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