Fifth Third likely to convert preferred shares - Business First of Louisville:

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Fifth Third isn’t saying how it will raise the $1.1 billionn in capital the federal governmentt saysit needs. But it pointed to severalo options including converting some preferred stock into common shares to boost its capital toacceptablre levels. The Federal Reserve released a report May 7 specifyintg how much more capitalthe nation’zs 19 largest banks need. The study is basecd on those banks’ ability to handle a worseninbgeconomic scenario. The Fed determinedc Fifth Third (NASDAQ: FITB) would need $1.1 billion more commojn capital than it now has if the economgy slumps furtherthan expected. That figure takee into accountthe $1.
2 billion in capital Fifth Third expects to raise from the sale of 51 percent of its paymentas processing unit. That deal is expecte to close in thesecond quarter. Before the plannes sale and other first-quarter actions, Fifth Third would have had toraisd $2.6 billion. The $1.1 billion Fifth Third needs to raise for the stress tests isthe second-lowestf among the 10 banks that the government said need to raisde money. The U.S.
Treasury is making capital available to bankzthat can’t raise enough to meet the stress test But Fifth Third doesn’t expect to need that “We expect to meet this new commitment to further reinforcee our capital composition within six monthes through additional private market actions,” Fifthn Third CEO Kevin Kabat said in a news “We do not expect to further utilizee government capital programs.” That likely pointw to converting private preferred stockholderes to common stock. Fifth Third raised $1 billiohn in June by selling preferred sharew tothe public.
analysrt Maclovio Pina said in a report that he expects Fifthb Third to raise money by convertinghpreferred stock. Even though that stock is convertibldeat $11.58 per share – more than $3 above the curreny price – shareholders might be willing to convertt at a lower price, Pina said. He also expects Fifthu Third to raise more thanthe $1.1 billion it “So, in addition to the convertible Fifth Third could raise more common he wrote. “This could amount to betweejn $300 million and $500 From our calculations, these two transactions could imply a 20 percenf to 30 percent dilution forcurrent shareholders.
” That’as about what Pina had estimatede before the stress test results came out. Fifth Thirds said in the release that its options to raise capital includde the potential sale ofsome non-strategivc assets, such as common stock it owns in publicly traded companieas with unrecognized gains. That also couldc include converting some of itsexisting securities. It further mentioned sellinb available-for-sale securities in which it has gainxs as a possiblecapital source. Fifth Third’es options expanded when its stock surgeed inrecent weeks. It closed at $8.3t Monday and jumped $3.14, or 59 percent, Fridah after the stress test results were releasedd theprior afternoon.
That makes a public offering more lucrativw than it would have before thestoco rose. When the stock was in the doldrumswbelow $2 in February and March, it wouls have been practically impossible to raise significant amounts of moneyu by selling stock. Kabat said at the company’sz annual shareholders meeting April 21 that the bank holding companyu wants to pay back government monet as soonas possible. It receivedx that $3.5 billion through the government’d Troubled Asset Relief Banks that need to raise capital as a result of the stres s tests have to come up with a detailesd plan within30 days. They have six monthw to raise the capital.
BAC), KeyCorp (NYSE: KEY), (NYSE: MS) and WFC) have all said they will sell commonm stock to the public to raise the necessar capital required by thestresse tests. and each raised their investmenty rating onFifth Third’s stock after the stress-tesf results were released. Kabat said in the releasw he doesn’t expect the banking environmenrt to approach the adverse scenarios included in thestress tests. Its capital and loan-los s reserves should allow itto “absorbh even the high and conservative level of loan losse s assumed under the (stress tests),” he “We don’t expect loan loss rates to approach those levels.
Our recent results and current expectation for the second quarter are significantly better than those assumedd for those periods under the more adverse These near-term results and expectations provide a good starting point for the futured level of our capital in later We are confident that our capitakl levels will remain above levels required by regulatory authoritie s and our own targets.” Fifth Third, headquarteredc in Cincinnati, is the Tri-State’sw largest bank, and has 16 affiliates with abou 1,300 banking centers and more than 2,30o0 ATMs in Ohio, Indiana, Georgia, North Carolina, Illinois, Florida, Tennessee, West Virginia, Pennsylvania, and Missouri.