BRADENTON, Fla. - Atlanta-based SunTrust Banks Inc. disclosed in a filing Monday that it is in talks with regulators concerning the auction-rate securities it sold.
"If a settlement of these inquiries is reached, it may involve SunTrust repurchasing some ARS from certain customers," SunTrust's filing with the Securities and Exchange Commission stated. "Based on the scope of the settlements that other financial institutions have reached with regulators and which are available in published reports, SunTrust has approximately $500 million par amount of ARS presently held by similar SunTrust investors."
"Depending on the actual settlement that SunTrust may agree to, this amount is subject to change," the filing said.
Auction-rate securities will be part of SunTrust's presentation today at the Lehman Brothers Financial Services Conference in New York, SunTrust spokesman Barry Koling confirmed.
Koling would not comment on whether the bank is in settlement discussions similar to those announced recently. At least six major investment banking firms have promised to buy back about $50 billion of illiquid ARS in settlements reached with various state attorneys general and the SEC.
"If SunTrust were to repurchase these securities, then market valuation losses would be incurred by SunTrust," the bank's filing on Monday said. "SunTrust expects to reserve for amounts related to resolving these matters in the third quarter."
SunTrust said any negative impact from ARS-related charges is expected to be offset by the bank's Sept. 2 sale of its fuel card business, TransPlatinum, and a tax benefit of $69 million related to the charitable contribution of 3.6 million shares of common stock of the Coca-Cola Co.
At the moment, it appears SunTrust's exposure to the declining real estate market could have a greater impact than its exposure to ARS.
Moody's Investors Service last Wednesday downgraded the ratings of SunTrust Banks Inc. and its subsidiaries, lowering SunTrust to A1 from Aa3 for senior debt. The lead bank, SunTrust Bank, was lowered to B from B-plus for bank financial strength, and to Aa3 from Aa2 for long-term deposits. The Prime-1 short-term rating at both the bank and the holding company were affirmed.
"SunTrust's business mix, and its geographic concentrations, particularly in Florida, have influenced its asset quality issues," Moody's said in a report. "Specifically, SunTrust has sizable residential mortgage, home equity, and commercial real estate exposures, asset classes that have been impacted by the downturn in housing. That downturn has been most pronounced in formerly 'hot' markets such as Florida where SunTrust has a large presence."
SunTrust has reduced its Florida exposures over the past two years, "but its Florida portfolio, particularly in housing-related credits, remains large and will result in further losses," Moody's said.
The downgrade reflected recent asset quality deterioration, analysts said.
"Notwithstanding the downgrade, Moody's noted that SunTrust has a strong direct banking franchise in the Southeastern U.S. and a good liquidity profile at both the bank and bank holding company levels, attributes that help support SunTrust's rating," the agency said.
Fitch Ratings and Standard & Poor's have placed their ratings on negative watch, according to SunTrust's investor relations Web site.