ratings. The sale of notes will add to the company’s financial flexibility and the proceeds will be used for general corporate purposes.

Fourth Quarter Capital Ratios

Notably, Fifth Third’s capital ratios were mixed during the fourth quarter of 2011. Sequentially, the Tier 1 common equity ratio increased 1 basis point to 9.34% while Tier 1 capital ratio decreased 5 bps to 11.91%. Total capital ratio declined 17 bps to 16.08%, and leverage ratio climbed up 2 bps to 11.10%.

Moreover, the tangible common equity to tangible assets ratio inched up 5 bps to 8.68%, excluding unrealized gains/losses. Ratios reflected retained earnings and asset growth, including the effect of the redemption of TRUPs during the quarter.

Fifth Third posted an increase in both book value and tangible book value per share. As of December 31, 2011, book value per share was $13.92 and tangible book value per share was $11.25, up from $13.73 and $11.05, respectively, as of September 30, 2011. However, return on assets was 1.08% and return on average common equity was 9.5%, down from 1.34% and 11.9%, respectively, in the prior quarter.

Our Take

We believe that with a diversified traditional banking platform, Fifth Third remains well poised for future growth. While the balance sheet strengthening efforts are encouraging, a protracted economic recovery with a low interest rate environment as well as regulatory change remain challenges. Yet, we expect the company's proactive efforts to help navigate comfortably through the rough waters. An improving credit metrics trend also augurs well.

Fifth Third currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

DEUTSCHE BK AG (DB): Free Stock Analysis Report

FIFTH THIRD BK (FITB): Free Stock Analysis Report

JPMORGAN CHASE (JPM): Free Stock Analysis Report

MORGAN STANLEY (MS): Free Stock Analysis Report

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