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SunTrust Gains on Positive EPS View

Shares of SunTrust Banks jumped on Tuesday after the bank's CFO said the company expects to report positive earnings per share for the current third quarter.



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SunTrust Banks

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got a nice bounce on heavy volume Tuesday after CFO Mark Chancy gave a bullish outlook for the third quarter at an investor conference.

Speaking at the Barclays Capital Global Financial Services Conference, Chancy said that, based on performance through August, he expects the company to report positive earnings per share in the quarter.

SunTrust hasn't reported a quarterly profit since the third quarter of fiscal 2008, right before the financial crisis boiled over, and Wall Street is currently projecting the company will report a loss of 20 cents a share for the three months ending Sept. 30.

"One thing we do want you to walk away from today's presentation with is we are expecting positive earnings per share for the quarter," Chancy said.

The stock reacted quickly, spiking shortly after Chancy's presentation began at 2:45 PM ET, and running as high as $26.48 before pulling back to close up 2.4% at $25.91. Shares of the company, which is often the subject of acquisition speculation, are up nearly 25% so far in 2010. Tuesday's volume of 13.2 million was more than double the issue's trailing three-month daily average of 6.5 million.

Chancy provided other details of the bank's third-quarter expectations as well, saying he expects net interest margin to come in above the company's 3.25%-3.35% guidance range, and said deposit volume, mix and rates paid were also running at better than forecast levels. The view on credit costs was steady state.

"Credit is about as expected with relatively stable net charge-offs," Chancy said.

In the Q&A portion of the presentation, Chancy was asked to confirm that the outlook for positive EPS was after the payment of TARP dividends and and that it wasn't going to be the product of one-time securities gains, both of which he did.

Queried about the company's expected release of more loan loss reserves in the third quarter, Chancy said he expects to see a "modest" release, reflecting improving mortgage delinquency trends and other factors.

The company released $20 million of its $3.2 billion reserve in the second quarter, an amount Chancy referred to as "very modest" before giving the audience some color on what the bank expects with regard to its reserves in the next few quarters.

"I guess what we're trying to indicate is that we're not expecting significant reductions in our reserve because the economic environment

it still has a fair amount of uncertainty," he said. "So you shouldn't expect to see material changes in our reserve in the near term."

Chancy was also asked "What's the holdup?" when it comes to the company paying its TARP tab, but he declined to provide a timetable.

SunTrust reported a loss of $56 million, or 11 cents a share, for the second quarter ended June 30, narrower than Wall Street's consensus view for a loss of 35 cents a share, and much better than its loss of $229 million, or 46 cents a share, in the first quarter.

Excluding $67 million in preferred dividends paid to the Treasury Department on the $4.85 billion in bailout funds SunTrust received, the bank's net income totaled $12 million in the second quarter.

Wall Street largely has a wait-and-see view of SunTrust at the moment. Eighteen of the 31 analysts covering the company have a hold rating on the stock.


Written by Michael Baron in New York.

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