SunTrust, Synovus post big losses as real estate woes continue

Georgia’s largest banks, SunTrust and Synovus, posted more large losses for the third quarter tied to soured real estate loans.

Analysts said they expect more red ink to come as the banks work through their problems and wait for the economy to turn around.

Atlanta-based SunTrust reported a loss of $377 million, or 76 cents a share. Synvous, based in Columbus, lost $423.7 million, or $1.27 per share.

SunTrust’s losses more than doubled from the previous quarter as the company wrote off soured loans and stashed away money for additional losses down the road. The bank’s provision for loan losses increased by $171.7 million in the third quarter, bringing the total to more than $1.1 billion.

In the third quarter of 2008 SunTrust had a profit of $304 million.

Columbus-based Synovus reported its fifth straight quarterly loss as the company stuck to its plan of aggressively purging its battered balance sheet. The banking company marked down the value of non-performing loans, often to liquidation-sale values, and sold $339 million in problem assets.

Richard Anthony, Synovus’s CEO, said the bank knew the “aggressive tactics” would mean another quarter of heavy losses. But the moves are necessary to ensure the bank emerges from the recession in shape to prosper, he said.

“We are trimming down any potential future exposure by charging these existing [non-performing assets] down,” Anthony said in a conference call with analysts.

Synovus pared its losses a bit from the second quarter, when the bank reported a net loss of $587 million. But the results fell short of analysts' expectations. In the third quarter of 2008 it had loss of $35.5 million.

Both companies’ results come days after several Wall Street banks reported healthy profits, largely on the shoulders of trading income. SunTrust CEO James M. Wells said the third-quarter results reflect the “difficult operating environment for more traditional banks.”

Wells said some encouraging signs emerged during the quarter, including lower operating expenses and a decline in non-performing loans. But the rough economy meant weak demand for new loans.

“What it comes down to is that we are encouraged by some core business trends that are emerging amid signs of an improving economy,” Wells said during a conference call with analysts. “At the same time, we remain responsibly cautious in our optimism. In our view, it would be premature to declare broad victory over recessionary pressures or to start talking about turning corners, about hitting a bottom, and the like.”

SunTrust raised more than $2 billion last spring by selling shares to build an extra-large cushion to protect against a further erosion of the economy. The bank remains well-capitalized by regulatory standards.

SunTrust, a historically conservative bank, bet heavily on home mortgages and residential home building during the real estate boom. Annual revenues doubled between 2003 and 2006 to nearly $7 billion, helping profits reach $2 billion in 2005 and 2006.

But the housing bust and subsequent deep recession have taken a toll. SunTrust has now ended four straight quarters in the red, recording $1.8 billion in losses over that stretch.

Chris Marinac, an analyst with FIG Partners in Atlanta, said SunTrust deserves credit for aggressively writing down its bad loans. But he said it may be a year before the bank returns to profitability and the cycle runs its course.

For SunTrust, “it’s like walking through a hail storm,” he said. “You have your umbrella and your boots on. And you’re just slogging through. You are able to walk and breathe, and there’s a lot to be said for that.”

Adam Barkstrom, an analyst at Sterne Agee, said it’s no surprise SunTrust continues to struggle with credit problems given the challenging economic conditions. But he said the third-quarter performance “came in worse than we were expecting.”

Barkstrom said he is concerned that SunTrust’s commercial real estate loan portfolio will continue to deteriorate. Many experts have said commercial real estate such as retail centers and office buildings will be the next real estate-related crisis to hit the banking industry.

SunTrust stock rose 5 percent on Thursday, to $21.85 per share.

Synovus, which announced its earnings after markets closed, saw its stock rise almost 8 percent to $3.57 a share.