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Fifth Third says MB Financial deal does not change capital plans

Fifth Third Bancorp executives said the bank's $4.7 billion deal announced May 21 will not alter the company's plans for capital distributions.

The company has previously stated a plan to target a common equity Tier 1, or CET1, capital ratio of roughly 9.5%. During a May 21 call discussing Fifth Third's pending acquisition of MB Financial Inc., an analyst said that the deal should reduce the bank's CET1 ratio to 10.4% from 10.8%.

Large banks such as Fifth Third have to submit capital plans to federal regulators each year as part of a stress testing exercise known as the Comprehensive Capital Analysis and Review, or CCAR. Fifth Third had submitted its application, which includes capital distributions for the next year, before announcing the deal.

"The process here is that once we get our 2018 results at the end of June," said Fifth Third CFO Tayfun Tuzun, "we will resubmit CCAR analysis, including the MB balance sheet and business. Our expectation is that the combined company submission will not change the capital distribution targets that we had in mind when we submitted the original 2018 filing."

An analyst followed up by asking whether Fifth Third would change its plans by using capital slated for buybacks in the deal.

"I don't believe that there is any substitution effect," Tuzun said. "I believe that we will be able to preserve most if not all of the capital distribution targets that we had in mind when we submitted."

Fifth Third's capital planning following the deal was the subject of several other analyst questions during the deal call. At one point, Tuzun suggested that the bank might be willing to lower its 9.5% CET1 target.

"As we've always stated," Tuzun said, "we believe that our balance sheet and our business composition truly do not require these levels of capital where we operate. And we said that 9.5% is the first step and we may be able to get down below [that]."