SunTrust closes the books on a grim 2009

For SunTrust, 2009 was a year to forget.

The Atlanta-based bank on Friday reported that it lost $1.7 billion last year, including $316 million in the fourth quarter. SunTrust officials said the battered economy and slumping housing market continue to drag down the bottom line.

Analysts said they expect SunTrust’s losses to continue in the short run. Despite that, they said metro Atlanta’s biggest bank appears to be managing through the crisis well and is on track to return to profitability in 2011 – perhaps sooner if the economy strengthens more than expected.

SunTrust’s troubles come amid a cataclysmic period for the nation’s banking industry, which only a year ago had to be bailed out by the federal government to avoid a possible 1930s-style Depression. In Georgia, 30 banks have failed, most of them small institutions that lent heavily to home builders and developers.

Some of the nation’s biggest banks are once again posting big profits – most notably Wall Street firms that survived the crisis, such as Goldman Sachs, which have large and lucrative trading units that more conventional banks like SunTrust don’t have. In recent months, some Wall Street banks have faced criticism for plans to pay out billions in employee bonuses.

The fortunes of conventional banks like SunTrust are more closely tied to the general economy, which remains soft. SunTrust is just one of many banks struggling to dig itself out of a hole, said Jeff Davis, an analyst with FTN Equity Capital Markets.

Sun Trust’s problems are “consistent with what we are seeing with almost every bank in the country,” he said.

SunTrust’s $316 million fourth-quarter loss, which amounts to 64 cents a share, narrowly beat Wall Street estimates. The loss compares to losses of $374.9 million a year ago and $377 million in the third quarter of 2009.

The company’s shares rose 2 cents on Friday to close at $24.55. The stock has recovered from a low last February of below $7 a share and has hovered in the low $20s since August.

SunTrust’s string of losses – five quarters and counting in the red – won’t end soon, said Chris Marinac, an analyst at FIG Partners in Atlanta.

“You still have a fragile economy, you still have a lot of fragile borrowers,” he said. SunTrust “has a lot of issues to deal with this year.”

SunTrust, a historically conservative lender, ran into trouble after betting heavily on home mortgages and home building last decade, including in hard-hit areas such as metro Atlanta and Florida.

“What has historically been a very blessed geography for SunTrust was very much a curse in this cycle,” said Davis.

The bank charged off $820.5 million in bad loans in the fourth quarter, compared to $552 million a year earlier. For the year, SunTrust charged off $3.2 billion, twice as much as the year before.

But some key indicators are positive. The bank’s pool of nonperforming loans declined slightly for the second straight quarter, to $5.4 billion. The amount of bad loans charged off dropped by 18 percent from the third to fourth quarters.

Still, James M. Wells, SunTrust’s president, said any optimism must be “tempered.”

“The economy remains far from strong,” Wells told analysts during a conference call Friday. “There remains more uncertainty than clarity in the outlook.”

SunTrust strengthened its capital position last spring by raising $2 billion by selling shares and remains “well capitalized” by regulatory standards. The bank also holds $4.84 billion it received from the federal government as part of the U.S. Treasury’s effort to shore up the banking industry.

SunTrust officials have said they want pay back Uncle Sam, but the bank must first receive regulatory approval. Another complication: regulators may require SunTrust to sell more shares to replace some of the government funds, which would further dilute existing shareholders.

“We’re not certain when we’ll do it,” Wells said. “We need to have the starts and the moon aligned, and we’ll go from there.”