TEXT-S&P says SunTrust Banks ratings unaffected by Q3 results

Oct 22 - Standard & Poor's Ratings Services today said its ratings on SunTrust Banks Inc. (BBB/Stable/A-2) are not affected by the bank's decent third-quarter results. SunTrust generated adjusted pretax income of $13 million in the quarter, down significantly from $362 million in the prior quarter. Result comparisons are complicated by a number of actions the bank took in the third quarter to bolster its capital ratios, increase loss reserves, and reduce nonperforming assets. The bank sold its 60-million-share Coke stake, resulting in a $1.9 billion gain, which we excluded from our adjusted results. In conjunction with the sale, SunTrust took an outsize $371 million mortgage repurchase provision, increasing its repurchase reserve by roughly 60%. It also increased its charge-offs and loan loss provision by $172 million to reflect losses on the sale of $0.5 billion of nonperforming mortgage and commercial real estate loans. We excluded from adjusted results losses and write-downs of $186 million related to what were one-time, in our opinion, sales of student and Ginnie Mae loans and a write-down of an affordable housing investment. 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 Coke stock. We expect that the bank's RAC ratio will increase slightly to 8%-8.5% but remain within 7%-10%--our "adequate" capital assessment (as our criteria describe the term). Following conversations with Fannie Mae and Freddie Mac, the bank believes that the large 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. Following the nonperforming loan sale and a continuation of gradual asset quality improvement, the bank's nonperforming assets (including accruing restructured and 90-day delinquent loans) fell to 3.92% of total loans and other real estate owned from 4.46% at the end of the second quarter. The loan sale had a positive effect on SunTrust's credit quality. But we view the nearly 35% mark taken on loans already classified as delinquent or nonperforming negatively, and we see SunTrust's remaining loan portfolio as highly exposed to residential mortgages in some of the most troubled housing regions.