SunTrust: 'Plan B' Financial Loser

NEW YORK ( TheStreet) -- SunTrust ( STI) was the loser among the largest U.S. banks on Friday, with shares sliding 2.5% to close at $28.25.

The broad indexes all saw 1% declines, after Speaker of the House John Boehner late on Thursday gave up on his "Plan B" bill to raise taxes on couples and businesses earning $1,000,000 per year while extending tax cuts for all other U.S. taxpayers, saying that the House of Representatives "did not take up the tax measure today because it did not have sufficient support from our members to pass."

Boehner said it was "now it is up to the president to work with Senator Reid on legislation to avert the fiscal cliff," as the house had "already passed legislation to stop all of the January 1 tax rate increases and replace the sequester required spending cuts with responsible spending cuts that will begin to address our nation's crippling debt. The Senate must now act."

President Obama last week signaled his willingness to limit tax rate increases to couples and businesses earning $400,000 or more, moving up from his previous insistence on raising rates for couples and businesses earning $250,000 or more. With the Republican majority rank and file in the House making clear their unwillingness even to raise tax rates on the highest earners, it would seem highly unlikely for Senate Majority Leader Harry Reid (D., Nev.) to come up with a compromise that could be accepted by the House and the president.

Reid said late on Thursday that "Speaker Boehner's partisan approach wasted an entire week and pushed middle-class families closer to the edge. The only way to avoid the cliff altogether is for Speaker Boehner to return to negotiations, and work with President Obama and the Senate to forge a bipartisan deal."

Boehner on Friday said at a press conference that "Republicans don't want taxes to go up. But we only run the House, the Democrats continue to run Washington."

The Speaker added that President Obama's proposed spending cuts "simply won't do anything to solve our spending problem. He wants more spending and more tax hikes that will hurt our economy. And he simply won't deal honestly with entitlement reform and the big issues that are facing our country."

Boehner did say that he would "continue to work with our colleagues in the House and the Senate on a plan that protects families and small businesses from the fiscal cliff."

The KBW Bank Index ( I:BKX) was down over 1% to close at 51.28, with all 24 index components seeing declines, except for US Bancorp ( USB), which was up four cents to close at $32.48.

Among the "big four" U.S. bank holding companies, Bank of America ( BAC) fared the worst, with shares down 2% to close at $11.29. The shares have returned 104% year-to-date, following last year's painful 58% decline.

While it's looking like 2012 will be one for the record books for Bank of America, the shares are still down 15% since the end of 2010, and it has been quite a ride for investors. After quickly rising to a closing price of $9.81 on March 20, the shares then dipped to a close at $6.83 on May 21, before continuing their fitful climb to Thursday's year-to-date closing high of $11.52.

SunTrust's Transition and Capital Return


Shares of SunTrust of Atlanta have returned 61% year-to-date, following a 40% decline during 2011.

The shares trade for 1.1 times tangible book value, according to Thomson Reuters Bank insight, and for 10.4 times the consensus 2013 earnings estimate of $2.71 a share, among analysts polled by Thomson Reuters. The consensus 2014 EPS estimate is $3.01.

SunTrust during the third quarter made several moves to shore up its balance sheet and address its risk from mortgage repurchase demands, including the sale of its stake in Coca-Cola ( KO) shares, resulting in a pre-tax gain of $1.9 billion. The company also reported a $371 million provision for mortgage repurchase claims during the third quarter, saying that the move had ""increased the mortgage repurchase reserve to a level that is expected to cover the estimated losses on loans sold to Government Sponsored Enterprises (GSEs) prior to 2009."

The company also sold " $0.5 billion of nonperforming mortgage and commercial real estate loans," while moving "$1.4 billion of delinquent and current student loans and $0.5 billion of delinquent Ginnie Mae loans to loans held for sale."

SunTrust's estimated Sept. 30 Basel I Tier 1 common equity ratio was 9.8%, increasing from 9.4% the previous quarter.

Bank of America Merrill Lynch analyst Erika Penala in November estimated that following the completion of the next round of Federal Reserve stress tests in March, SunTrust would be approved to increase its quarterly dividend from a nickel a share to 15 cents, while also repurchasing $565 million in common shares during 2013.

STI Chart STI data by YCharts

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

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

>Contact by Email.

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 TheStreet.com 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.

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