By Rick Rothacker
Sept 6 SunTrust Banks Inc has
accelerated a planned sale of Coca-Cola Co shares it owns
in a move that it said will produce a $1.9 billion pre-tax gain
and reduce volatility in its capital ratios.
The Atlanta-based regional bank also said it planned to take
a $375 million charge in the third quarter to cover requests
from Fannie Mae and Freddie Mac to buy back
mortgages it sold to the mortgage giants before 2009. SunTrust
is also taking $350 million in charges as it sells off a variety
of real estate loans.
The actions are expected to increase the bank's
third-quarter net income by $750 million, or $1.40 per share,
and produce a "modest increase" to Tier 1 common equity, a
measure of core capital.
"These actions better position SunTrust for the future by
further improving our risk profile and strengthening our balance
sheet while keeping regulatory capital ratios stable," SunTrust
Chief Executive Officer William Rogers Jr said in a statement.
SunTrust has owned shares of beverage giant Coca-Cola since
1919 when a predecessor bank participated in the underwriting of
the company's initial public offering and received the shares in
lieu of fees. But in 2008, the bank entered agreements with a
third party to sell its 60 million shares in 2014 and 2015.
After a recent review, the bank said it decided to move up
the sales because new Basel III capital rules increased the
perceived riskiness of the holdings. The bank also considered
the negative impact of the shares in the Federal Reserve's
stress tests of large banks, it said.
SunTrust was one of four U.S. banks in March to fail the
Fed's evaluation, which determines whether 19 banks would
maintain enough capital to weather a hypothetical severe
recession. The Fed last month did not object to SunTrust's
revised capital plan, which did not include dividend increases
or share buybacks. [ID: nL2E8JN5F3]
The bank said its original investment in Coca-Cola increased
in value from about $100,000 to more than $2 billion. The bank's
annual net interest income will decline by $40 million due to
lost Coca-Cola dividends.
SunTrust sold 59 million of the shares in the market and to
the third party. It contributed the remaining 1 million to its