TEXT-S&P: SunTrust Banks ratings unaffected by Q3 actions

Fri Sep 7, 2012 2:23pm EDT

Sept 7 - Standard & Poor's Ratings Services today said its ratings and
outlook on SunTrust Banks Inc. (BBB/Stable/A-2) are not affected by the
company's announcement of various actions it took in the third quarter.

SunTrust announced that it sold its 60 million Coke (KO) shares, resulting in 
a $1.9 billion gain in the quarter. Counterbalancing this gain was a $375 
million increase in mortgage repurchase provisions, a $250 million additional 
pretax charge on $3 billion of loans moved to held for sale, and a $100 
million write-down on $200 million of affordable housing investments, also 
moved to held for sale. The sale of KO stock will raise the bank's capital by 
$490 million, which is in addition to the $730 million regulators had given 
the bank for its KO position.

The actions, in aggregate, should have a slight positive effect on the bank's 
risk-adjusted capital (RAC) ratio, mostly as a result of a reduction in 
risk-weighted assets associated with the sale of KO stock. We expect that the 
bank's RAC ratio will increase slightly to between 8%-8.5%, but remain within 
7%-10%--our "adequate" capital assessment (as our criteria describe the term).

The actions also lower the bank's ongoing credit risk profile. However, we are 
not revising our risk position assessment of "moderate" (slightly worse than 
peers'). Following conversations with Fannie Mae and Freddie Mac, the bank 
believes that the $375 million addition to repurchase provisions should 
satisfy pre-2009 vintage claims, which have made up the vast majority of 
previously incurred repurchase expenses. Although we expect this large 
addition to substantially reduce the need for future provisioning, we 
recognize that the volume of repurchase claims has been highly variable and 
difficult to forecast in the past. The $3 billion of loans moved to held for 
sale will include material amounts of nonperforming and delinquent loans, 
thereby improving the bank's credit metrics following their sale, which should 
take place over the rest of 2012. Despite these positive effects, the $250 
million additional pretax charge is a concern, and we still believe that 
SunTrust's remaining loan portfolio is vulnerable to future write-downs 
because of the bank's outsize exposure to residential mortgages in some of the 
most troubled housing regions. 

Standard & Poor's, a part of The McGraw-Hill Companies (NYSE:MHP), is the 
world's foremost provider of credit ratings. With offices in 23 countries, 
Standard & Poor's is an important part of the world's financial infrastructure 
and has played a leading role for 150 years in providing investors with 
information and independent benchmarks for their investment and financial 
decisions.
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