March 30, 2009 / 11:57 AM / 10 years ago

Fifth Third sells most of payments unit to Advent

NEW YORK (Reuters) - Fifth Third Bancorp (FITB.O) said Monday it would sell a majority interest in its payment-processing unit to private-equity firm Advent International Corp for $561 million in a bid to strengthen its capital base, sending shares up as much as 15 percent at one point.

The unit will be spun off into a joint venture valued at about $2.35 billion, Fifth Third said in a statement. The Cincinnati-based bank said it would provide $1.25 billion in bank loans to fund the new company, in which it would have a 49 percent stake.

Fifth Third said the transaction is expected to contribute significantly to its retained earnings, capital levels and capital ratios, generating an expected pretax book gain of about $1.7 billion and increasing its tangible common equity and Tier 1 capital by about $1.2 billion.

On a pro forma basis, the deal would have increased Fifth Third’s tangible common equity ratio — a closely watched barometer of banks’ financial strength — by more than 0.9 percent, to approximately 5.2 percent, at December 31.

The transaction would have increased the bank’s Tier 1 capital ratio by an estimated 0.9 percent to approximately 11.5 percent.

The deal moved Fifth Third more into line with peers in terms of capital ratios.

“While the deal shores up capital in the near term, it does dilute Fifth Third’s attractive revenue mix in the long term. But we acknowledge that ensuring the company survives the near term is more important to the investment case,” Sanford Bernstein analysts said in a research note.

The large Midwest regional bank lost $2.2 billion in the fourth-quarter, its third straight loss, as it wrote down assets, and set aside more money to cover bad loans.

Last year, Fifth Third obtained $3.45 billion from the U.S. Treasury’s Troubled Asset Relief Program. It also eliminated most of its dividend after losses rose from its exposure in the Midwest, hard hit by the auto industry’s troubles, and Florida, a center of the real estate downturn.

Charles Drucker, president of Fifth Third Processing Solutions, will be chief executive of the new joint venture.

Credit Suisse CSGN.VX was the financial adviser of Fifth Third Bancorp, while Sullivan & Cromwell LLP, Chapman & Cutler LLP, Alston & Bird LLP, and Graydon Head & Ritchey LLP, acted as legal advisers to the bank.

Morgan Stanley (MS.N) and Weil, Gotshal & Manges, LLP acted as financial and legal advisers, respectively, to Advent.

Fifth Third’s shares were up 6.4 percent to $2.50 in afternoon trading on the Nasdaq after reaching as high as $2.71 earlier, a gain of 15.3 percent. The bank’s stock has lost two-thirds of its value in 2009.

Reporting by Juan Lagorio in New York, with additional reporting by Ajay Kamalakaran in Bangalore

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