Deteriorating credit quality, which is expected to pressure earnings and weaken the company's recently bolstered capital base, has led Fitch to downgrade the Long-term Issuer Default Ratings of SunTrust Banks, Inc. (STI) and its bank subsidiary, SunTrust Bank to 'A-' from 'A+' and remove the ratings from Rating Watch Negative, where they were placed on March 7, 2008. A complete list of ratings affected by this action follows the end of this release. The Rating Outlook is Stable.
Fitch expects further deterioration in credit quality at STI. Although the credit problems still arise largely from its home equity, Alt-A mortgage, and residential construction portfolios, problems are beginning to surface in the company's core prime mortgage portfolio. Additionally, Fitch is concerned that continued economic stress will weigh on STI's commercial book, leading to increased credit problems in that portfolio. In Fitch's opinion, the escalating credit issues will facilitate significantly higher loan loss provisioning, which will make it difficult for STI to return to profitability in 2009 and weaken its capital position.
The Stable Rating Outlook reflects that STI's ratings are underpinned by its current capital position and a solid core funding base. STI strengthened its capital base through the monetizing of its Coca-Cola (KO) stock holdings in 2008 and, more recently, through its participation in the Treasury's Capital Purchase Program (CPP) in which the company sold approximately $4.9 billion in preferred stock to the U.S. Treasury. The combination of these actions significantly boosted the company's regulatory ratios, with a Tier 1 risk-based capital ratio of 10.85% at Dec. 31, 2008, although the tangible common equity ratio declined to 5.53%. Fitch also views positively the reduction of the company's dividend to $0.10 a share in an effort to preserve capital in light of the expected credit challenges ahead; however, a further dividend reduction could be needed. The company's sizeable branch franchise provides a healthy source of core deposits and STI's prudently managed liquidity position is good. The company has also augmented its liquidity position through the issuance of debt through the FDIC's Temporary Liquidity Guarantee Program (TLGP).
Fitch has taken the following rating actions on STI and its subsidiaries:
| SunTrust Banks, Inc. (STI) |
| Â |
| --Long-term IDR downgraded to 'A-' from A+; Outlook Stable |
| --Short-term IDR affirmed at 'F1' |
| --Senior debt downgraded to 'A-' from 'A+' |
| --Subordinated debt downgraded to BBB+ from 'A' |
| --Preferred stock downgraded to 'BBB' from 'A'; |
| --Short-term debt affirmed at 'F1' |
| --Individual downgraded to 'C' from 'B'; |
| --Support affirmed at '5' |
| --Support floor affirmed at No Floor |
| Â |
| SunTrust Bank |
| Â |
| --Long-term IDR downgraded to 'A-' from 'A+'; Outlook Stable |
| --Short-term IDR downgraded to 'F1' from 'F1+' |
| --Long-term debt guaranteed by TLGP affirmed at 'AAA' |
| --Short-term debt guaranteed by TLGP affirmed at 'F1+' |
| --Long-term deposits downgraded to A from 'AA-' |
| --Short-term deposits downgraded to 'F1' from 'F1+' |
| --Senior debt downgraded to 'A-' from 'A+' |
| --Subordinated debt downgraded to 'BBB+' from 'A' |
| --Short-term debt downgraded to 'F1' from 'F1+' |
| --Individual downgraded to 'C' from 'B'; |
| --Support affirmed at '3' |
| --Support floor affirmed at 'BB-' |
| Â |
| SunTrust Capital I |
| SunTrust Capital III |
| SunTrust Capital VIII |
| SunTrust Capital IX |
| --Preferred Stock downgraded to 'BBB' from 'A'; |
| Â |
| SunTrust Preferred Capital I |
| --Preferred Stock downgraded to 'BBB' from 'A'; |
| Â |
| National Commerce Capital Trust I |
| --Preferred Stock downgraded to 'BBB' from 'A'; |
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Contacts:
Fitch Ratings
New York:
Kenneth Ritz, +1-212-908-0368
Eric
Newell, +1-212-908-0769,
Sandro Scenga, +1-212-908-0278 (Media
Relations)
sandro.scenga@fitchratings.com
Chicago:
Doris
Hoffmann, +1-312-368-2057
