Fifth Third (Nasdaq:FITB) Heading in Right Direction with Paying Back TARP, Still Warrants to Deal with

In a combination of debt and stock issuance, Fifth Third Bancorp (Nasdaq:FITB) announced they're going to raise the needed capital to pay back what they owe TARP.

The bank will raise the capital in order to buy back the $3.4 billion in preferred shares owned by the Treasury Department.

Half of that will be raised by selling $1.7 billion in common shares.

Even with that step, the Treasury still holds a big piece of the bank, as they hold warrants which allows them to acquire over 43.6 million common shares at the price of $11.72 each. With Fifth Third trading at over $14 a share at this time, the Treasury could make a tidy some as it is.

Fifth Third will eventually attempt to acquire the warrants directly from the Treasury or via an auction process.

While positive developments, the bank does have a long way to go before returning to sound financial health. One obvious area is the credit issues still weighing on the bank.

Fifth Third closed Thursday at $14.22, dropping $0.39, or 2.67 percent.