SunTrust’s pain continues with $183.5 million loss

By PAUL DONSKY

The Atlanta Journal-Constitution

The distressed real estate market and lingering recession continue to cause problems for Atlanta-based SunTrust, which reported its third straight quarterly loss on Wednesday.

The company lost $183.5 million in the three months that ended June 30, compared to profit of $540 million in the same period a year ago.

“SunTrust is working through credit and earnings challenges as the weak economy continues to impact performance,” James M. Wells III, SunTrust’s chairman and CEO, said in a conference call with analysts.

SunTrust stepped up efforts to clear troubled loans off its books in the second quarter, writing off $801 million in soured loans, a 31 percent increase from the first quarter.

The bank -- the biggest in Georgia and the seventh-largest in the nation -- also earmarked an additional $161 million to cover possible future losses, bringing the company’s loan loss reserve to $2.9 billion.

Analysts said they expect SunTrust to report losses for some time to come as the bank works through its problem loans. A full-year loss would be the first since SunTrust was formed in the 1985 merger of Trust Company of Georgia and SunBanks of Florida.

Chris Marinac, an analyst at FIG Partners in Atlanta, said he doesn’t expect SunTrust to return to profitability until 2011. But he said SunTrust is doing what it must to climb out of the hole it’s in.

“I think the company has the earnings and the capital to work though” the losses, he said.

Problem areas for SunTrust include residential mortgages, real estate construction and home equity lines, particularly in Florida. The company said its commercial real estate portfolio continues to perform “reasonably well.”

Overall, the bank saw its pool of nonperforming loans rise to $6.2 billion in the second quarter, an increase of almost $1 billion from the first quarter of the year.

SunTrust executives said there are some early indications that things may be turning around. The bank reported an increase in deposits and a drop in the rate of loans going bad.

“Though we’re obviously not pleased to report a loss for the quarter, we are encouraged by this quarter’s results,” Wells said.

SunTrust raised $2.3 billion during the quarter to satisfy government “stress tests,” meaning the bank will remain well capitalized as defined by regulators even in a “worst case” economic scenario, the company said.

After dropping 5 percent Tuesday ahead of earnings, SunTrust shares gained 7 percent Wednesday, closing at $16.20.