Big Banks Pull Back: Financial Losers

NEW YORK ( TheStreet) -- SunTrust ( STI) was loser among the largest U.S. banks on Thursday, with shares down over 2% to close at $28.63.

The broad indexes all saw slight declines, after Automatic Data Processing said that the U.S. economy added 215,000 nonfarm private sector jobs during December, increasing from an upwardly revised 148,000 in December. ADP said that "goods-producing employment rose by 28,000 jobs in December as a large gain in construction jobs of 39,000 more than offset the 11,000 decline in manufacturing employment," while "service-providing jobs increased by 187,000."

The Labor Department reported that initial unemployment claims for the week ended Dec. 29 increased by 10,000 to 372,000 from the prior week's upwardly revised 362,000. Continuing claims for the week ended Dec. 22 rose 44,000 to 3.245 million, from the previous week's downwardly revised 3.201 million. Economists on average expected initial jobless claims of 365,000 and continuing claims of 3.2 million, according to

The KBW Bank Index ( I:BKX) was down slightly to close at 52.84, with the 24 index components roughly split between winners and losers. Large-cap bank stocks pulling back over 1% included Bank of New York Mellon ( BK), which closed at $26.58; Capital One ( COF), closing at $60.55; and U.S. Bancorp ( USB), which closed at $32.51.

U.S. Bancorp was featured on Thursday as part of TheStreet's 5 Bank Stocks That Can't Stop Posting Profits, as the company has managed to keep its returns on average tangible common equity above 10% for each quarter since the beginning of 2006, according to data supplied by Thomson Reuters Bank Insight.

From the Cliff to the Ceiling

Investors who celebrated the budget agreement in Congress late Tuesday to avert the Fiscal Cliff may have been looking ahead to what is likely to be another last-minute game of brinksmanship between President Obama, his allies among the Democratic leadership of the Senate and the Republican leadership of the House of Representatives, as the United States is likely to come up against its legal debt limit in February.

KBW Washington analyst Brian Gardner wrote in a report on Thursday that "the playing field for the fiscal cliff debate was tilted in President Obama's favor, and Republicans had a weak hand. However, in the debt ceiling debate the playing field will be more level and we believe Republicans will have more leverage." Reluctance among Republicans to agree to further tax increases, along with resistance of entitlement cuts by Democrats "leaves the situation over raising the debt ceiling more bitter and partisan than the fiscal cliff debate or the 2011 debt ceiling debate."

Gardner said that "Wednesday's strong market rally suggests to us that the equity market is not yet paying attention to the pending debt ceiling debate. " Considering that the 2011 debt ceiling confrontation led to the just-completed Fiscal Cliff mess, investors may be in for an even rockier ride next month.


SunTrust's shares on Thursday backtracked from a 5% rally over the previous two trading sessions. The shares returned 61% during 2012, following a 40% decline during 2011.

SunTrust trades for 1.1 times tangible book value, according to Thomson Reuters Bank insight, and for 10.6 times the consensus 2013 earnings estimate of $2.71 a share, among analysts polled by Thomson Reuters. The consensus 2014 EPS estimate is $3.00.

The company's investors are looking ahead to the next round of Federal Reserve stress tests which will be completed in March, after which the company seems likely to announce an increased return of capital to shareholders.

SunTrust during the third quarter made several moves to strengthen its balance sheet and address its risk from mortgage repurchase demands, including the sale of its stake in Coca-Cola ( KO) shares, which resulted 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 transferring "$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 2013 stress tests, SunTrust would be approved by the Fed 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.


-- 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 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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