SunTrust Banks’ ability to soon pay off its government bailout funds will hinge on its performance in a second round of stress testing for the nation’s biggest banks, the company’s chief executive said Tuesday.
James M. Wells III, the chairman, president and CEO of Atlanta-based SunTrust, said regulators have implied the second round of testing will determine when it would be allowed to pay off the taxpayers’ $4.85 billion stake in the regional bank.
SunTrust is the largest bank that hasn’t paid off TARP, the infusion of government cash that came during the height of the financial crisis. SunTrust had paid $436.6 million in dividends to the government as of November, according to the Treasury Department.
Wells, speaking Tuesday at the Goldman Sachs U.S. Financial Services Conference in New York, said executives “believe TARP repayment is now wrapped up in [the stress tests].”
The nation’s 19 biggest banks — including SunTrust — will be tested again by the Federal Reserve in the first quarter of 2011 to see how resilient they would be to another shock to the economy. SunTrust was ordered to raise $2.2 billion in May 2009 as a result of the first stress test.
SunTrust does not expect results of the latest exam until the end of the first quarter.
Analysts have said SunTrust may need to raise cash through a stock sale before it repays TARP.
The bank has said it doesn't want to do that because stock offerings dilute current shareowners' holdings. It could also sell off portions of its securities portfolio or other assets.
SunTrust avoided “the feeding frenzy” by banks in late 2009 that sold stock to quickly repay TARP, Wells said, “betting” the bank would be able to sell fewer shares at a better price as the condition of the bank and the economy improved.
SunTrust shares at the end of 2009 traded around $20 per share. Shares closed down 8 cents Tuesday at $25.51.
SunTrust reported a third quarter profit of $84 million, its first in nearly two years. The bank expects the fourth quarter to be profitable as well, with moderate improvements in asset quality and the money it sets aside for bad loans.
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