More than $1B in Q4 Loss Provisions, Write-Downs at Sun Trust

Credit quality is clearly deteriorating at Sun Trust Banks, Inc. (STI), which on Thursday reported Thursday a fourth-quarter loss of $379.2 million, or 1.08 per share, compared to a $3.3 million, or $0.01 per share loss in the fourth quarter of 2007. Driving much of the loss was a provision for loan losses of $962.5 million and $145 million in additional write-downs to the bank’s loan and securities portfolios. During the quarter, the bank issued $4.85 billion of preferred stock and warrants to the U.S. Treasury under the Capital Purchase Plan, it said, and issued another $3.0 billion of debt guaranteed by the FDIC under the Temporary Liquidity Guarantee Program. “We are under no illusions as to the severity of this credit cycle,” said James M. Wells III, SunTrust chairman and CEO, citing increased unemployment and the continued declines in home values, soaring delinquencies, and increasing credit losses. “Managing successfully through it remains our number one priority,” he said. No kidding. Wells announced that Sun Trust would slash its dividend to 10 cents per common share outstanding — that after a 30 percent cut in October that brought the dividend down to 54 cents. That an 80 percent cut to the bank’s dividend within one quarter. Sun Trust’s mortgage business took a clear hit, as it has throughout much of the current crisis, posting a $285.6 million fourth-quarter loss compared to a $30.4 million loss in the same quarter last year. Year-end results showed a $561.8 million loss for all of 2008, compared to a $54 million loss in 2007. Average home loans were down $0.8 billion, or 2.4 percent, while interest income was down 34.6 percent as the bank continued to shift its product mix in mortgages towards lower-yielding conventional products. Loan production of $7.2 billion was off more than 44 percent compared to the fourth quarter of 2007, Sun Trust reported, while mortgage servicing income was down $393.5 million, driven by $370.0 million of impairment of mortgage servicing rights. In other words: making loans wasn’t profitable, and neither was servicing them. That’s a double whammy. Nonetheless, the bank’s total servicing portfolio continued to grow: total loans serviced at December 31, 2008 were $162.0 billion, an increase of $12.2 billion, or 8.1 percent, from year-ago totals. — Paul Jackson contributed to this report. Write to Kelly Curran at [email protected] Disclosure: The authors held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.