Bankers and analysts are reacting with dismay to suggestions by the Securities and Exchange Commission that a leading southern bank has maintained excessively high loan-loss reserves.

The inquiry into accounting practices at SunTrust Banks Inc. clashes heavily with the efforts of banking regulators to ensure safety and soundness, industry officials say. With the economic boom losing steam, they say, high reserves should be considered a virtue, not a vice.

"This SEC action has just stunned us," said Donna J. Fisher, director of tax and accounting for the American Bankers Association. "If in fact the SEC is targeting loan-loss reserves, this is a very big issue."

The $60.7 billion-asset SunTrust, based in Atlanta, disclosed last week that the SEC is examining its policies for loan-loss reserves as part of a review of SunTrust's pending acquisition of Crestar Financial Corp. The study of reserves stems from the SEC's broader concerns about "earnings management" in banking and other industries.

Well-placed sources say the SEC is now pressing SunTrust to restate past earnings, to reflect lower loan-loss provisions. SunTrust, however, says it has not been asked to do that. And analysts say a restatement would have little impact on the company's profitability or stock price. In fact, it would create higher past earnings.

Nonetheless, the SEC's concern has clearly set off alarms in the industry. Experts said this appears to be the first time the SEC has judged a bank's reserves to be too large. And the move jars with the traditional worries of banking regulators.

"The historical concern has been: Are you reserved enough?" says banking attorney Robert M. Kurucza, a partner in Morrison & Foerster in Washington. "I hope this isn't a harbinger."

At the very least, bankers said, the SEC's concern seems ill-timed.

"You can't expect the economy to continue on its good roll - we're starting to see some erosion now," said Carl J. Chaney, chief financial officer of the $2.7 billion-asset Hancock Holding Co. of Gulfport, Miss.

"It would be sad to think we were expected to run our institutions in such a manner that we are just marginally reserved," he said. "In the good times we should be able to reserve for the bad times."

The SEC, for its part, says its responsibility differs from those of bank regulators. The agency points out that it is responsible for investor protection and insuring the "transparency" of financial reporting, not with insuring safety and soundness.

An SEC accounting official said the agency is looking for more accurate disclosures that portray the quality of loans and the losses that are inherent in loans. The agency wants to make sure that loan-loss reserves are used to accurately cover those risks, not to create the impression of smooth earnings.

"It is a very important issue to us," said an SEC official. "Being overly conservative is not an appropriate answer in the SEC's view."

SunTrust, considered by many to be a bastion of conservative practices, expresses profound bewilderment over the SEC's review. And company officials are adamant that SunTrust has never used reserves to smooth out earnings or bolster profits.

"We don't consider ourself as underreporting profits," said William O'Halloran, SunTrust's controller. "We believe we have followed appropriate accounting rules in developing loan loss reserves."

He added: "Any review of our numbers would clearly show that we have a long history of providing an excess of chargeoffs for reasons that are basically our judgment of what is an appropriate reserve."

The ABA's Ms. Fisher said she hoped to learn more from the SEC in a meeting slated for Oct. 28 between members of the trade group and the agency's chief accountant.

"We need to know what are the qualifications for determining if you're underreserved or overreserved," she said.

Moshe Orenbuch, an analyst with Sanford C. Bernstein & Co., said SunTrust does reserve heavily but does not use its loan-loss reserves to manipulate earnings.

"They've taken a prudent strategy," he said. "It's on the conservative side, more prudent than most. But it a reasonable position. It certainly is not an issue about earnings."

SunTrust has been lowering its levels of loan loss reserves. At the end of 1995, the reserves totaled 2.23% of total loans; at the end of the third quarter they totaled 1.79%. That's in line with industry averages.

"It's not that SunTrust has been a bad boy," said Harold Schroeder, an analyst at Keefe, Bruyette & Woods. "It's just that they happened to walk through the door with their filing with Crestar."

He said that a restatement of earnings, if ordered by the SEC, would "net out to virtually nothing."

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