The Setting Sun

Sun Trust is shredding itself. With the credit crunch dragging it down, STI sold a chunk of its coke shares to boost its “Tier-1″ capitial ratio. This is not a completely ordinary transaction. That those shares were part of the original IPO that the bank sold them now is telling, even as Coke itself is down some 23% since they hit a 52-week high in January:

In June, SunTrust (NYSE: STI) sold 10 million shares of Coca-Cola (NYSE: KO) stock, which strengthened its estimated Tier 1 capital position by 20 basis points, it said. In July, the company completed a Tier 1 transaction involving 30 million shares of Coca-Cola stock. The company also contributed 3.6 million shares of Coca-Cola common stock to its charitable foundation, which will reduce ongoing charitable contribution expense and increase Tier 1 capital by 4 basis points.

“Our capital position solidified during the quarter as a result of the Coke stock-related transactions, which make SunTrust even better prepared to address the challenges of the current environment, as well as strengthen our position for the long-term,” SunTrust Chairman, President and Chief Executive Officer James M. Wells III said in a prepared statement.

We wonder if they really are getting full value from these Coke stock sales, given that everyone knows they urgently need to unload them to raise cash. And we could certainly find worse stocks to hold onto as the dollar weakens. But it looks like STI is in “selling the furniture” mode.

At any rate, your position remains tenuous at best as your core problems persist:

But items that negatively impacted results included mark-to-market losses on the company’s debt, which reduced earnings by 17 cents a share; impairment of an intangible asset, which cut earnings by 8 cents a share; Coca-Cola stock transaction costs, which had a negative impact of 2 cents share; and costs of 2 cents a share for the company’s E2 Efficiency and Productivity Program.

There are other telling actions taken by the bank:

1. Net charge-offs - loans it doesn’t think are collectible - soared to 1.04% of total loans from 0.30% a year ago and 0.97% in the first quarter. Last month, SunTrust reiterated its expectations for net charge-offs to rise 15% to 20% from the prior quarter.
2. SunTrust boosted its provision for loan losses to $448 million from $104.7 million a year ago, but down from $560 million in the first quarter.

The first one tells you that SunTrust is moving from write downs to charge offs, never mind that the 15%-20% levels are stratospheric. The second tells you that the bank expects things to only get worse.

The bank apparently feels squeamish about reporting actual write/charge off numbers prefering to report the percentages and amount/share. As it finally turns out the net charge-offs for fiscal second quarter 2008 were $323 million.