The Federal Reserve has approved
SunTrust Banks Inc.
) capital deployment plan for the remainder of this year. The
company had re-submitted its capital plan in June as a part of the
Comprehensive Capital Analysis and Review (CCAR) process.
While re-submitting its capital plan, SunTrust did not ask for any
additional capital actions. Hence, the company will continue paying
a quarterly dividend of 5 cents per share and will not be
repurchasing any shares.
In March, SunTrust's plan to raise dividend and initiate a share
buyback was rejected on the grounds of its Tier 1 common ratio
(under hypothetical stressful scenarios) being lower than what was
stipulated by the Fed. However, at the same time, the company's
plan to redeem certain trust preferred securities (TruPS) was
permitted by the regulator.
Therefore in July, following the announcement of new capital
proposal, SunTrust completed the redemption of TruPS worth
approximately $1.2 billion. As per the new proposal, the TruPS
issued prior to May 19, 2010 would no longer qualify for Tier 1
capital ratio calculations beginning 2013.
Fed's Approval for Other Banks
Similar to SunTrust,
), whose extra capital deployments were also rejected by the Fed,
had announced that it would not request any additional capital
deployment while re-submitting its capital plan to the Fed.
Citigroup will continue to pay its current dividend of 1 cent per
Moreover, earlier this week,
Fifth Third Bancorp
), whose capital plan was also rejected in March, received approval
for its proposed capital plan through March 2013. This includes a
possible increase in its dividend in the third quarter as well as
share buybacks. Fifth Third, which currently pays a dividend of 8
cents per share, has proposed a raise in its dividend to 10 cents
and approved a new share buyback authorization of 100 million
SunTrust is expected to reconsider its capital deployment
activities as part of the 2013 CCAR program. The company will be
submitting its capital plan for 2013 in January next year. We
believe that its stable capital ratios and consistent profitability
over the last few quarters will enable the company to clear the
next stress test, leading to enhancement of shareholder value.
SunTrust currently retains a Zacks #3 Rank, which translates into a
short-term Hold rating. Considering the fundamentals, we also
maintain a long-term 'Neutral' recommendation on the stock.
CITIGROUP INC (C): Free Stock Analysis Report
FIFTH THIRD BK (FITB): Free Stock Analysis
SUNTRUST BKS (STI): Free Stock Analysis Report
To read this article on Zacks.com click here.