SunTrust Banks Inc. (STI), the eighth- largest U.S. lender by deposits, fell in New York trading after saying it doesn’t plan to boost dividends this year.
SunTrust didn’t include a request for increasing its dividend when it resubmitted its capital plan to the Federal Reserve last month, Chief Executive Officer William Rogers said today. The Atlanta-based bank will “evaluate capital deployment alternatives for next year” when it submits its 2013 plan in the fourth quarter, he said.
“This is the best course of action for the short-term, but it’s not indicative of our long-term plans to return capital prudently to shareholders,” Rogers said on a conference call following the release of second-quarter earnings.
Analysts including Mike Turner of Compass Point Research & Trading LLC said they had expected SunTrust to be more aggressive in returning capital to shareholders after the lender failed the Fed’s stress test in March. Lana Chan, a BMO Capital Markets analyst who has a market perform rating on SunTrust, wrote in a note today, “We believe this will be a negative for the stock.”
SunTrust fell 3 percent to $23.52 in New York trading, compared with a 1.9 percent drop in the 24-company KBW Bank Index. The firm’s shares have gained 33 percent this year.
Second-quarter profit rose 35 percent to $275 million, or 50 cents a share, from $178 million, or 33 cents, a year earlier, the firm said today in a statement. That beat by 6 cents the average estimate of 31 analysts surveyed by Bloomberg.
Credit quality improved in the quarter as SunTrust reduced its allowance for loan losses to $2.3 billion from $2.74 billion a year earlier, Chief Financial Officer Aleem Gillani said on the call. Non-performing assets, net charge-offs and loan delinquencies each declined for at least the fourth-straight quarter, according to a slide presentation on the firm’s website.
The bank set aside $434 million in the second quarter to buy back soured mortgages, up 13 percent from the previous three-month period, according to the statement. The reserves are to cover so-call putback requests from government-sponsored entities.
New demands from GSEs for mortgage repurchases rose 9.2 percent to $489 million from $448 million in the first quarter, the firm said. Gillani said he expects GSE buyback demands to decline in the second half.
“We feel like last year was our peak,” Gillani said. “It looks to us demands will decline over time.”
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