2Q EARNINGS: SunTrust, KeyCorp Shrink Reserves; U.S. Bank Adds
Landy, Heather, Davis, Paul, American Banker
Byline: Heather Landy and Paul Davis
U.S. Bancorp, SunTrust Banks Inc. and KeyCorp have, by at least one important measure, the healthiest loan portfolios among the country's largest banks. But even they have not been immune to the negative credit-quality trends sweeping through the industry.
All three banks on Wednesday reported higher net chargeoffs in the second quarter compared with the first, and boosted their allowances for loan losses as a percentage of total loans.
But it was not for nothing that these three companies ranked strongest among their peers in the portion of the government stress tests that examined expected loan losses under worst-case conditions. Compared with the first quarter, provision for loan losses shrank at SunTrust and Key. U.S. Bancorp increased its reserve, but at a relatively modest 5.8% clip.
"We're continuing to enjoy the benefits of the many years of not stretching to make too many loans to C&I and commercial real estate customers," U.S. Bancorp Chairman and Chief Executive Richard K. Davis told analysts on a conference call.
On SunTrust's call, Chief Credit Officer Thomas Freeman sought to assure investors that the company has less exposure to businesses than other big banks, saying that about half the properties in SunTrust's nonresidential commercial real estate book were occupied by the borrower and that commercial and industrial lending, while suffering some "minor weakness," was mostly stable and "doing okay."
Freeman said losses for the first half of this year were $1.4 billion, making it unlikely that SunTrust would reach the $11.8 billion in cumulative losses for 2009 and 2010 that were projected under the worst-case conditions considered in the government's stress test. Under that scenario, SunTrust's losses were estimated at 8.3% of total loans, or the second-lowest percentage of the major financial institutions tested.
U.S. Bancorp fared best, with an estimated loss rate of 7.8%, while Key came in third at 8.5%.
However, Freeman projected that chargeoffs would continue to rise this quarter. That could mean more pain for SunTrust, which has lost money for three straight quarters.
SunTrust reported a second-quarter loss of $164.4 million, or 41 cents a share, compared with a year-earlier profit of $530 million, or $1.52 a share, reflecting the steep run-up in credit costs since mid-2008.
SunTrust, of Atlanta, more than doubled its loan-loss provision from last year's second quarter, to $962.2 million, though the reserve was 3.2% smaller than in the first quarter. Including the impact of a new policy in which fraud-related hits were reclassified as chargeoffs, net chargeoffs climbed to $801. …