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SunTrust Banks, Inc. Message Board

  • stephen_dh stephen_dh Feb 3, 2014 6:48 PM Flag

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    "Bank earnings have been aided for several years by improving loan quality, which allows banks to spend less on cushions for loans that could sour and giving them more room to release the reserves they set aside for the possibility of defaults.

    Those lower expenses and releases go right to the bottom line. But what happens when banks start adding to their loan loss provisions again, or at least slow their reserve releases?

    Analysts widely expect banks to start building their provisions as the firms start to make more loans. As that happens, net charge-offs—or loans that are written off— will likely climb as well.

    Analyst Chris Mutascio of KBW looked at the question of how the banks might stack up in that scenario. If loan-loss provision expenses continue to climb, as they did at seven of 11 large U.S. banks tracked by KBW last quarter, some banks won’t see much difference. PNC Financial Services Group Inc.PNC -1.82%, U.S. BancorpUSB -2.39% and SunTrust Banks Inc.STI -1.67% will fare the best among big U.S. banks, according to the analysis released last week by Mr. Mutascio. “This indicates that these banks are relying less on reserve releases in the current environment,” he says.

    Under Mr. Mutascio’s stress test, PNC, U.S. Bancorp and SunTrust take a less than 10% hit to per-share earnings once they are “shocked” with historically normal provision expenses and separately with matching their provision expense to current net charge-off levels." FWIW

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