SunTrust Sinks as Credit Fears Build

SunTrust Banks (STI) on Thursday followed the pattern for many large regional banks, reporting a steep drop in third-quarter net income vs. the prior quarter and the same period last year.

SunTrust posted a profit of $312 million, a decline of 42% on a linked-quarter basis and 26% from the third quarter of 2007. Net income available to common shareholders was $307 million, or 88 cents per average common diluted share, coming in ahead of the Thomson Reuters analyst consensus estimate of 60 cents per share.

Shares were down 7.9% in recent trading, to $36.95, with investors concerned that while the Atlanta holding company's overall capital position is strong when compared with most other large regional banks, its credit quality has continued to rapidly deteriorate in the third quarter, with major exposure in its home market of Georgia and Florida.

The decline in net income from the second quarter mainly reflected the $550 million in gains on securities, mainly from the sale of shares in the he Coca-Cola Co. (KO). SunTrust's divestiture of its Coke holdings was completed on July 15, and securities gains in the third quarter totaled $173 million.

The increase in SunTrust's provision for loan losses to $504 million from $448 million in the second quarter also affected earnings, although the provision was lower than the peak of $560 million in the first quarter. Of course, elevated provision for reserves was the main factor in the year-over-year earnings decline, since the provision was only $147 million in the third quarter of 2008.