* Q3 EPS $1.98 vs $0.39 year earlier
* Books $1.9 bln gain on Coca-Cola share sale
* Says C&I loan demand slowing
* Sees further margin compression in Q4
Oct 22 SunTrust Banks Inc's
third-quarter profit surged on the sale of its shares in
Coca-Cola Co, but the lender forecast a weaker margin for
the current quarter and said loan demand had slowed.
Shares of the Atlanta-based lender fell as much as 4 percent
to $27.20 on Monday on the New York Stock Exchange.
As the U.S. Federal Reserve keeps interest rates low to
boost the economy, bank margins are narrowing. SunTrust's
third-quarter net interest margin - the difference between what
it pays out on deposits and earns on loans - fell 11 basis
points to 3.38 percent.
The bank said it expects further margin compression from the
"We expect to see a reduction in the net interest margin on
the order of mid-single-digit basis points, driven by additional
reductions in asset yields that will partially be offset by
lower liability costs," Chief Financial Officer Aleem Gillani
said on a post-earnings conference call with analysts.
"In the fourth quarter, we expect a reduction to net
interest income," Gillani added.
The lender said commercial and industrial loan demand was
slowing as borrowers pulled back on "fiscal cliff" fears.
The fiscal cliff refers to the $500 billion or so of tax
hikes and the more than $100 billion in government spending cuts
that will automatically start on Jan. 2 unless politicians agree
on a budget deal.
SHARE SALE BOOSTS PROFIT
SunTrust's third-quarter profit was boosted by a $1.9
billion pre-tax gain related to the sale of its Coca-Cola
Net income rose sharply to $1.07 billion, or $1.98 per
share, from $211 million, or 39 cents per share, a year earlier.
Analysts on average were expecting the regional bank to earn
$1.99 per share, according to Thomson Reuters I/B/E/S.
The lender accelerated the sale of the shares, originally
set for 2014 and 2015, to reduce volatility in its capital
adequacy ratios ahead of the implementation of the new Basel III
SunTrust has owned shares in Coca-Cola since 1919 when a
predecessor bank participated in the underwriting of the
company's initial public offering and received the shares in
lieu of fees.
The bank said in September that it would record the gain and
a $375 million charge in the quarter to cover requests from
Fannie Mae and Freddie Mac to buy back
mortgages it sold to the regulators before 2009.
The bank's credit quality continued to improve.
Non-performing loans were just 1.42 percent of its total loan
book, down from 2.76 percent a year earlier.
SunTrust, which suffered large losses due to the financial
crisis, was one of the four big U.S. banks whose capital plans,
including raising dividends and buying back shares, were
rejected by the Federal Reserve in March as part of its
The Fed did not object in August to SunTrust's revised
capital plan, which did not include dividend increases or share