SunTrust: A hunter or a target?

The turmoil that is rewriting the rules of the banking industry may also be making it more likely that SunTrust, the only major bank still headquartered in Atlanta, will become a takeover target — someday.

But SunTrust’s standing as an independent bank may actually be more secure over the short term as would-be acquirers go after weaker game, several industry experts said.

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RIC FELD/Associated Press

SunTrust stands alone as an independent bank based in Atlanta. That could change, however, as changes in banking laws become more likely.

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CHRIS RANK/Bloomberg News

Investment banks such as Goldman Sachs and Morgan Stanley, which are being pushed by federal regulators to convert to commercial banks, could see SunTrust as an attractive target for takeover.

“My guess is it continues to be Atlanta-based for the foreseeable future,” Mercer University economist Roger Tutterow said.

He and other industry watchers said SunTrust has been relatively untouched by the current chaos sweeping through the financial services industry. It remains relatively healthy, they said, because it didn’t bet as heavily on subprime mortgages and other risky securities that have since imploded with the credit crisis sweeping the industry.

But the tumult in the industry is hitting in SunTrust’s backyard. Just Friday, Wells Fargo agreed to buy troubled Wachovia, SunTrust’s biggest rival in metro Atlanta. Citigroup, which had agreed last week to buy Wachovia with the federal government’s prompting, is challenging Well Fargo’s deal.

“I think it puts more pressure on SunTrust to do something,” said banking industry analyst Christopher Marinac of the Atlanta-based firm FIG Partners. In the current environment, SunTrust has more options than many banks, ranging from putting itself on the auction block to grabbing market share from weaker banks to going shopping for other banks to buy, he said.

“It’s really up to SunTrust,” he said. But given the fast pace of major changes in the industry, “they need to come up with a game plan and articulate it.”

Some industry watchers believe the radical changes affecting the industry may increase the odds that Atlanta’s last major bank will eventually be bought. SunTrust has been the subject of rumor speculation for decades.

SunTrust spokesman Barry Koling declined to say what options the bank is considering.

“The current environment presents both challenges and opportunities,” he said. “We are conscious of both.”

Koling said SunTrust doesn’t comment on merger speculation, but he added that “it is getting a little tiresome. Of the endless speculation about SunTrust being taken over during the last decade or longer, much has been crazy, all has been wrong. What does that say about the current batch?”

Industry analysts and local economists said whichever path SunTrust chooses has several ramifications for Atlanta. They point out that SunTrust is a supporter of local civic and cultural organizations. Atlanta is also smarting from the loss in recent years of several Fortune 500 companies through acquisitions, including BellSouth, Georgia-Pacific and Scientific Atlanta.

“If they were part of a bank headquartered in California, there’s no way they would give $5 million to the symphony,” said Ken Bernhardt, marketing professor at Georgia State University’s Robinson College of Business.

“Prestige does matter,” said Tutterow of Mercer. Besides the direct job loss when a city loses a corporate headquarters, there’s also a “spillover” effect in terms of lost jobs for lawyers, accountants and other professionals and support services, he said.

SunTrust is the largest Georgia-headquartered bank, with $177 billion in assets and more than 31,000 employees at the end of June. Locally, it is No. 1 in deposits.

But while SunTrust is likely to remain independent for now, some industry experts said SunTrust remains an attractive target for would-be acquirers who want a beachhead in the fast-growing southeastern United States.

The crisis gripping the industry also may be adding some new potential shoppers and increasing pressure on others to do a deal, Bernhardt said.

He noted that federal regulators pushed investment banks Goldman Sachs and Morgan Stanley to convert to more tightly regulated commercial banks after the credit meltdown led to Lehman Brothers’ bankruptcy and Merrill Lynch’s rescue by Bank of America last month.

Goldman Sachs and Morgan Stanley “have no position in the market as a bank,” Bernhardt said. Buying SunTrust would be a handy way to pick up retail and commercial banking operations, he said.

Until Wells Fargo jumped into the fray Friday by inking a deal to buy Wachovia, industry experts thought the San Francisco-based bank had emerged as the most likely suitor for SunTrust. Wells Fargo & Co. hadn’t been able to snag a deal, even as its rivals have been growing ever larger by buying up failed or wounded banks and other financial institutions at fire sale prices. The recent growth of its three giant rivals — JPMorgan Chase, Citigroup and Bank of America — puts more pressure on Wells Fargo to keep pace through its own acquisitions to remain competitive, Bern-hardt said.

Wells Fargo had reportedly been circling both Charlotte-based Wachovia and Seattle-based Washington Mutual before bigger rivals agreed to buy the faltering institutions in deals engineered by federal regulators. The fact that Wells Fargo decided to trump Citigroup’s agreement to buy Wachovia — and Citigroup’s legal challenge of Wells Fargo’s deal — adds a new layer of uncertainty to recent developments, industry analysts said.

“It takes the most likely buyer [of SunTrust] out of the picture,” Bernhardt said, but “there are still other buyers out there.” Citigroup could become another potential buyer if it doesn’t succeed in reviving its Wachovia deal, he said.

JPMorgan, which industry analysts have called a potential SunTrust buyer in the past, could still go after the Atlanta bank, Bernhardt said, though some industry players think the bank has its hands full after acquiring WaMu and investment banking firm Bear Stearns, which failed in April.

Marinac, with FIG Partners, agreed that Wells Fargo’s planned Wachovia deal likely removes it as a potential SunTrust buyer. But he contends that Wells Fargo is a much tougher competitor than Wachovia or Citigroup, which will put more pressure on SunTrust.

He said the crisis has also created some options that could allow SunTrust to remain independent and grow bigger.

“SunTrust may well be an acquirer,” Marinac said. The company could take advantage of its relative strength by buying Montgomery-based Colonial BancGroup or another bank to expand its presence in Florida. Or SunTrust could go after bigger game, such as Birmingham-based Regions Financial or Winston-Salem, N.C.-based BB&T Corp., although those bigger deals bring more challenges. Regions and SunTrust have significant overlap in Tennessee and other markets, he said. And it’s unclear who would come out on top in a SunTrust-BB&T merger, he added.

With the sudden fall of Wachovia, SunTrust may also be able to pick up some market share from disaffected customers, although probably not as much as it would if Citigroup were the new owner, Marinac said. Wachovia has the second-largest market share in metro Atlanta in terms of deposits. “It’s not as easy to take business from [Wells Fargo],” he said.

But in any case, he added, SunTrust will probably need to raise more capital and lay out its plans.

“SunTrust has to figure out what they want to do,” he said. “Do they stay or do they go?”

SunTrust Banks

• Assets as of June 30: $177.4 billion

• Six-month profit: $830.9 million

• Employees: 31,602

• Branches: 1,699

• Local Deposits / Market Share: *$29.6 billion / 26.4%

* As of June 30, 2007

Sources: SunTrust

and Federal Deposit Insurance Corp.