Fifth-Third to price $1 billion perpetual convertible preferreds to yield 8% to 8.5%, up 22.5% to 27.5%

By Rebecca Melvin

New York, June 18 - Fifth Third Bancorp planned to price $1 billion of perpetual convertible preferred stock after the market close Wednesday, according to a syndicate source.

The offering was talked to yield 8% to 8.5%, with an initial conversion premium of 22.5% to 27.5%.

There was a greenshoe of up to an additional $150 million.

Goldman, Sachs & Co. is sole structuring coordinator and joint bookrunner of the offering. Credit Suisse Securities (USA) LLC and Merrill Lynch & Co. are also joint bookrunners, with Fifth Third Securities Inc. acting is co-manager. The deal will be sold off Fifth Third's shelf registration.

The offering is being made in the form of depositary shares, each of which represents a 1/250th interest in shares of convertible preferred stock. The convertible stock will have a liquidation preference of $25,000 per share (equivalent to $100 per depositary share).

The preferreds are non-callable for five years, with no puts.

Net proceeds will be used for general corporate purposes.

Fifth Third is a regional bank based in Cincinnati, Ohio.

Early Wednesday the bank announced that it would cut its dividend and that it planned to sell $1 billion or more of certain non-core businesses.

In addition, the bank replaced board chairman George Schaefer, who is retiring, with president and chief executive Kevin Kabat.

Finally, it said it has revised its capital targets and is not targeting 8% to 9% for its Tier 1 capital ratio.

"Our current outlook for 2008 net charge-offs is approximately 160 basis points to 165 bps of total loans and leases, with second half 2008 net charge-offs of approximately 170 bps annualized. We currently expect the year-end 2008 ratio of reserves to loans and leases to exceed 2%, with the actual amount subject to changes in credit trends and reserve modeling. Additionally, we currently expect 2009 net charge-offs to be higher than 2008 levels and provision expense to continue to exceed charge-offs, resulting in continued growth in our loan loss reserves," Fifth Third said in a release.

The expectations outlined "apply irrespective of whether we ultimately determine it is appropriate to recognize an accounting charge to earnings relating to our tax position associated with leveraged leases," the release stated.

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