SunTrust: Probably Still Discriminatory but Definitely About to Go Bust
Earlier today, we discussed Regions Financial extending loans to bankrupt municipalities (red flag!) and regulatory mishaps in the 6th District. The cool part is that this is nothing new. Read on, let's talk about SunTrust (we also know SunTrust as the bank who entered into sheisty ARS agreements with LandAmerica but we'll let that one go. For now) and why it should have already been taken out back and put out of its misery.
The Atlanta Journal-Constitution May 3, 1988:
Trust Company Bank is an Atlanta institution.
The bank is proud of its historic role in promoting the city's economic health. Known as the "Coca-Cola Bank," Trust Company was led by the late Robert W. Woodruff, the Coke magnate remembered as the city's greatest philanthropist.
And the bank is proud of its historic role in promoting racial harmony. The late John A. Sibley, then retired chairman of Trust Company, was credited with holding Georgia's black and white leadership together in 1960-61 as public schools began desegregation, and he provided seed money for single-family housing for blacks in southwest Atlanta during tense times in 1962.
"Trust Company Bank has contributed to the shaping of Atlanta like few other institutions," the bank's literature says.
That's all true, say the leaders of an Atlanta neighborhood coalition. The Atlanta Community Reinvestment Alliance also says Trust Company doesn't lend much money to black people.
"I'm not going to try to tell you the bank's motives," said Dennis Goldstein, the Atlanta Legal Aid Society lawyer representing members of the coalition. "But the bank's policies have a racially discriminatory effect in the extreme."
The coalition filed a complaint with federal regulators last year against Trust Company's parent, SunTrust Banks. After negotiating unsuccessfully with the bank for a year, the group asked the Federal Reserve Board to stop a SunTrust merger. The group claimed Trust Company was redlining -- not lending in working-class and minority neighborhoods -- in violation of the federal Community Reinvestment Act.
SunTrust won, as has every other bank challenged through complaints to the Federal Reserve Board.Last April, Trust Company's corporate counsel, J. David Webb, wrote to the executive director of Atlanta Legal Aid, Steve Gottlieb, asking if Legal Aid was soliciting clients to challenge SunTrust. If the lawyers were soliciting clients, Webb said, Trust Company would be unable to give its annual $100-per-attorney donation to Legal Aid. After Legal Aid gave assurances that the clients had come forward on their own, Trust Company made its usual donation.
Trust Company's arguments and information persuaded the federal regulators.
After one negotiating session, the chief regulator on the case, William Estes III, examining officer for the Federal Reserve Bank of Atlanta, wondered aloud why the group bothered to file a challenge. "He said he was impressed by the communication between the bank and the community group," said lawyer Goldstein. "This was shocking to us, because the focus of the meeting was our complaint about the bank's lack of communication."
The coalition asked the Atlanta Fed to hold a public hearing. The request was denied.
In the end, the Federal Reserve Board in Washington refused to hear the challenge.
The coalition was not surprised, but it was angered that the regulator made a point of praising Trust Company.
Well wait a minute, we know Bill Estes (he actually just got the hell out of the 6th District as head of their bank supervision but most definitely not because Atlanta failed miserably or anything *cough*) and we know Atlanta Fed and we definitely know the Board. But we also know SunTrust - and I'm sort of shocked they aren't getting in on the hot broke municipality action with Regions. Why not?
Atlanta bank supervision might have to hire me as a consultant if I keep doing their footwork for them and finding all these bloody gloves, Christ.
Many U.S. regional banks, including Fifth Third Bancorp (FITB) and SunTrust Banks Inc (STI), may not show a profit until 2011, veteran banking analyst Richard Bove said, and downgraded both the stocks to "sell" from "neutral."
For SunTrust too, loan losses from its Florida and housing markets may keep the Southeastern regional bank in a loss position until the start of 2011 despite management's efforts to address problem areas, Bove said.
Last week, SunTrust posted its fourth straight quarterly loss, hurt by hefty loan loss provisions and an accounting change.
SunTrust is still suffering relatively high losses from home construction and mortgage-related lending, while its rivals have reported an easing of such problems. Analyst Bove also revised his price targets and outlook for Fifth Third, U.S. Bancorp and SunTrust.
SunTrust blames part of its issues on the fact that it's paying so much out to that loan shark the United States government:
SunTrust Banks Inc (STI) will repay its $4.9 billion government bailout as soon as regulators allow and its credit problems stabilize, CEO James Wells said on Tuesday.
Wells, speaking at the Barclays Global Financial Services Conference in New York, said the bank will not raise capital through a stock offering to repay the money borrowed under the Troubled Asset Relief Program. Instead, the bank will build capital through its earnings, he said.
Wells compared the bailout funds to "very expensive debt."
"I think anybody in their right mind would want to do something with debt this expensive," he added. The bank pays an 8 percent dividend rate on the preferred shares it sold to the U.S. government.
Wells said that before allowing the bank to repay the funds, he expects regulators will first need to see the bank's loan losses are well below the levels assumed in a May "stress test."
The stress test projected SunTrust's loan losses could reach $11.8 billion under a worst-case scenario for 2009 and 2010.
Psst, Atlanta Fed, a bank you supervise announced that it plans to RAISE capital (despite posting its fourth quarterly loss with no end in sight) to pay off these 8% loan sharks, that might be a tad disconcerting. Perhaps you can have a talk with them and see if you have some other suggestions? Like a yard sale?
By the second quarter of 2009, SunTrust had expanded its loan loss reserve 5.3% to $2.9 billion.
Somehow SunTrust passed the stress tests last May (anyone remember those?) despite regulators declaring they needed to come up with $2.2 billion in capital. GMAC also apparently passed so that tells you something. Now I'm no mathlete but weighing those write-downs against the pending commercial real estate implosion waiting on STI's books, I might be inclined to declare this bank is pretty much DOA.
Hopefully someone gets that memo and does something about it. Or do we wipe out the depositors but keep the beast alive so the government can get its TARP kickback? Whatever. It is my understanding that SunTrust is still waiting patiently to get the green light from regulators to pay back TARP which, you know, I wouldn't hold my breath for if I were them, those write-downs are a bitch.
I will throw SunTrust a bone here and say it appears as though they understand the concept of write-downs better than most banks but that certainly isn't going to save their asses.
Good luck with all that and sorry to Atlanta Fed, sucks that you have all the crappy banks. Think about it, it could be worse, you could be Richmond and they have Bank of America. Seriously. Then again, BB&T could totally take Regions in a fight any damn day but... Whatever. Your banks are screwed.
Also, SunTrust is about to get its ass pounded again when former LandAmerica execs try to restore their good name (bwhahahahahahaha LOL j/k bwhahahahaha some more) and their former clients' money that somehow got squandered away in SunTrust's ARSs. But that tale is for another day too, we're tired of this crap.
Speaking of screwed banks, don't forget to follow all the hot bank fail action over at Bank Fail Friday.