Fifth Third (FITB) To Gain $1 Billion Post Vantiv Stake Sale

Fifth Third Bancorp (NASDAQ:FITB) is likely to recognize a pre-tax gain of approximately $1 billion (around $650 million after-tax) in third-quarter 2017, from the partial sale of its stake in Vantiv Inc. (NYSE:VNTV) .

Notably, Fifth Third will be exercising its right to exchange 19.79 million of its Class B Units in Vantiv Holding, for 19.79 million shares of Vantiv’s Class A common stock. Further, Vantiv will buy back newly issued shares of Vantiv Class A common stock from Fifth Third at $64.04 per share.

Notably, the share repurchase agreement will be executed on Vantiv, Inc., coming with the offer of acquiring Worldpay Group plc. However, the repurchase agreement will be terminated on non occurrence of such offer by Aug 31, 2017.

Therefore, following these transactions, Fifth Third would hold around 8.6% of Vantiv’s equity through its ownership of about 15.25 million Class B units of Vantiv Holding, LLC. Moreover, on closing of the Worldpay acquisition, if it is at all executed, Fifth Third is expected to own about 4.9% of Vantiv’s equity.

Exercise of warrants and sale of Vantiv stock highlights Fifth Third’s target of monetizing its remaining stake in Vantiv. In addition, this move will help Fifth Third in reducing volatility in earnings as it eradicates fair value adjustments associated with the warrants.

On completion of the transactions, no director can be appointed by Fifth Third to Vantiv’s board of directors. Therefore, the remaining director of Fifth Third will resign.

The Back Story

U.S.-based Vantiv – formerly known as Fifth Third Processing Solutions (FTPS) – is a payment processing company, dealing with more than 12.9 billion payment transactions, valued at $426 billion annually.

Fifth Third had spun-off FTPS in 2009, following a joint venture which was initiated between Advent International and Fifth Third Bank, a subsidiary of Fifth Third. The company was named Vantiv in Jun 2011. Notably, Vantiv Inc. had opted for an initial public offering of Class A shares of the company. The offering was completed on Mar 21, 2012.

Our Viewpoint

Any measures that would aid in optimizing the balance sheet and share buybacks are encouraging, and represent an efficient use of funds. Such initiatives would help create value for shareholders.

Going forward, with a diversified traditional banking platform, Fifth Third remains well poised to benefit from a recovery in the economy of regions where it has a footprint. Additionally, the company’s efforts in reducing its non-performing assets and operating expenses will serve as growth catalysts. Further, we believe that its capital deployment activities will boost shareholders’ confidence. However, competitive pressures remain headwinds.

Fifth Third currently carries a Zacks Rank #3 (Hold). The company’s stock gained 3.6% over the past six months, underperforming 5.4% growth recorded by the industry it belongs to.

Stocks to Consider

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The Bank of New York Mellon Corporation (NYSE:BK) , with a Zacks Rank #2 (Buy), has been witnessing upward estimate revisions for the last 30 days. So far this year, the company’s share price has been up more than 13%.

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