Fifth Third: Financial Winner

Philip van Doorn

04/02/12 - 04:11 PM EDT

NEW YORK (TheStreet) -- Fifth Third Bancorp (FITB) was the winner among large U.S. banks on Monday, with shares rising 3% to close at $14.44.

The broad indexes saw slight gains, after the U.S. Commerce Department reported that U.S construction spending during February declined by 1.1% from to a seasonally adjusted annual rate of $808.9 billion, from a revised $818.1 billion in January. On a brighter note, the agency said that the February figure was 5.8% higher than the February 2011 estimate, and that during the first two months of 2012, construction spending totaled $111.3 billion, increasing 7.4% from $103.7 billion a year earlier.

Meanwhile, the Institute for Supply Management announced that its manufacturing index rose to 53.4 during March from 52.4 in February. Economists surveyed by Thomson Reuters were expecting a level of 53.

The KBW Bank Index (I:BKX) rose 1% to close at 50.03.

Fifth Third's shares have now returned 14% year-to-date, following an 11% decline during 2011.

The shares trade for 1.3 times the company's reported Dec. 30 tangible book value of $11.25 a share, and for 9.5 times the consensus 2013 earnings estimate of $1.52 a share, among analysts polled by Thomson Reuters.

The company on Wednesday announced that the initial public offering of its Vantiv (VNTV) payment processing subsidiary resulted in Fifth Third retaining "39 percent of Vantiv's future earnings." Vantiv's subsequent purchase of 2,086,064 Class B units of Vantiv Holding, LLC from Fifth Third resulted in a $17 million pre-tax gain to Fifth Third, on top of the previously announced $95 million pre-tax gain from the Vantiv offering.

After tax, Fifth Third's first-quarter gains from the Vantiv sale will total $roughly $71 million.

The company on March 14 announced that the Federal Reserve had rejected its plan to increase its quarterly dividend from the current payout of eight cents, and also objected to common share buybacks, except for "the repurchase of common shares in an amount equal to any after-tax gains realized by Fifth Third from the sale of Vantiv, Inc. common shares by either Fifth Third or Vantiv."

Fifth Third is scheduled to report its first-quarter results on April 19, with a consensus EPS estimate of 35 cents, increasing from fourth earnings of 33 cents a share, and EPS of 27 cents during the first quarter of 2011.

Nomura Securities on Wednesday added Fifth Third to its "U.S. Conviction Buy List," with a price target of $14.50, saying the Cincinnati lender was "among the least expensive banks on 2012E and 2013E at~10x and ~9x, respectively, versus peers at ~13x and ~10x."

Nomura analyst Brian Foran matches the consensus, estimating that Fifth Third will post first-quarter EPS of 35 cents, and estimates the company will earn $1.40 a share for all of 2012, followed by 2013 EPS of $1.45.

The expanded Home Affordable Refinance Program, or HARP 2, is expected by Nomura to boost Fifth Third's mortgage origination and sale income sufficiently to "bring an incremental 5-10% upside to 2012 EPS."

Interested in more on Fifth Third? See TheStreet Ratings' report card for this stock.

Following the company's remarkable first-quarter run, shares of Bank of America (BAC) rose 1% on Monday to close at $9.68.

The shares have now returned 74% year-to-date, following last year's 58% plunge.

Bank of America is now trading for 0.8 times the company's reported Dec. 30 tangible book value of $12.95, and nine times the consensus 2013 EPS estimate of $1.06.

The company will report its first-quarter results on April 19, and the consensus among analysts is for the company to show a profit of 13 cents a share.

While Bank of America passed the Federal Reserve's 2012 stress tests with flying colors, the company didn't request permission to increase its dividend or buy back shares. Investors are likely facing an extended wait for a dividend increase, since Credit Suisse analyst Moshe Orenbach doesn't think the company will achieve full compliance with the Basel III capital requirements until late 2014.

The analyst on Monday estimated that Bank of America's Basel III Tier 1 common equity ratio would be 7.1% at the end of 2012, rising to 8.4% at the end of 2013.

Including a 7.00% Tier 1 common equity ratio requirement, plus an estimated 2.00% extra, as a "systemically important financial institution," Orenbuch said Bank of America will need a Tier 1 ratio of 9.00% to achieve full compliance, as the company "continues to optimize the balance [sheet], which has included sales of financial stakes, as well as sales of  financial stakes, as well as sales of [mortgage servicing rights] and [risk-weighted assets] mitigation."