SunTrust Banks Inc. (STI) said on Wednesday that it has repaid the entire $4.85 billion in bailout money it had received from the government for its participation in the Troubled Asset Relief Program (TARP).
SunTrust financed its TARP repayment primarily through proceeds from a $1.04 billion stock offering and $1 billion debt offering that it completed last week. The company funded the remaining dues from its available cash.
Following the release of the Federal Reserve’s much-awaited stress test results earlier this month, SunTrust received the authorization to raise capital.
SunTrustis one of the three banks that repaid the total $7.4 billion of TARP funds on Wednesday. With this repayment, the bank bailout swung into profit. Out of the total $700 billion bailout money, about $245 billion was handed out to banks in 2008. Now with the latest repayments, taxpayers have recovered a total of $251 billion from bailed out banks, scooping up profits of about $6 billion. This recovery includes dividends and interest income from banks.
However, more than $20 billion is still due from about 600 institutions. With the repayment of these institutions, profits from the bank bailout will increase further.
Other than SunTrust, Cleveland, Ohio-based KeyCorp (KEY) repaid $2.5 billion and Warsaw, New York-based Financial Institutions Inc. (FISI) paid back $25 million.
Of the total 19 banks, TARP repayment was pending only for 3 banks. Following the repayment by SunTrust and KeyCorp, Regions Financial Corp. (RF) remains the only bank to clear TARP dues among those that were subject to the Federal Reserve’s stress tests.
We are concerned about the interest rate sensitive nature of SunTrust’s mortgage and investment banking revenues. Besides, deposit pricing pressure is expected to restrict earnings growth. However, underlying revenue trends, ongoing positive operating leverage and TARP repayment raise our hopes for improved results going forward.
Currently, SunTrust shares retain a Zacks #2 Rank, which translates into a short-term Buy rating. However, considering the fundamentals, we maintain a long-term Neutral recommendation on the stock.
FINANCIAL INST (FISI): Free Stock Analysis Report
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SUNTRUST BKS (STI): Free Stock Analysis Report
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