Suntrust Bank Q4-09 Review and Opinion

Reggie Middleton's picture

 

 Fourth quarter operating results opinions are available for Morgan
Stanley and Suntrust for BoomBustBlog subscribers(File Icon STI 4Q09_Review and File Icon MS 4Q09 results). I have extracted key tidbits from the Sun Trust document below.

Of particular note is the difference between some readers perception of
the Sun Trust results and mine. If you take a close look at the results,
you will see credit performance and asset quality is still
deteriorating. The perception of a reprieve or moderation is potentially
misleading due to the fact that Suntrust (like most other large banks)
is actively shrinking their loan portfolio and transferring bad assets
from one category to another.

To the credit of the CEO, he actually appears to tell it like it is and
does not appear to be on a marketing binge to sugarcoat reality. This is
an impressive, and increasingly rare trait among the C-suite crowd!

Some highlights from the Sun Trust Review: 

  •  Nonperforming
    loans declined marginally to $5,403 mn (4.75% of total loans) at the
    end
    of 4Q09
    from $5,444 mn (4.67% of total loans) at the end of 3Q09 but relatively

    remain
    high when compared with $3,940 mn (3.10% of total loans) at the end of
    4Q08. This
    marginal decline in non-performing loans can largely be attributed to
    the
    transfer from non-accrual to foreclosed and other real estate owned
    category.

    sti_charge-offs.png

  • With
    tangible equity
    declining further owing to losses recorded during the quarter, the
    Texas ratio
    inched higher to 59.8% in 4Q09 against 58.0% in 3Q08
    . Further,

    the Bank's interest earning assets are contracting

    as the
    loan
    portfolio shrunk 2.4% (q-o-q) as the Bank continues to reduce exposure
    to
    residential and commercial real estate.
sti_texas_ratio.png
  •  Non-interest
    income declined 4.2% (q-o-q) to $742 mn from $775 mn in 3Q09 largely
    owing to lower
    mortgage production income due to higher estimated losses
    related to the
    potential repurchase of mortgage loans (a recurring theme in nearly all
    of the
    TARP recipient bank's Q4 results, including JP Morgan and Wells Fargo
    -
    see
    WFC

    4Q09_Review- subscriber edition

     or
    the less intense, free version  as well as the JPM

    4Q09 review

     - public edition
    ).

Next up, a look at the "new" Goldman Sachs valuation and trading revenue scenarios, more on
the China short thesis debate, the Central and Eastern European short
thesis and the macro/fundamental prospects of the simultaneous
withdrawal of stimulus in both China and the US: Fed
Declares Recovery for First Time, Prepares Ground for End to Stimulus
.
As I prepare this, the European financial markets are in the process of
melting down. I have performed a decent amount of due diligence on my
European shorts and will be putting them out shortly to subscirbers.   

 

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Eternal Student's picture

+1.

Some other comments on SunTrust. Their troubled asset ration was 41.2 as of Sept 09. It's been growing steadily, and is approaching the range of where the FDIC has usually been taking over a Bank. IMHO, it could go at any time.

Profit/Loss Sept 08: $1,254,775,000

Profit/Loss Sept 09:  $-1,307,328,000

That's a $2 Billion swing in one year. Ouch.  I wouldn't keep any money there, nor any long positions.

Thanks, Reggie.

deadhead's picture

Additionally, and nobody wants to talk about this as it is the elephant in the room, let's not forget about FASB 157 and a bank's ability to mark assets any old way they want to. 

The GS move to go CONviction list with this one is one of the silliest I've ever seen outside the dot com boom, bust.

 

bugs_'s picture

Thanks for this Reggie.

ghostfaceinvestah's picture

Reggie, I would be interested in your views on repurchase expenses.  I anticipate they will be rising substantially throughout the year.  HAMP delayed the recognition of losses on a lot of these loans, but now that borrowers are falling out of HAMP, the GSEs are looking at these defaults and saying "no way are we paying on this".  I expect repurchase activity to triple by the end of this year, your thoughts?

Reggie Middleton's picture

I haven't quantified it, but I agree it is going to go up by a lot. The writing was on the wall in 2007 when the monolines started getting in trouble. One relatively easy way to wiggle out of the CDS was to claim fraud, misrepresentation or willful negligence in underwriting - all three of which were most rampant, and probably still is.

Alitak's picture

The recent rise then has been probably due to the squid front running this with their buddies in the huddle, they probably offloaded this am at $ 26 a nice 15% return for their week!

Kissy Ass's picture

OMG Reggie, your work speaks for itself. You are so great, so wonderful.

You raise me up, so I can stand on mountains;
You raise me up, to walk on stormy seas;
I am strong, when I am on your shoulders;
You raise me up: To more than I can be.

You are the man who will change the banks. You give us hope for the change.

-Kissy

Reggie Middleton's picture

You've got a lot of extra time on your hand???

Kissy Ass's picture

Oh Reggie your articles on Zero need a separate forum. They are so great. They cannot be mixed with the other contributor trash.

I think you may be the one true clairvoyant. (you knew I was going to say that didn't you?)

Time is not relative to those who don't account for it.

deadhead's picture

The Suntrust CEO has been very frank in my view and every time i've read his comments, he is by no means pumping (yet the stock keeps going up).

at least we know why the dramatic rise happened the last few days: the squid placed STI on its CONviction buy list this a.m.

Gilgamesh's picture

Don't forget the frontrunning of those who knew about this $30B in TARP money being given (not loaned) to non-TBTF banks...

I think you can see the 'Conviction Buy' add used to create their dumping point this morning.