Fifth Third Bancorp (FITB)

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Analyst: Fifth Third to benefit from stress test
Fifth Third shares soar as analyst says bank will likely benefit from government's stress test

Wednesday February 25, 2009, 4:46 pm EST

NEW YORK (AP) -- Shares of Fifth Third Bancorp soared more than 30 percent Wednesday after an analyst said the regional bank will likely be one of the biggest benefactors of the government's proposed stress test.

Shares of the Cincinnati-based bank jumped 49 cents, or 33.8 percent, to close at $1.94.

Fifth Third has been hit particularly hard by the housing and financial crises. Subsequently, its shares have taken a beating, falling 82 percent so far this year.

Fifth Third rose along with several battered bank stocks Wednesday after the Treasury Department said it would grant banks immediate access to more funds under the government's $700 billion financial rescue package. New support will be provided through the government's purchase of preferred shares of bank stock that are convertible into common shares at a 10 percent discount to their price before Feb. 9.

The Treasury Department also provided details of how a new stress test will function to ensure banks have enough capital to survive if the economy worsens. The stress tests will use two economic scenarios to gauge banks' health and are expected to be completed by the end of April.

According to Citi Investment Research analyst Keith Horowitz, Fifth Third stands to emerge as one of the biggest winners under either scenario. It's likely that the bank will not need to issue more equity, he said. However, "if they do need to, the conversion price is well above current prices."

"These stocks are pricing in significant dilution," Horowitz said. "We believe risk/reward is excellent at these levels."