DBRS downgrades SunTrust

DBRS said it downgraded the ratings of SunTrust Banks, Inc., including its issuer and senior debt ratings to A from A (high), subordinated debt to A (low), perpetual preferred stock to BB (high) and short-term instruments to R-1 (low).

The long-term ratings of operating bank subsidiary SunTrust Bank were lowered to A (high) from AA (low), and the trust preferred securities are now rated A (low).

This concludes the review with negative implications that began in January. The trend is negative except for the FDIC-guaranteed AAA debt ratings, which have a stable trend.

The agency said the downgrade is driven by its view that SunTrust has struggled with steepening credit costs from deteriorating asset quality for more than two years. The $2.9 billion in loan loss provisions taken in the past four quarters were roughly 95% of the company's $3.1 billion income before taxes and provisions.

The company's ratings are supported by its powerful deposit franchise in higher growth markets and a diverse business mix that has produced a historically recurrent earnings stream, DBRS said.

The negative trend reflects DBRS' perception that significant amounts of potential losses remain embedded in the company's loan portfolios, especially given macroeconomic challenges that include declining real estate valuations and rising unemployment.

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