SunTrust: Financial Winner

NEW YORK ( TheStreet) -- SunTrust ( STI) was the winner among the largest U.S. financial companies on Friday, with shares rising over 1% to close at $30.31.

The broad indexes ended mixed, even though the U.S. Bureau of Labor Statistics reported that "total employment rose by 873,000 in September, following 3 months of little change," and that the unemployment rate declined to 7.8% from 8.1% in August. The bulk of the new jobs were part-time. The Bureau said "the number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) rose from 8 million in August to 8.6 million in September."

Despite the improvement coming from "involuntary part-time workers," and the stock market's lackluster reaction, the improved top-line unemployment number provided a quick boost for President Obama, following his uncharacteristically weak performance during his first debate with Mitt Romney on Wednesday.

The Federal Reserve Friday afternoon reported that total consumer credit grew by $2.71 billion during August, which was slightly higher than in July, but was 8.0% higher than a year earlier, when July saw total consumer credit declining at an annualized rate of 1.1%.

The KBW Bank Index ( I:BKX) pulled back slightly to close at 51.39, with 14 of the 23 index components rounding out the week with gains.

SunTrust's shares have now returned 72% year-to-date, following a 40% decline during 2011.

The shares trade for 1.2 times their reported June 30 tangible book value of $26.02, and for 10 times the consensus 2013 earnings estimate of $2.78 share, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate $3.31.

The consensus among analysts is for SunTrust to report a third-quarter profit of $1.83 cents (including several extraordinary items), increasing from 50 cents the previous quarter, and 39 cents a year earlier.

SunTrust on Sept. 6 announced a number of steps to shore up its capital ratios in light of new regulations by ending its investment in Coca Cola ( KO).

The company accelerated two forward purchase agreements to sell its Coke shares, while also transferring $3 billion in portfolio loans to held-for-sale, and said that the moves, along with other actions, would lead to a pretax third-quarter gain of $1.9 billion, or $1.2 billion after taxes.

The Atlanta lender in August announced that the Federal Reserve had approved its revised 2012 capital plan, including an increase in the quarterly dividend to 10 cents a share from eight cents, and "new share repurchase authorization of up to 100 million shares," including up to $600 million in buybacks through the first quarter of 2013.

Deutsche Bank analyst Matt O'Connor rates SunTrust a "Hold," and said Monday that he expects the company to report third-quarter earnings of $1.96 a share, with "flat/modestly higher loan growth in 3Q--reflecting continued growth in commercial and industrial loans , offset by recently announced loan sales (likely to take place over the next few quarters) and declines in higher-risk segments such as commercial real estate , home equity and mortgage."

The analyst sees another strong quarter for revenue from mortgage originations and sales, but said "this should be more than offset by the large $375m mortgage putback charge this quarter."

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-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.