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| | Suntrust Banks
Description of the Business
Suntrust Banks, Inc (STI) is a financial services holding company in the US. The company provideds deposit, credit, trust and investment services through its banking subsidiary, Suntrust Bank. It also provides mortgage banking, credit-related insurance, asset management, securities brokerage and capital market services through its subsidiaries.
The bank operates in the business segments Retail, Commercial, Corporate and Investment Banking, Wealth and Investment Management, and Mortgage.
Its main markets are Florida, Georgia, Maryland, North Carolina, South Carolina, Tennessee, Virginia and the District of Columbia.
The company operates 1,692 retail branches and 2,582 ATMs.In addition, SunTrust provides customers with a full range of technology-based banking channels, including Internet, PC, and Automated Telephone Banking.
Analysis of Competitors
Its competitors are:
- Bank Of Amerika
- Wells Fargo
- JP Morgan
- Citigroup
- Huntington Bancshares
- Fifth THird Bancorp
Competitive Advantages
As a financial organization it is difficult to differentiate from competitors. Banks are competing on price and services.
A very important critical success factor is risk management.
A bank can achieve lower prices (lower interest rates on loans) compared to competitors by having lower funding costs for
example because of deposits or high credit ratings. Another important differentiator is the perceived trust customers have in a bank.
The big banks have a competitive advantage compared to smaller local players, as they have the resources to provide big loans to big corporations.
About 55% of STI debt is funded by deposits. They have a high interest margin of more than 50% due to low funding costs.
Their tier 1 ratio is above 10 after receiving $4.85 billion TARP money.
Super investor Warren Buffet own Suntrust shares, although his STI shares are only a small percentage of his Berkshire Hathaway holdings.
Financial Analysis
About 70% of STI debt is funded by deposits. They have a high interest margin of more than 50% due to low funding costs. In Q4 they set aside $960 million for loan losses and their non-performing loans tripled to $4.46 billion.
The tangible book value is about $25.
They received $4.85 billion TARP money and it also issued $3 billion of deb guaranteed by the Federal Deposit Insurance Corp under the government's liquidity program.
This boosted it capital, but will reduce their future profits. The current Tier-1 ratio is above 10 (10.85), which means that they are well-capitalized.
Risks
The main short term risks are related to credit losses due to weakening economy. It is very difficult to predict how big these losses will be and whether STI will need additional capital.
If STI survives the credit crises it has huge future opportunities to grow profits and their business.
However in the short term the STI stock has a high risk rating due to the economic uncertainty.
Management Team
Valuation Calculation
The valuation of STI is highly uncertain because of the credit crisis and uncertainties about future losses.
We believe in the long term STI can earn $3.7 a share, which gives a cash flow value of $37.
However because of the high risks we assign a negative risk value of $-4 a share
The total value of STI is $33 a share.
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