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SunTrust Banks Inc. in Atlanta said Friday that it has repurchased more than 4 million warrants it issued to the Treasury Department three years ago as part of its participation in the Troubled Asset Relief Program.
September 23 -
In blunt comments about cost control, William H. Rogers Jr. showed that he is trying to manage expectations as the new chief executive of SunTrust Banks Inc.
July 22
Cost-cutting is easier said than done, as SunTrust Banks Inc.'s third-quarter results demonstrated.
The Atlanta bank reported a big increase in profits thanks largely to improvements in credit quality, but its overall expenses stubbornly stayed high. That was eye-catching considering the $172.6 billion-asset bank has been touting a cost-cutting program.
In fact, SunTrust's efficiency ratio worsened and ranks as one of the poorest among its peers. Its efficiency ratio, which measures a banking company's level of costs, rose to 71.05% from 64.8% a year ago. KeyCorp reported a third-quarter efficiency ratio of 67%; and BB&T Corp.'s was 54.6%.
Efficiency ratios are essentially expenses divided by revenue. Lower ratios are better because they mean a bank is controlling expenses while doing things to make more money.
Guggenheim Partners analyst Marty Mosby explained that the efficiency ratio worsened because SunTrust spent more in the quarter to work out lingering credit issues. Its total credit-related expenses rose to $211 million from $181 million a year ago.
The effects of SunTrust's cost-cutting program won't start to have a significant effect on the bottom line until the first quarter, Mosby says. About 80% of the projected total of $300 million in cost-cutting savings will take place by December 2012, he says.
"Only a small portion of savings will be realized in 2011," SunTrust Chief Executive William H. Rogers Jr. said during a Friday conference call with analysts. "But we have made significant progress on our overall plan. Our bottom-line number is not yet where we'd like it to be, but progress is being made."
SunTrust's goal is for its efficiency ratio to improve to a level below 60%, Rogers says. The cost-cutting effort is focused on three areas: supply management, consumer bank efficiencies and operations staff and support, he says.
A SunTrust spokesman said the bank had previously signaled only a small portion of the savings was expected this year.
In the meantime, Mosby expects SunTrust's loan-loss provision to continue to shrink, as it did in the third quarter, and that net chargeoffs will continue to improve. Both areas would help improve SunTrust's efficiency ratio.
"The credit part of the story is moving in the right direction," Mosby says.
SunTrust says net income rose 40.5% from a year earlier, to $215 million, or 39 cents per share. Analysts had expected 35 cents a share, according to Thomson Reuters. The results surpassed expectations as SunTrust's loan-loss provision dropped 43.9% year over year, to $348 million. Total nonperforming assets declined, and SunTrust's rate of chargeoffs also improved.
