Fitch Ratings has affirmed the long-term Issuer Default Ratings (IDRs) of SunTrust Banks, Inc. (STI) and its bank subsidiary, SunTrust Bank at ‘A-‘. STI’s ratings have been removed from Rating Watch Negative, where they were placed on 15 May 2009, as part of Fitch’s recent review of the U.S. banks, which commenced on 7 May 2009. The Rating Outlook is Negative.
The affirmation reflects STI’s recent capital raising efforts, which bolstered the company’s capital base and substantially met its capital requirements, as per the Federal Reserve’s Supervisory Capital Assessment Program (SCAP). As per SCAP’s more adverse macroeconomic scenario, STI was to raise USD2.16 billion of Tier 1 common equity.
To date, STI’s capital raising initiatives added over USD2 billion of Tier I common equity, largely through its public offering of common stock. The rating action also considers Fitch’s expectation that STI will continue to see further deterioration in credit quality which will make it difficult for the company to return to profitability in 2009 and likely into 2010. However, Fitch believes that with the recent capital raise combined with other planned capital raising initiatives, STI has sufficient financial resources, relative to its current ratings, to absorb the anticipated higher loss rates in its portfolio over the near to intermediate term.
Additionally, STI’s ratings are underpinned by its sizeable branch franchise which provides a solid core funding base and contributes to the company’s healthy liquidity position.
The Negative Rating Outlook reflects concern that credit deterioration could escalate beyond Fitch’s current expectations should economic weakness persist longer than anticipated. While STI’s current credit problems still largely emanate from its home equity, Alt-A mortgage, and residential construction portfolios, Fitch is concerned that greater problems could arise from the company’s sizeable core prime mortgage portfolio, which has significant concentrations in the still troubled markets of Florida and Georgia, as well as its commercial book.
Separately, while the parent company has the financial resources to repay its preferred stock issued as part of the U.S. Treasury’s Capital Purchase Program (CPP), given the credit environment, Fitch would view negatively a near-term repayment of the CPP without STI raising a sufficient amount of replacement capital.
Fitch has affirmed the following ratings on STI and its subsidiaries:
SunTrust Banks, Inc.
— Long-term IDR at ‘A-‘; Outlook Negative;
— Short-term IDR at ‘F1’;
— Senior debt at ‘A-‘;
— Subordinated debt at ‘BBB+’;
— Preferred stock at ‘BBB’;
— Short-term debt at ‘F1’;
— Long-term debt guaranteed by TLGP at ‘AAA’;
— Short-term debt guaranteed by TLGP at ‘F1+’;
— Individual at ‘C’;
— Support at ‘5’;
— Support floor at ‘No Floor’.
SunTrust Bank
— Long-term IDR at ‘A-‘; Outlook Negative;
— Short-term IDR at ‘F1’;
— Long-term debt guaranteed by TLGP at ‘AAA’;
— Short-term debt guaranteed by TLGP at ‘F1+’;
— Long-term deposits at ‘A’;
— Short-term deposits at ‘F1’;
— Senior debt at ‘A-‘;
— Subordinated debt at ‘BBB+’;
— Short-term debt at ‘F1’;
— Individual at ‘C’;
— Support at ‘3’;
— Support floor at ‘BB-‘.
SunTrust Capital I
SunTrust Capital III
SunTrust Capital VIII
SunTrust Capital IX
— Preferred stock at ‘BBB’.
SunTrust Preferred Capital I
— Preferred stock at ‘BBB’.
National Commerce Capital Trust I
— Preferred stock at ‘BBB’.
L.D.