New York, April 23, 2009 -- Moody's Investors Service downgraded the senior debt rating of SunTrust
Banks, Inc. (SunTrust) to Baa1 from A1, the subordinated
debt rating to Baa2 from A2, and the preferred stock rating to Ba2
from A3. The holding company's short-term rating was downgraded
to Prime-2 from Prime-1.
The long-term ratings of SunTrust Bank, the lead bank subsidiary,
were also downgraded. SunTrust Bank's financial strength rating
(BFSR) was lowered to C- from B, its long-term deposits
and senior debt were lowered to A2 from Aa3, and its subordinated
debt rating was lowered to A3 from A1. However, the bank's
Prime-1 short-term rating was affirmed. Following
these rating actions, the outlook on SunTrust and its subsidiaries
is negative.
Today's actions had no impact on the FDIC-guaranteed debt issued
by SunTrust. That debt remains rated Aaa with a stable outlook.
The downgrade of SunTrust's ratings resulted from the significant credit
costs embedded within its loans, in particular its large commercial
and residential real estate portfolios. These costs have climbed
materially over the past year and, in Moody's assessment,
will remain elevated in the near-term.
Although SunTrust's real estate portfolio is spread throughout its footprint,
it continues to have a notable concentration in Florida, a particularly
challenged market. In Moody's view, as a result of the anticipated
additional credit costs, SunTrust is likely to report further losses
in 2009. That will weaken its capital position.
Therefore, the magnitude of the downgrade reflects the importance
that Moody's placed on SunTrust's capital adequacy. In particular,
SunTrust's tangible common equity position, after incorporating
an increase in Moody's loss expectations related to commercial and residential
real estate, could decline meaningfully.
However, SunTrust's earlier capital initiatives mitigated the severity
of Moody's rating action. Specifically, in 2008, SunTrust
materially strengthened its capital position through the sale of Coca-Cola
stock and through hybrid security and TARP preferred issuance.
At March 31, 2009, SunTrust's Tier 1 ratio was 11%
and its Moody's tangible common equity to risk-weighted assets
ratio was approximately 7%. SunTrust's current capital position,
as well as the large reduction in its common dividend, give it the
ability to absorb significant losses.
Nonetheless, Moody's higher loss expectations led to a more pronounced
rating action than anticipated. Specifically, in placing
SunTrust on review for possible downgrade on March 12, 2009,
Moody's noted that it expected some of SunTrust's ratings to be lowered
by up to two notches. In fact, today's action lowered SunTrust's
preferred stock rating five notches, its BFSR four notches,
and its long-term senior and subordinated holding company ratings
three notches. However, the bank's long-term ratings
were lowered two notches.
The different outcome for SunTrust's various classes of debt were influenced
by Moody's systemic support assumptions for SunTrust, which have
increased in the current environment. In Moody's judgment,
SunTrust would benefit from a moderate to high level of systemic support
in a period of financial distress due to the scale of its regional banking
franchise in the U.S. Southeast economy. That resulted
in a two notch lift above the BFSR for its bank-level debt and
deposit ratings and a one notch lift in its holding company senior and
subordinated debt ratings.
However, Moody's does not believe there will be any systemic support
for SunTrust's preferred instruments. These securities include
SunTrust's Preferred Purchase Securities (PPS) and its preferred stock.
The PPS were issued by a holding company subsidiary that has a forward
purchase contract with SunTrust obligating it to purchase non-cumulative
perpetual preferred stock from SunTrust no later than December 2011.
Since they were issued in October 2006, Moody's has rated the PPS
securities at the same level as SunTrust's traditional non-cumulative
perpetual preferred stock because of the subsidiary's obligations under
the forward purchase contract. The Ba2 rating on both SunTrust's
PPS and its traditional preferred stock incorporates Moody's view that
preferred stockholders may be at risk of a dividend suspension in a stress
scenario.
Moody's also notes that SunTrust is one of the banks currently completing
the U.S. government's stress test. In the event that
the U.S. government required SunTrust to increase its capital,
Moody's believes it is possible that SunTrust may seek to convert its
preferred stock into common stock at terms that are unfavorable relative
to par. In that scenario, which Moody's considers to be relatively
unlikely, the preferred stock rating could be lowered further.
As part of its rating action on SunTrust, Moody's also corrected
and downgraded the rating on the $100 million non-cumulative
perpetual preferred stock issued by SunTrust Real Estate Investment Corporation
(Cusip 86788X203) to Baa3 from A1. Since 2001, Moody's
had rated this security on the basis of it being subordinated debt of
SunTrust Bank, as a result of an internal misclassification.
Based on a review of the terms of this instrument, holders of this
security ultimately have a preferred stock claim on SunTrust Bank.
Therefore the rating was corrected from A1 to A2 and then further downgraded
to Baa3, due to the above rating action on SunTrust. The
Baa3 rating is two notches higher than the Ba2 rating on preferred stock
at the holding company and is in line with the two notch differential
between other long-term ratings at the bank and the holding company.
Regarding the overall negative outlook, Moody's considered the possibility
that a more pronounced economic downturn than is currently expected would
have a direct impact on SunTrust's credit quality, particularly
its portfolios beyond real estate. That could further weaken its
earnings and add to the downward pressure on its capital base.
Despite the negative rating actions, Moody's noted several positive
attributes that support SunTrust's ratings even as it navigates through
a difficult near-term environment. These include its solid
and growing core deposit base, its good liquidity profile and an
attractive franchise in a region that, while currently stressed,
offers significant long-term growth prospects.
Moody's last rating action on SunTrust was on March 12, 2009 when
its ratings were placed on review for possible downgrade.
The principal methodologies used in rating this issuer were "Bank Financial
Strength Ratings: Global Methodology" (February 2007) and "Incorporation
of Joint-Default Analysis into Moody's Bank Ratings: A Refined
Methodology" (March 2007), which can be found at www.moodys.com
in the Credit Policy & Methodologies directory, in the Ratings
Methodologies subdirectory. Other methodologies and factors that
may have been considered in the process of rating this issuer can also
be found in the Credit Policy & Methodologies directory.
Downgrades:
..Issuer: National Commerce Capital Trust I
....Preferred Stock Preferred Stock,
Downgraded to Baa2 from A2
..Issuer: SunTrust Bank
....Bank Financial Strength Rating,
Downgraded to C- from B
....Issuer Rating, Downgraded to A2
from Aa3
....OSO Senior Unsecured OSO Rating,
Downgraded to A2 from Aa3
....Multiple Seniority Bank Note Program,
Downgraded to a range of A3 to A2 from a range of A1 to Aa3
....Subordinate Regular Bond/Debenture,
Downgraded to A3 from A1
....Senior Unsecured Deposit Note/Takedown,
Downgraded to A2 from Aa3
....Senior Unsecured Medium-Term Note
Program, Downgraded to A2 from Aa3
....Senior Unsecured Regular Bond/Debenture,
Downgraded to A2 from Aa3
....Senior Unsecured Deposit Rating,
Downgraded to A2 from Aa3
..Issuer: SunTrust Banks, Inc.
....Commercial Paper, Downgraded to
P-2 from P-1
....Issuer Rating, Downgraded to Baa1
from A1
....Multiple Seniority Shelf, Downgraded
to a range of (P)Ba2 to (P)Baa1 from a range of (P)A3 to (P)A1
....Preferred Stock Preferred Stock,
Downgraded to Ba2 from A3
....Subordinate Regular Bond/Debenture,
Downgraded to Baa2 from A2
....Subordinate Shelf, Downgraded to
(P)Baa2 from (P)A2
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Baa1 from A1
....Senior Unsecured Shelf, Downgraded
to (P)Baa1 from (P)A1
..Issuer: SunTrust Capital I
....Preferred Stock Preferred Stock,
Downgraded to Baa2 from A2
....Preferred Stock Shelf, Downgraded
to (P)Baa2 from (P)A2
..Issuer: SunTrust Capital III
....Preferred Stock Shelf, Downgraded
to (P)Baa2 from (P)A2
..Issuer: SunTrust Capital IX
....Preferred Stock Preferred Stock,
Downgraded to Baa2 from A2
....Preferred Stock Shelf, Downgraded
to (P)Baa2 from (P)A2
..Issuer: SunTrust Capital VI
....Preferred Stock Shelf, Downgraded
to (P)Baa2 from (P)A2
..Issuer: SunTrust Capital VIII
....Preferred Stock Preferred Stock,
Downgraded to Baa2 from A2
....Preferred Stock Shelf, Downgraded
to (P)Baa1 from (P)A1
..Issuer: SunTrust Capital X
....Preferred Stock Shelf, Downgraded
to (P)Baa2 from (P)A2
..Issuer: SunTrust Capital XI
....Preferred Stock Shelf, Downgraded
to (P)Baa2 from (P)A2
..Issuer: SunTrust Capital XII
....Preferred Stock Shelf, Downgraded
to (P)Baa2 from (P)A2
..Issuer: SunTrust Capital XIII
....Preferred Stock Shelf, Downgraded
to (P)Baa2 from (P)A2
..Issuer: SunTrust Capital XIV
....Preferred Stock Shelf, Downgraded
to (P)Baa2 from (P)A2
..Issuer: SunTrust Capital XV
....Preferred Stock Shelf, Downgraded
to (P)Baa2 from (P)A2
..Issuer: SunTrust Preferred Capital I
....Preferred Stock Preferred Stock,
Downgraded to Ba2 from A3
..Issuer: SunTrust Real Estate Investment Corporation
....Preferred Stock Preferred Stock,
Downgraded to Baa3 from A1
Outlook Actions:
..Issuer: National Commerce Capital Trust I
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: SunTrust Bank
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: SunTrust Banks, Inc.
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: SunTrust Capital I
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: SunTrust Capital III
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: SunTrust Capital IX
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: SunTrust Capital VI
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: SunTrust Capital VIII
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: SunTrust Capital X
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: SunTrust Capital XI
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: SunTrust Capital XII
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: SunTrust Capital XIII
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: SunTrust Capital XIV
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: SunTrust Capital XV
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: SunTrust Real Estate Investment Corporation
....Outlook, Changed To Negative From
Rating Under Review
SunTrust Banks, Inc., headquartered in Atlanta,
Georgia, reported assets of $179 billion at March 31,
2009.
New York
Robert Young
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Allen H. Tischler
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's downgrades SunTrust (sr to Baa1); outlook negative
