SunTrust Banks Inc (fka STI)

[MWM]

U.S. Banks Face More Loan Losses, SunTrust Chief Says
By Steve Matthews and David Mildenberg

Aug. 24 (Bloomberg) -- The head of SunTrust Banks Inc., Georgia’s biggest lender, said U.S. financial institutions probably will report further credit losses as commercial real estate falters through next year.

“The industry is a long way from declaring any sort of victory, especially regarding credit issues,” Chief Executive Officer James Wells III said today in a speech to the Rotary Club of Atlanta. “This credit cycle has yet to play itself out. We do not expect things to improve for the banking industry in the very near future.”

SunTrust, based in Atlanta, has reported three straight quarterly losses, mostly from soured loans in its $16.3 billion home-equity and $8.2 billion construction lending units. Regulators shut 18 banks this year in Georgia, where the jobless rate exceeds the U.S. average and the pace of home foreclosures was the sixth-highest in the nation in July.

“The industry has moved from a potentially cataclysmic scenario to one that is merely very difficult,” Wells said. “The industry is back from the brink of a potential global financial-system meltdown.”

Wells said concerns over falling values of commercial real estate are “not without merit. Even if the economy begins to improve modestly, commercial real estate conditions will probably deteriorate until 2010.”

SunTrust should “compare favorably” to other banks in managing loans, he added. The bank “has a very positive, strong, post-recession future,” Wells said.

SunTrust had $15.9 billion in commercial real-estate loans as of June 30, or 13 percent of $122.8 billion in loans, according to a presentation to investors last week. The bank was not receiving interest on less than 1 percent of the commercial real-estate loans, SunTrust said.

TARP Stake

Wells said SunTrust may repurchase $4.9 billion in preferred shares sold through the U.S. Troubled Asset Relief Program “as soon as possible,” without being more specific. SunTrust boosted its capital by $2.3 billion last month after U.S. regulators told the company to add $2.2 billion in case of worsening economic conditions.

U.S. stress tests in May of banks’ ability to withstand a prolonged recession showed SunTrust’s projected loan losses at 8.3 percent, among the lowest of 19 U.S. commercial banks. The tests show that SunTrust is “strong and stable,” Wells said.

SunTrust shares declined 85 cents, or 3.8 percent, to $21.79 at 4:15 p.m. in New York Stock Exchange composite trading. The shares gained 7.6 percent last week after analysts at JPMorgan Securities and Standard & Poor’s Corp. raised their price targets.

To contact the reporter on this story: Steve Matthews in Atlanta at [e-mail].