SunTrust Banks increased profits in the fourth quarter and for 2011 as a whole with improvements to overall credit quality, but performance was weighed down by troubles in the bank’s mortgage unit.
Atlanta-based SunTrust said Friday it is seeing more requests by investors -- mainly government-backed Fannie Mae and Freddie Mac -- to buy back mortgages it bundled and sold as securities during the housing boom that later soured.
Largely because of these requests, SunTrust's mortgage division lost about $700 million for the year. Officials said in December such requests were rising.
Charge offs of repurchased mortgages increased more than 30 percent to $177 million from third to fourth quarter.
A problem for other banks as well, investors have alleged the loans didn’t meet the terms of the investment agreements, resulting in losses.
Repurchase demands were $636 million, up 45 percent since the third quarter and nearly triple the $233 million reported in fourth quarter 2010.
Investors' $5.1 billion in cumulative requests have resulted in more than $1 billion in losses over the past several quarters.
Chris Marinac, bank analyst with FIG Partners in Atlanta, said SunTrust is starting to get these issues under control, as well as improve credit quality.
Bank officials said they are seeing growth in corporate banking and investment banking.
"While 2011 was a challenging year, overall we ended it with significantly better momentum than when it began," said SunTrust Chairman, President and CEO William Rogers Jr.
Net income grew to $152 million in fourth quarter 2011, or 28 cents per diluted share, vs. $114 million, or 23 cents per share, in the fourth quarter 2010. Full year 2011 profit was $572 million, or $1.09 per share, compared with an $87 million loss, or 18 cents per share, in 2010.
Fee revenue -- including those charged merchants when customers pay by debit -- declined 30 percent in the quarter vs. fourth quarter 2010, largely because of regulatory changes.
Net charge offs of bad loans declined 24 percent from a year earlier in the fourth quarter.
SunTrust also said it was starting discussions on a settlement related to mortgage servicing and foreclosure practices, joining other major banks in talks with the attorneys general of the 50 states.
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