Surprising Optimism on Fifth Third (FITB)

A week ago the financial industry was getting very worried about its own prospects. Bank after bank seemed to be running short of cash as their stock prices plunged, making it harder to raise capital. Wall Street analysts added to the gloom with a frenzy of reports that downgraded big financial firms or at least cut their earnings projections. We likened it to a “circular firing squad,” as analysts from different banks and brokerage houses took aim at each other’s employers.

All those worries remain. But there is some evidence that the stampede of negative analyst reports is slowing.

In the face of his colleagues’ pessimism, R.W. Baird analyst David George bravely put out a note actually upgrading Fifth Third Bancorp (FITB).

Fifth Third spooked investors last month when it said it needed to slash its dividend and raise $2 billion in capital.

But George suggests the worst may be over. “Two of the major risks associated with owning the stock [i.e. a cut dividend and a capital raise] have occurred,” George wrote July 2. Plus, Fifth Third “has some extremely valuable assets that simply aren’t getting much attention in the near term.”

Fifth Third owns a processing solutions business worth $2.5 billion to $3 billion by George’s reckoning, and its wealth management arm might also be valuable. Those could serve as a “safety valve in case the company needs more capital.”

George doesn’t seem to disagree that worries over deteriorating credit quality at banks are real. But if conditions get bad, he is saying, Fifth Third has options.

(For lots more information and perspective on Fifth Third, check out Geoff Gannon’s May 28 blog post here.)

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