Inside SunTrust's thinking about what makes good M&A

SunTrust Banks recently unloaded an insurance financing business because it didn’t fit with the Atlanta company’s broader strategy, Chairman and CEO Bill Rogers said Wednesday.

The $208 billion-asset SunTrust on Dec. 1 sold Premium Assignment in Tallahassee, Fla., to IPFS in Kansas City, Mo. SunTrust will record a pretax gain of $105 million in the fourth quarter as a result of the sale.

SunTrust will only look at potential acquisitions where it will “give us increased opportunity and expansion,” Rogers said at an investor conference hosted by Goldman Sachs.

“I think we can best deploy our capital against things that are accretive to our business proposition,” Rogers said.

Andrew Harrer/Bloomberg

Premium Assignment had $1.3 billion in assets and had contributed about $20 million of net income to SunTrust in the 12-month period ending Sept. 30.

“It's a great business, but it wasn't synergistic to us, and if we looked at sort of where we were going to deploy capital and technology and people, that wasn't going to be the place,” he said.

Rogers cited SunTrust’s October 2016 acquisition of commercial real estate lender Pillar Financial as an example of the kind of deal the company is more likely to pursue. SunTrust bought Pillar to gain ”synergies with our commercial real estate business” and to put SunTrust “in a part of that spectrum of financial decisions that we weren’t in before,” he said.

Separately, SunTrust announced this week that it has offered voluntary early retirement to some employees; that it has closed some operations centers, terminated certain leases and sold other real estate properties; and that it will write off some software assets. SunTrust will record a pretax charge of between $35 million and $40 million in the fourth quarter to cover all of the items.

SunTrust also plans to increase the valuation allowance against some deferred tax assets by about $25 million in the fourth quarter.

All of these items, including the sale of Premium Assignment, will contribute about $15 million to SunTrust’s fourth-quarter profit, equal to roughly 3 cents per share.