SunTrust Moves Steadily To Bolster Asset Quality
Atlanta's careful and conservative SunTrust Banks Inc. seems further along the road to restoring asset quality than most of the nation's major banks.
Steady progress at shoring up the balance sheet helped SunTrust avoid the slide that affected most banks late in September, as investors nervously awaited third-quarter results, according to Wall Street analysts.
SunTrust's price per share on Aug. 30 was $34.50, while on Sept. 30 it was $36.875. That is a gain for the month of September of 6.87%, part of a 24% gain for the third quarter. On Wednesday, the stock traded at $35.25, off 25 cents, after a big gain of $1.375 during the previous day.
Nonperformers Up Only 3%
When SunTrust announced its latest results last week, analysts cheered on the news that nonperforming assets grew only $22 million, or 3%. Most of the increase stemmed from a single Chapter 11 filing by a big Florida developer, Koger Properties.
Meantime, SunTrust's Tennessee subsidiary, Third National Corp., reported an $11 million decline in nonperformers. This was the second successive fall in troubled loans for the unit.
The Nashville bank has been a drain almost since SunTrust bought it in 1987, near the peak of a real estate construction boom. But returns there are nearing 0.9% on assets and "may properly be deemed respectable," said Nancy A. Bush, an analyst at Brown Brothers Harriman & Co., New York.
One note of disquiet was sounded by Norman Jaffe of Fox-Pitt Kelton Inc. He said SunTrust's 6% increase in third-quarter earnings over a year earlier was achieved by allowing the loan-loss reserve to decline to 84% coverage of nonaccrual loans, from 110% a year earlier.
Good Marks from Analysts
But Mr. Jaffee and others praised SunTrust's conservative management policies and what analysts at Goldman, Sachs & Co. term the company's "fortress capital position." Common equity equaled 7.5% of assets in the third quarter, among the nation's highest.
SunTrust's capital strength gets a big lift from a historic relationship with the Coca-Cola Co. in Atlanta. SunTrust was Coke's original bank.
Ms. Bush noted that SunTrust's 12.1 million shares of Coca-Cola stock, valued on the bank's balance sheet at $110,000, have a current market value of about $760 million. That adjustment adds $6.06 a share to SunTrust's book value and boosts shareholders equity to a lofty 9.12% of average Assets.
Citicorp's stock fell sharply in extremely heavy trading Wednesday as the full extent of problems at the nation's largest banking company apparently hit investors. A day earlier, the New York company unveiled a staggering $885 million quarterly loss and omitted its dividend.
In late-afternoon trading, Citicorp was off $1, to $11.75. Over six million shares had changed hands, making it by far the most active issue of the day on the New York Stock Exchange.