Fifth Third to Redeem $750M TruPS

Zacks

In an effort to ease its debt pressure, Fifth Third Bancorp (FITB) announced to redeem its outstanding 6.50% trust preferred securities (TruPS) issued by Fifth Third Capital Trust IV. The redemption of securities worth $750.0 million is scheduled to take place on Dec 30, 2013.

Fifth Third fixed the price of redemption of these TruPS at $1,000 per share, which is 100% of the liquidation amount. The company will pay this redemption price along with the accrued and unpaid distributions due on the securities till the date of redemption.

Fifth Third will utilize the existing available cash to fund these redemptions. Wilmington Trust Company, a subsidiary of M&T Bank Corp. (MTB), will be the paying agent for these securities.

The redemption of the TruPS is expected to auger well for Fifth Third as it will provide an opportunity to the bank to reduce its interest expenses since these securities demand higher rates than other securities. The redemption will further bring down the company’s interest expenses, which fell 4% in the first nine months of 2013, compared to the prior-year period.

Notably, the company’s decision to redeem TruPS is in line with the new capital rules proposed by the Federal Reserve in Jun 2012. As per the new guidelines, TruPS issued prior to May 19, 2010 will not be considered for calculation of Tier 1 capital ratio.

In the past year, other banks that have undertaken similar redemptions include Citigroup Inc. (C) and JPMorgan Chase & Co. (JPM) which redeemed TruPS worth $369 million and $5 billion, respectively.

Fifth Third carries a Zacks Rank #3 (Hold).

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