Thursday, January 20, 2011

SunTrust Banks, Inc. (NYSE: STI): Q4 Earnings Preview 2010

SunTrust Banks, Inc. (NYSE: STI) is scheduled to release its fourth-quarter earnings before the opening bell on Friday, January 21, 2011. Analysts, on average, expect the company to report earnings of 7 cents per share on revenue of $2.19 billion. In the year ago period, the company posted a loss of 64 cents per share on revenue of $1.95 billion.

SunTrust Banks, Inc. operates as the holding company for SunTrust Bank, which provides various financial services to consumer and corporate customers in the United States. As of September 30, 2010, SunTrust had total assets of $174.7 billion and total deposits of $120.3 billion. 

In the preceding third-quarter, the Atlanta, Georgia-based company's net income was $84 million, or 17 cents a share, compared to a loss of $377 million, or 76 cents a share, in the year-earlier quarter. The company said total revenue for the quarter rose to $2.31 billion, against $1.94 billion in the year-ago period. Analysts, on average, expected the company to post a loss of 2 cents per share on revenue of $2.09 billion.According to the company, revenue growth was due to higher net interest income and growth in fee-based income, particularly mortgage and capital markets-related revenues. 

The bank expects to be profitable again in the fourth quarter. The company anticipates moderate improvements in asset quality and the money it sets aside for bad loans in the fourth quarter. The bank expects the impact from Reg E to stabilize to a low double-digit figure as we approach mid 2011. 

Optimism about the banking M&A environment also brightened investors' general outlook about the economy and the industry's recovery from the financial crisis. The regional bank is often mentioned as one of the top takeover targets during the current bank recovery rally.

However, quality of the company's capital is a significant issue because its trust-preferred share, whose inclusion in regulatory capital will be phased-out beginning in 2013.

SunTrust would be barred from hiking its dividend under the current circumstances as the company still has $4.85 billion in funds from the Troubled Asset Relief Program, the largest TARP holdings of any U.S. regional lender. CEO James Wells said regulators have implied the second round of testing, which is expected at the end of the first quarter, will determine when the bank could pay back $4.85 billion it owes the government through the U.S. Treasury Department's Troubled Asset Relief Program. Analysts believe that SunTrust may need to raise cash through a stock sale before it repays TARP. The bank has said it is avoiding a stock sale because it would rather not dilute current shareowners' holdings.

In terms of stock performance, STI have gained nearly 20 percent over the past year.

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