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WIKI ANALYSIS
SunTrust Banks, Inc. (NYSE: STI) is the ninth largest bank in the United States.[1] SunTrust's operations are mostly concentrated in the Southeast, and many of them are located within retail outlets, including over 100 within Wal-Marts.[2] STI's competitors range from local rival Regions Financial Corporation (RF) to national bank Bank of America (BAC).
The Atlanta-based bank reported a profit of $185 million compared with a prior-year loss of $248.1 million. Revenue jumped 19% to $2.33 billion. Revenue excluding investment gains and losses climbed 21%.[3]
Business Overview
Retail and Commercial Banking ($353 million Net Income in 2010)
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). 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.[4]
Corporate and Investment Banking ($197 million Net Income in 2010)
The Corporate and Investment Banking segment offers a full line of traditional banking and investment banking services to corporate banking and institutional investor clients. The Corporate Banking Group generally serves clients with greater than $750 million in annual revenue and is focused on selected industry sectors: consumer and retail, energy, financial services and technology, healthcare, and media and communications. Through STRH, CIB provides an extensive range of investment banking products and services to its clients, including strategic advice, capital raising, and financial risk management. These investment banking products and services are also provided to Middle Market, Diversified Commercial Banking and W&IM clients. In addition, CIB offers traditional lending, leasing, treasury management services and institutional investment management to its clients.[4]
Mortgage ($822 million Net Loss in 2010)
The Mortgage segment offers residential mortgage products through its retail, broker and correspondent channels. The Mortgage segment had been hit hard by the U.S. Housing Market decline, especially the housing drought in the Southeast United States.
Wealth and Investment Management ($180 million Net Income in 2010)
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.
Trends and Forces
Financial regulation may impact SunTrust
The Basel III rules will force banks to increase the amount of money they hold against liabilities. While the goal of the regulation is to prevent banks from becoming over leveraged, they may also prevent the banks from creating the same profit margins that they previously were able to attain.[5]
Other increases in regulation as well as an increase in the amount of information that needs to be disclosed may also alter the way that SunTrust operates. These changes may also alter the company's profits as they may prevent it from taking on more risky behavior that generate greater margins.
Housing Market
Banks, like SunTrust, are particularly sensitive to the residential real estate market. Mortgage-backed securitization (MBS) is the bundling of mortgages for sale to third parties. When the housing market goes down, the value of the underlying mortgages backing these securities falls as well. Moreover, the overall number of mortgages also decreases.
Housing loans have traditionally been a strong source of revenue for banking firms. With the current interest rate environment, owners of real estate are selling to take advantage of the high short-term rates. With low interest rates in the future, prospective home owners are staying out of the market and waiting for short-term rates to drop before looking for a loan.
Benefit from low interest rates
Interest rates can be thought of as the cost of borrowing money, as interest rates increase, businesses are less likely to issue debt or equity given that the price of borrowing has increased, which dampens the overall demand for mortgages and other home loan products. The lowering of the U.S. Federal Funds Rate should, in theory, help to stimulate demand for loans and lower default rates by allowing people to refinance their homes at lower rates. CS stands to benefit from lower interest rates since they can afford to lend out more money. By lending more money, SunTrust can collect interest on its loans.
Competition
STI competes with other companies in the financial services industry.
- U.S. Bancorp (USB) -- USB is the nation's 10th largest bank (one spot lower than STI) and offers a similar product line of Consumer and Wholesale Banking.[6]
- Capital One Financial (COF) -- COF is the 11th largest bank in the nation, and unlike USB and STI, it has a credit card business.[7]
- Regions Financial Corporation (RF) -- RF is another bank based in the Southeast U.S. and offers a similar product line as STI.[8]
- BB&T (BBT) -- Like RF and STI, BBT is a bank based in the Southeast U.S. and has a similar product line.[9]
- Bank of America (BAC) -- A national competitor, BAC has about half of all the wealthy households in the U.S. as customers, and holds the leading share of the market for small business banking.[10]
References
- ↑ STI 2009 4th Quarterly Report, Selected Financial Data
- ↑ SunTrust Website, "Investor Relations"
- ↑ Wall Street Journal "SunTrust Banks Swings to Profit" 1/21/11
- ↑ 4.0 4.1
- ↑ The Huffington Post "Basel III Rules: Banks Given Until 2019 To Fully Comply With New Global Regulations" 9/13/10
- ↑ USB website, "About"
- ↑ Capital One Website, "About"
- ↑ Regions Financial website, "About"
- ↑ BB&T Website, "Business"
- ↑ Bank of America website, "About Bank of America"
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