SunTrust profit falls 45 percent as loan losses soar

NEW YORK (Reuters) - SunTrust Banks Inc STI.N, a large southeastern U.S. bank, said on Tuesday quarterly profit fell a larger-than-expected 45 percent, as it set aside 10 times more for credit losses as the housing market softens.

“We had a bad quarter for credit,” Chief Risk Officer Thomas Freeman said on a conference call.

Net income for the Atlanta-based company dropped to $283.6 million, or 81 cents per share, from $513.9 million, or $1.44, a year earlier. Revenue on a taxable equivalent basis increased 8 percent to $2.23 billion.

Analysts on average expected profit of $1.03 per share on revenue of $2.17 billion, according to Reuters Estimates.

Shares of SunTrust rose 1 cent to $52.31 in morning trading on the New York Stock Exchange.

“Credit deteriorated as expected but overall the quarter was not as bad as some expected,” wrote Robert Patten, an analyst at Morgan Keegan & Co.

Results included $125.4 million of gains tied to credit card network Visa Inc's V.N initial public offering last month, and gains from the sale of SunTrust's Lighthouse Investment Partners affiliate.

SunTrust set aside $560 million for credit losses, up from $56.4 million a year earlier. Net charge-offs nearly quintupled to $297.2 million, and nonperforming assets tripled to $2.32 billion.

Executives said the southern Florida housing market was particularly troubled, while other markets were stable or weakening more slowly.

“We obviously are not pleased with our credit performance and the impact on near-term earnings,” Chief Executive James Wells said on a conference call.

“The backdrop of emerging recession fears clouds the near-term outlook,” Wells added.


SunTrust nevertheless boosted its estimate for savings from a bank-wide cost-cutting program to $500 million from $350 million in 2008, and to $600 million from $530 million in 2009.

The bank’s Tier-1 capital ratio, which measures its ability to cover losses, rose to 7.25 percent from the fourth quarter’s 6.93 percent, but remains below its 7.50 percent target. Regulators say 6 percent reflects a “well-capitalized” bank.

The bank remains on track to complete transactions this quarter related to its stake in Coca-Cola Co KO.N. It had previously reported a roughly 43.6 million share stake.

SunTrust has held the Coca-Cola shares since 1919, when predecessor bank Trust Co of Georgia helped take Coke public, and has a copy of the formula to make Coke.

It said any transactions would boost Tier-1 capital by about $1 billion. “The preferred approach does not reflect a simple outright sale of the stock,” Wells said.

Net interest margin rose to 3.07 percent from 3.02 percent, but fell from the fourth quarter’s 3.13 percent. Lending income fell 2 percent from a year earlier to $1.14 billion. Fee income rose 20 percent to $1.06 billion.

SunTrust ended March with $179 billion of assets. It operates about 1,678 branches in 11 U.S. states and Washington,


Through Monday, SunTrust shares had fallen 16 percent this year, compared with a 10 percent drop in the Philadelphia KBW Bank Index .BKX.

Additional reporting by Christopher Kaufman; Editing by Lisa Von Ahn and Maureen Bavdek