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Fifth Third Preferred: Consider Other Options

May 04, 2020 11:06 AM ETFifth Third Bancorp (FITB), FITBOFITBI2 Comments
Carlton Getz, CFA profile picture
Carlton Getz, CFA


  • Fifth Third's Series K preferred shares dropped precipitously in March.
  • The rebound in the interim has returned the shares to within striking distance of redemption value.
  • The rebound makes the preferred shares relatively unattractive from both a return and yield standpoint compared to alternative options.
  • Preferred shareholders should consider reallocating funds.

Fifth Third Bancorp (NASDAQ:FITB) is a large regional bank serving a broad swath of the United States roughly extending from Illinois southeast through most states into Florida. The company’s common shares have been impacted, much like all banks, by concerns about coronavirus related closures and the financial impact this will have on loan portfolio losses. Indeed, Fifth Third booked provisions for loan losses above net charge-offs of $399 million in the most recent quarter, a trend which will likely continue to one degree or another for the foreseeable future.

However, our focus here is on the company’s preferred securities and particularly the company’s Fifth Third Bancorp 4.95% Noncumulative Perpetual Preferred Stock Series K (NASDAQ:FITBO), although our view is generally applicable to any of the three series Fifth Third's exchange-traded preferred shares. The series was added to our portfolios (along with several similar issues) in March when prices of exchange-traded notes and preferred shares briefly crashed across the board. However, in the interim, prices have rebounded significantly from the lows, reducing the relative attraction of the preferred securities.

Series K Preferred Shares

The Fifth Third Bancorp 4.95% Noncumulative Perpetual Preferred Stock Series K is an exchange-traded series of preferred stock with a fixed dividend yield of 4.95% of the stated redemption value of $25.00 per preferred share (or $1.2375 per annum). The preferred shares are redeemable by the company at the redemption price at any time on or after September 30, 2024. The preferred shares, as with all of the company’s preferred stock, is perpetual such that the company is not required to redeem the preferred shares at any time. In the case of individual investors, the preferred dividends are also qualified dividends, providing an additional tax incentive.

Our position in the Series K preferred share originated when the market valuation

This article was written by

Carlton Getz, CFA profile picture
The author writes on behalf of Winter Harbor Capital, a private fund, and oversees private portfolios for individual and institutional clients. The author founded an investment company in 1995 with the view that a value oriented investment philosophy focused on intrinsic value and long term opportunities could generate superior absolute returns over time, leading to portfolios with unusual investment tenure sometimes exceeding 10 years. In addition to stints in micro and small capitalization research at Wasatch Advisors in Salt Lake City and in private banking with J.P. Morgan Private Bank in New York City, the author is a registered investment advisor, licensed professional engineer, and graduate of the Darden School at the University of Virginia.

Analyst’s Disclosure: I am/we are long FITBO, FITB, NYCB.PA, INBKL, INBKZ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

In addition, we are short put options for FITB.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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