FEBRUARY 2, 2011, 3:09 P.M. ET.

Fifth Third Closes In on TARP Exit

By DAVID BENOIT

Fifth Third Bancorp, one of the largest banks that still holds government bailout funds, said it repurchased the $3.4 billion in preferred stock the Treasury Department held, bringing it close to exiting from the program.

The government wound up with more than $350 million in dividend payments from Fifth Third since the Cincinnati bank took part in the Troubled Asset Relief Program in 2008. The government still holds warrants that allow it to purchase more than 43.6 million shares, which the bank is looking into repurchasing as well.

Chief Executive Kevin Kabat said Wednesday that the bank "appreciated that U.S. taxpayers made an investment in our company."

The repayment comes two weeks after Fifth Third revealed its plan to raise $1.7 billion in new common stock and issue new debt to get out from under TARP.

The bank ultimately sold $1 billion in 5-year bonds with a nominal interest rate of 3.625%. It sold 121.4 million shares at $14 each, which was a 4.2% discount to the price of shares before the plan was announced.

When it said it would return the funds, the regional lender said its credit profile had improved, with charge-offs plunging and delinquencies at their lowest level since the start of 2007. Along with an increase in loans during the fourth quarter, the bank decided it had enough confidence to go to the market to raise the funds to exit from the government's bailout program.

Overall, repayments among regional banks have been increasing as they find the record low interest rates a cheaper source of capital than the expensive terms tied to TARP funds. Repayments are expected to continue as banking conditions improve along with the economy, and as the interest rate owed on TARP funds increases in 2013.

As of the end of 2010, the Treasury had been repaid $168 billion of the $205 billion it initially loaned out, according to KBW, a bank research firm. Treasury has earned $34 billion in dividends and interest while losing $2.6 billion, the firm said.

Write to David Benoit at david.benoit@dowjones.com

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