8 Post-Downgrade Bank Stock Bargains

4. SunTrust Banks
Shares of SunTrust Banks (STI) of Atlanta closed at $23.02 Friday, returning 31% year-to-date, after a 40% decline during 2011.

The shares trade for 0.9 times their reported March 31 tangible book value of $25.49, and for nine times the consensus 2013 earnings estimate of $2.65, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $1.90.

Goldman Sachs analyst Ryan Nash has a neutral rating for SunTrust, even though he said the shares were "compelling" on June 13, saying he expects "major improvement the next few quarters" in the bank's "environmental cost" as it continues to work through problem loans and maintain and sell repossessed property. Nash also expects high refinancing volume from President Obama's expansion of the Home Affordable Refinance Program, or HARP 2.0, to "help fund near-term put-backs" of securitized mortgage loans.

HARP 2.0 allows mortgage loan borrowers with loans held by Fannie Mae (FNMA) or Freddie Mac (FMCC) to refinance their homes at today's historically low rates, no matter how much the value of the collateral property has declined.

Nash reiterated his neutral rating for SunTrust because "put-backs remain unpredictable," while saying that his firm's "analysis sees $800mn of further put-back losses," while SunTrust has estimated another $600 million in mortgage repurchase losses. In support of the neutral rating, the analyst also cited "outsize margin pressure," expecting SunTrust's net interest margin to compress by 27 basis points, versus "consensus of 13bp."

Interested in more on SunTrust? See TheStreet Ratings' report card for this stock.

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