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Conservative and diversified portfolio |
90% agree |
Conservative and diversified portfolio![]() |
90%
agree
11 votes
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More conservative attitude regarding underwriting that its peers![]() |
100%
agree
6 votes
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SunTrust is a ripe acquisition target |
87% agree |
SunTrust is a ripe acquisition target![]() |
87%
agree
8 votes
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out of touch management |
33% agree |
out of touch management![]() |
33%
agree
3 votes
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Shufling the same deck of cards |
33% agree |
Shufling the same deck of cards![]() |
33%
agree
3 votes
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Credit derioration hurts their bottom line![]() |
40%
agree
5 votes
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SunTrust Banks, Inc. (NYSE: STI) is the ninth largest bank in the United States, with assets of approximately $183.1 billion. SunTrust operates approximately 1,700 branches through out the US, but mostly concentrated in the Southeast. Over 20% of SunTrust's branches are located within retail outlets, including over 100 within Wal-Marts.[1] STI's competitors range from local rival Regions Financial Corporation (RF) to national bank Bank of America (BAC).
STI participated in a "Stress Test" to determine how much capital the bank needs, or if the bank should be nationalized. The test determined that of the 19 banks that participated, ten must raise $75 billion. STI must raise $2.2 billion and must present a formal plan to its regulators by June 8.[2] In terms of the metrics involved in the stress test, such as write-downs and loan loss provision, STI ranks average compared to its regional peers and is in far better financial health than national competitor BAC. STI's main loss of income was due to poor real estate markets in the Southeast. Florida and Georgia, two of STI's top real estate markets, were ranked in the top 5 nationally in terms of November foreclosures.[3]
The Retail segment offers loans, deposits, and other fee-based financial services for consumers and business clients with less than $5 million in sales (up to $10 million in sales in larger metropolitan markets). From 2006 to 2006, net income to the retail segment decreased 15.9%.[4] The Commercial business offers commercial lending, financial risk management, and treasury and payment solutions including commercial card services. The client markets served by the Commercial segment include “Diversified Commercial” ($5 million to $50 million in annual revenue), “Middle Market” ($50 million to $250 million in annual revenue), “Commercial Real Estate” (entities that specialize in commercial real estate activities), and “Government/Not-for-Profit” entities. From 2007 to 2008, net income to this segment decreased 61.2%.[5]
The wholesale banking segment provides banking products to clients in mid and large corporate markets, from merger and acquisition consulting to financial risk management. This segment also From 2007 to 2008, net income for this segment increased 10.8%.[5]
The Mortgage segment offers residential mortgage products through its retail, broker and correspondent channels. The Mortgage segment has been hit hard by the U.S. Housing Market decline, especially the housing drought in the Southeast United States. From 2007 to 2008, net income in this segment declined $567.2 million.[5]
The Wealth and Investment Management segment includes brokerage and individual wealth management, and loan and deposit products to individuals. This segment also offers accounting, investing, and estate planning products to families to manage and sustain their wealth across multiple generations. From 2007 to 2008, net income to this segment increased from $98.6 million to $186.9 million, mainly due to the following transactions:[5]
In February, Secretary of Treasury Timothy Geithner announced that banks with more than $100 billion in assets will be required to participate in a "stress test" -- a series of financial assessments to determine the health of the bank and if the bank needs additional capital.[6] The results were released in early May and it was determined that STI, along with nine other banks, is required to raise approximately $75 billion in capital to help buffer the potential substantial losses in 2009-2010.
The results of the test were hesitantly released in early May because of the potential impacts of the results on the finance industry's stock prices. STI has been asked to raise an additional $2.2 billion in capital and must present a plan to its regulators by June 8. STI ranked 7th in the amount of capital it has to raise to help buffer themselves for a continued difficult economic situation through 2010.[7] The impact on STI of the Stress Test will become more transparent after it devises a plan to raise the capital required, whether it be through offering more stock or through government bailout money.
The Fed's criteria for the Stress Test included measures such as, GDP, unemployment rates, and housing prices. These measures were used to simulate two economic scenarios: one similar to what has been predicted and one that is worse-than-expected. To measure how the bank could withstand such scenarios, the banks were asked to report estimated numbers, such as the amount of write-downs and the bank's loan loss provision.[8] In 2008, STI wrote down $555 million. Write downs occur when the bank's assets are overvalued compared to market value, so a high write-down number brings uncertainty in the true value of a bank's balance sheets. Comparatively, Bank of America (BAC) wrote down $10.47 billion in Q4 08 alone.[9] As "bad loans" were a key driver of the crisis, a bank's loan loss provision (LLP) provides information as to how many "bad loans" the bank has. From 2007 to 2008, STI's LLP jumped from $664.9 million to $2,474.2 million, including $962.5 million in Q4 alone. Unlike its competitors, a majority of STI's LLP came from a miserable regional real estate market. Comparatively, BAC's LLP jumped from $8,385.0 million to $26,825 million. In short, TCE measures how much public shareholders would receive if the bank were nearing bankruptcy and had to sell most of its portfolio for cash (liquidation).
Unlike many of its competitors Sun Trust is characterized by conservative lending and underwriting policies. However, while many had hoped that this would protect SunTrust from the subprime mortgage shutdown, that has not been the case. In 2008, STI share value decreased 88%.[10] Many of SunTrust’s loan problems come not from the subprime market, but from another type of loan known as “Alternative A” loans. While Alternative A loans are significantly less risky than subprime loans, they are loans are for borrowers with poor credit histories and thus are more risky than prime loans. Alt-A loans receive scrutiny for their ambiguous requirements -- one does not need the proof or documentation necessary to receive a standard loan.[11] STI raised capital in July 08 by selling its 90-year-old shares of Coca-Cola Company (KO), which were valued at $2 billion.[12]
In response to the crisis, STI received $4.9 billion in preferred equity through the Troubled Assets Relief Program (TARP).[13] STI plans to cut 2,400 jobs by the end of 2009, saving $530 million.[3] This might not sit well with investors, considering STI also approved raising its CEO's 2008 compensation 75% to $8.1 million.[14]
| Bank | Q4 08 Results | TARP Funding |
| SunTrust Banks (STI) | ($379 M) | $4.9 B |
| U.S. Bancorp (USB) | $260 M | $6.6 B |
| Capital One Financial (COF) | ($1.4 B) | $3.6 B |
| Regions Financial Corporation (RF) | ($5.6 B) | $3.5 B |
| BB&T (BBT) | $284 M | $3.1 B |
| Bank of America (BAC) | ($1.55 B) | $45 B |
STI is based in Atlanta, GA, so its largest real estate markets include Georgia and Florida. STI's regional real estate market has plummeted due to the credit crisis. Florida and Georgia were two of the top five states that had the highest foreclosure totals in November.[3] Since a large part of SunTrust’s loan portfolio and assets are linked to residential real estate, real estate loan losses in the state, a place SunTrust does a lot of business, could be significantly harmful. STI has some long-term optimism for the region, as population growth in its regional markets is expected to grow 10% within the next five years, however.[4]
| 2008 Financial Comparison | SunTrust Banks (STI)[20] | U.S. Bancorp (USB)[21] | Capital One Financial (COF)[22] | Regions Financial Corporation (RF)[23] | BB&T (BBT)[24] | Bank of America (BAC)[25]
|
| Market Cap $Mil | 2,793.58 | 19,884.15 | 3,553.40 | 1,859.78 | 8,276.87 | 24,994.87
|
| Net Income $Mil | 795.8 | 2,946.00 | (46.0) | (5,595.8) | 1,519.0 | 4,008.0 |
| Net Profit Margin % | 8.75% | 27.73% | 4.19% | -80.74% | 20.43% | 5.51% |
| Operating Margin% | 8.01% | 20.26% | 0.61% | -85.78% | 27.83% | 6.08% |
| Q4 2008 Net Income $Mil | (347.6) | 330.0 | (1,421.6) | (6,218.3) | 305.0 | (1,789.0) |
| TARP Funding $Bil | 4.9 | 6.6 | 3.6 | 3.5 | 3.1 | 45.0 |
| Price to Book | 0.16 | 1.08 | 0.15 | 0.14 | 0.52 | 0.14 |
| Price to Book Compared to Industry Average (0.75) | -0.59 | +0.33 | -0.60 | -0.61 | -0.23 | -0.61 |
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