SunTrust Banks Inc (STI.N) has accelerated a planned sale of Coca-Cola Co (KO.N) shares it owns in a move that it said will produce a $1.9 billion pre-tax gain and reduce volatility in its capital ratios.
The Atlanta-based regional bank also said it planned to take a $375 million charge in the third quarter to cover requests from Fannie Mae FNMA.OB and Freddie Mac FMCC.OB to buy back mortgages it sold to the mortgage giants before 2009. SunTrust is also taking $350 million in charges as it sells off a variety of real estate loans.
The actions are expected to increase the bank's third-quarter net income by $750 million, or $1.40 per share, and produce a "modest increase" to Tier 1 common equity, a measure of core capital.
"These actions better position SunTrust for the future by further improving our risk profile and strengthening our balance sheet while keeping regulatory capital ratios stable," SunTrust Chief Executive Officer William Rogers Jr said in a statement.
SunTrust has owned shares of beverage giant 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. But in 2008, the bank entered agreements with a third party to sell its 60 million shares in 2014 and 2015.
After a recent review, the bank said it decided to move up the sales because new Basel III capital rules increased the perceived riskiness of the holdings. The bank also considered the negative impact of the shares in the Federal Reserve's stress tests of large banks, it said.
SunTrust was one of four U.S. banks in March to fail the Fed's evaluation, which determines whether 19 banks would maintain enough capital to weather a hypothetical severe recession. The Fed last month did not object to SunTrust's revised capital plan, which did not include dividend increases or share buybacks. <ID: nL2E8JN5F3>
The bank said its original investment in Coca-Cola increased in value from about $100,000 to more than $2 billion. The bank's annual net interest income will decline by $40 million due to lost Coca-Cola dividends.
SunTrust sold 59 million of the shares in the market and to the third party. It contributed the remaining 1 million to its charitable foundation.
(Reporting By Rick Rothacker in Charlotte, North Carolina; Editing by Tim Dobbyn and Bob Burgdorfer)