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Can New CEO Keep SunTrust Independent?

US Banker  |  April, 2011

Tarp repayment? Check. Young, fresh-faced new CEO? Check.

Lasting independence for SunTrust? Not so fast; it's too soon to mark that box in ink.

In promoting its president and chief operating officer, William H. Rogers Jr., to chief executive on Thursday, SunTrust Banks Inc. — recently freed from government support — is positioning itself for the future and trying to distance itself from what Rogers referred to Thursday as "the Tarp era."

But while the outlook for the bank is considerably brighter than it was a year ago, analysts warned against sounding the all clear.

"The independence issue is going to be front and center for some period," said Christopher Marinac, director of research at FIG Partners LLC. "The only way that SunTrust will answer the independence issue is to go buy somebody, and I don't see the company making an acquisition in the next six months. … Even though credit is improving, there is still more work to be done."

Rogers, who was named president in December 2008 and chief operating officer in November 2010, is taking over the CEO job from James M. Wells 3rd, , who will turn 65 in May. (Wells will fully cede the duties by June 1 and stay on as executive chairman through December.)

Speculation that Rogers was being groomed as Wells' successor had been mounting since he took over the presidency from Wells almost two and a half years ago. At 53, Rogers now has the opportunity to breathe new life into the storied Atlanta bank.

Traditionally, "SunTrust Bank was very much a local-oriented … company," Marinac said. "That has changed dramatically over the last decade. It's much more vibrant, multi-city. I think you have with Bill a younger person who not only has been at the company for several years but is also sort of a new face for the company."

Rogers began his career as a management trainee in 1980 at Trust Co. of Georgia a SunTrust predecessor, and has steadily moved up the ranks over the years, overseeing a range of businesses.

"Bill Rogers is a deeply experienced banker and leader and has created great value for SunTrust over his long career," Wells said during a conference call with analysts on Thursday. "He has my respect as a leader and as a person, so not only due to the calendar but also due to the fact that the financial services industry is now in the midst of a meaningful inflection point, we believe it is the appropriate time for this change."

Wells has been CEO since 2007 and chairman since 2009. On March 30, he oversaw the company's return of $4.85 billion of preferred shares to the government that were issued in 2008 under the Troubled Asset Relief Program. With Tarp repaid and many of the bank's credit issues clearing up, Rogers is taking the reins at a pivotal point.

"Rogers comes in at a pretty interesting time for SunTrust," said John Pancari, a senior regional bank analyst at Evercore Partners. "They are in a great position, being one of the largest players in the Southeast, to really capitalize on a still-disrupted market."

Like other bank CEOs, Rogers needs to find ways to increase revenues at a time of weak loan demand. "It's a difficult task to shift that focus from credit to top-line because there is no top line growth," Pancari said. "Top line growth is a challenge."

SunTrust reported a 7% drop in revenue during the first quarter from the fourth quarter, due primarily to a decline in fee income and lower mortgage production. However, first-quarter revenue of $2.16 billion rose 14% year-over-year, thanks to the company's continued shift out of high-cost deposits. Total average loans of $115.2 billion were relatively unchanged from the previous quarter and a year earlier, rising less than 1%.

Overall, SunTrust made $38 million, or 8 cents a share. Excluding the impact of the Tarp redemption, earnings were 22 cents a share. That compares with a loss of $229 million, or 46 cents a share, a year earlier, and earnings of $114 million, or 23 cents a share, in the fourth quarter.

Even if SunTrust treads water, its sheer size may keep it independent for some time. "I don't expect a significant strategic change under Bill Rogers' stewardship," Pancari said. "It doesn't seem like there's enough interest at this point by buyers that have the capacity to look at SunTrust just yet. … But I also don't see SunTrust as an avid acquirer in this market."

Rogers said he sees SunTrust as a buyer, but downplayed the prospects of the bank making any big moves soon. Any deal it considers "would have to be geographically accretive to what we're trying to do, and financially, a smart deal," he said on the call. "Some of the small things we've seen today just don't really fit into that category."

- American Banker

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