SunTrust: Financial Winner

NEW YORK (TheStreet) -- SunTrust (STI) was the winner among the largest U.S. financial names on Friday, with shares rising 4% to close at $29.91.

The broad indexes rose again after Thursday's rally, following the Federal Reserve Open Market Committee's announcement that the central bank would increase its efforts to push down long-term interest rates by adding "additional agency mortgage-backed securities at a pace of $40 billion per month," to bring its total MBS securities purchases up to $85 billion per month until the end of the year.

Investors on Friday were pleasantly surprised that the Thomson Reuters/University of Michigan preliminary index of consumer sentiment climbed to 79.2 from 74.3 in August.

The KBW Bank Index (I:BKX) increased over 1% to close at 51.63, with all but two of the 24 index components rounding out the week with gains.

SunTrust's shares have now returned 70% year-to-date, following a 40% decline during 2011. The shares trade for 11 times the consensus 2013 EPS estimate of $2.77, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $3.24.

The Atlanta lender on Sept. 6 announced that it would accelerate the sale of its 2.33% stake in Coca Cola (KO), moving up two variable forward purchase agreements (VFPAs), through which SunTrust was to sell the shares in two blocks in 2014 and 2015, or deliver equivalent cash, to "an unaffiliated third party." Under the original agreements, the third party was to pay between $19 and $33 dollars per Coke share.

SunTrust made the move because the Federal Reserve's proposed rules to implement the Basel III capital requirements "would increase the risk-weighted assets of equity holdings and introduce potential volatility to SunTrust's regulatory capital ratios," while also increasing uncertainty in the annual regulatory stress test process.

The company also announced it would transfer roughly $3 billion in loans to held-for-sale, including performing student loans and nonperforming residential mortgage and commercial real estate loans, resulting in pre-tax charges of $250 million, and also sell roughly $200 million in affordable housing investments, resulting in a pre-tax loss of about $100 million.

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