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Reggie's SunTrust 3rd Quarter Suntrust Review
SunTrust
Bank Inc (STI) reported another dismal performance, continuing its poor run for
another quarter this year. The bank's loan portfolio contracted and its non
interest income declined significantly, while loan portfolio continued to be
plagued with rising loan losses and charge-offs.
The
bank reported 3Q2009 net loss per diluted share of $0.76 compared with net loss
per diluted share of $0.41 per share in 2Q09. A significant decline in non-interest
income, down 27.7% q-o-q to $775.1 million coupled with higher provision for
loan losses ($0.19 per share) in 3Q09 led to an overall contraction in the
bank's profitability. The impact was partially offset by 4.4% q-o-q growth in
net interest income to $1.1 billion in 3Q09.
In
3Q-09 STI's net charge-offs increased to $1.0 billion or 3.3% of average loans
(up 17.8% q-o-q) off higher charge-offs from residential mortgage and additional
charge-offs related to large corporate borrowers in cyclical industries. Non-performing
loans declined marginally to $5.4 billion or 4.67% of total loans as of
September 30, 2009 led by reduction in nonaccrual commercial loans.
Click to enlarge
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STI's
total net revenues declined 11.5% q-o-q to $1.9 billion in 3Q09 compared with
$2.2 billion in 2Q09 led by significant decline in non-interest income. Non-interest
income decreased compared to the previous quarter off non-recurring gains of $112.1 million and $156.9 million recorded from
the sale of Visa shares and recovery from impaired mortgage servicing rights in
2Q2009. Excluding the impact of aforementioned items, the Bank's non-interest
income contracted 3.4% q-o-q to $775.1 million in 3Q09 as compared to $802.7 million
in 2Q09. In 3Q09, non-interest revenues accounted for 40.5% of the total net
revenues against 49.6% in 2Q09.
Net
interest income increased 4.4% q-o-q to $1,137.5 million in 3Q09 compared with
$1,089.7 million in 2Q09 propelled by higher net interest margin which
increased 16bps q-o-q to 3.10%. This positive impact was offset by decline in average earning assets, down 2.4%
q-o-q to $149.6 billion in 3Q09 compared with $153.2 billion in 2Q09. Further,
as decline in total net revenues exceeded the decline in overall expenses, the
Bank's efficiency ratio deteriorated 385 basis points q-o-q to 73.5% in 3Q09 as
compared to 69.7% in 2Q09.
Net
losses to common shareholders were $133.5 million higher in 3Q09, driven by $106.5 million after-tax increase in provision for loan losses coupled with decline in non-interest
revenues.
The
credit losses continue to weigh on STI's performance with gross charge-offs
increasing to $1,046 million (annualized charge off rate of 3.6%) in 3Q09 from
$835 million (annualized charge off rate of 2.7%) in 2Q09 and $420 million
(annualized charge off rate of 1.3%) in 3Q08, while the provisions for loan
losses were $1,134 million in 3Q09 (annualized rate of 3.9%) against $962
million (annualized rate of3.1%) in 2Q09 and $504 million (annualized rate of1.6%)
in 3Q08.
Click to enlarge
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Non-performing
loans declined marginally to $5,444 million (4.67% of total loans) at the end
of 3Q09 from $5,504 million (4.48% of total loans) at the end of 2Q09 but
relatively remained high when compared with $3,290 million (2.60% of total
loans) at the end of 3Q08. Total non-performing assets increased, and stood at
$6,095 million (5.23% of total loans) compared with $6,165 million (5.02% of
total loans) at the end of 2Q09 and $3,690 billion (2.91% of total loans) at
the end of 3Q08. However, the 90 days past due loans increased to $1,509
million at the end of 3Q09 from $1,411 million at the end of 2Q09 and $772
million at the end of 3Q08. The surge in 90 days past due loans and shrinkage
in tangible equity led to Texas ratio inching to 58.0% against 57.8% in 2Q09
and 40.8% in 3Q08. This is very high for a $130 billion dollar - oops that's
$116 billion this quarter (loan assets) bank. Watch out for this one! The FDIC
couldn't hold this one, even with a handle attached to it - see I'm going to try not to say I told you so....
Remember you hear it here first! If a bank the size of Suntrust goes down, the
floor will fall out beneath the market and make last March look like a bull
market! Thus far, WaMu was the largest pure lender to fall to the Asset Securitization Crisis (yes, I coined the term - go ahead
and click the link for the play by play), but
now the FDIC and related entities have shot their wad (excuse my Mandarin). No
amount of loss sharing with private entities will conceal the chain reaction
and loss of trust that will probably ensue. Of course, there would be no loss
of trust if the government made the big banks take their medicine up front, but
I guess nobody likes the taste of castor oil - or reduced bonuses/compensation/control.
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Loans and Deposits
Owing to tough credit and
lending conditions, the total loan portfolio declined to $116.5 billion from
$122.8 billion in 2Q09 and $126.7 billion at the end of 3Q09. The decline was
largely contributed by reduced lending in commercial loans and real estate
loans segments. However, the total deposits increased to $119.3 billion from
$118.8 billion in 2Q09 and $115.9 billion at the end of 3Q09. Consequently, the
loan to deposit ratio declined to 97.6% from 103.4% in 2Q09 and 109.3% at the
end of 3Q09.
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Tier 1 capital
In
spite of decline in Tier 1 common equity owing to 3Q09 losses, the Tier 1
common equity ratio improved to 7.45% from 7.34% at the end of 2Q09 and 5.83%
at the end of 1Q09 largely owing to the decline in risk weighted assets.
Here is some Suntrust research for subscribers:
Sun Trust Bank Report 2008-08-30 06:39:22 391.89 Kb
STI update 2009-09-03 06:33:37 1.08 Mb
Sun Trust Banks Simulated Government Stress Test 2009-05-05 11:37:13 1016.17 Kb
Shall we revisit how I felt about those stress tests that Suntrust failed to fail????
The Treasury with their stress tests, lacking any form of realistic stress:
