In order to find strategic options for its institutional investment-management business, SunTrust Banks Inc. (STI) said on Monday that it is in discussion to partly sell its asset management subsidiary, RidgeWorth Investments. However, the company did not disclose anything about the potential buyers.
Separately, last Friday, Anglo-American asset management firm Henderson said that it may partially acquire RidgeWorth. However, the company did not provide any details about the businesses it intends to buy.
RidgeWorth is a holding company of eight boutique firms that cover fixed-income, domestic and international equity management with combined assets under management of $63.1 billion.
SunTrust does not expect the deal to have a significant effect on its financial results.
With the concerns of continued weakness in mortgages and commercial loan losses, last month, rating agency Fitch Ratings had lowered SunTrust’s ratings.
The rating agency downgraded the long-term issuer default ratings (IDR) for SunTrust and its banking subsidiary to “BBB+” from “A-“. Also, the short-term IDR was lowered to “F2” from “F1”. There were several other rating downgrades. However, the rating outlooks remain stable.
SunTrust’s fourth quarter operating loss of 64 cents per share was lower than the Zacks Consensus Estimate of a loss of 75 cents. Last year, SunTrust reported a loss of $1.07. The lower-than-expected loss was aided mainly by an improvement in revenue, which was supported by an expansion in net interest margin. However, as a result of continued market turmoil, credit quality metrics further deteriorated.
Despite operating in attractive demographic markets, top-line growth remained somewhat lackluster at SunTrust during the last several quarters. We do not expect any significant improvement with respect to revenue trends in the near term as the global economy will take some time to rebound to its historical highs.
SunTrust received $4.5 billion in government aid as part of its participation in the Troubled Asset Relief Program (TARP) during the height of financial crisis. The company has not repaid the money yet.
Estimate Revision Trend
Over the last 7 days, 3 of 25 analysts covering SunTrust have lowered their estimates for the first quarter of 2010, while two upward revisions were recorded. For 2010, similar estimate revisions were witnessed.
Currently, the Zacks Consensus Estimate for the first quarter is pegged at a loss of 60 cents per share, which would be down by 30.7% from the year-ago quarter. However, the full year estimated loss of $1.38 would be up by about 41.1% from 2009.
However, the lower number of upward estimate revisions for the first quarter and full year 2010 indicates a likelihood of downward pressure on the performance of the stock in the near term.
With respect to earnings surprises, the stock has recorded three positive surprises over the last four quarters. The average remained positive at 9.2%. This implies that SunTrust has surpassed the Zacks Consensus Estimate by 9.2% over that period.
On Monday, the shares of SunTrust closed at $29.44, up 2.8%, on the New York Stock Exchange.
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