SunTrust: Financial Loser
The broad indexes ended with slight declines, after the Institute for Supply Management said that "economic activity in the manufacturing sector contracted in November following two months of modest expansion," although the overall U.S. economy expanded for the 42nd consecutive month. The ISM's manufacturing index declined to 49.5 in November from 51.7 in October. An index reading below 50 indicates economic contraction.
The ISM said that comments among members of its Manufacturing Business Survey Committee "generally indicate that the second half of the year continues to show a slowdown in demand; respondents also express concern over how and when the fiscal cliff issue will be resolved."
While short-term investors may be worried about a second-half manufacturing slowdown, those with a longer view could be looking at a major catalyst. Jim Cramer wrote last week that the rebuilding after Hurricane Sandy could act as a major catalyst for the economy, "because the housing and construction business was just beginning to come back on its own," and because the current damage estimates for New York and New Jersey "will end up dramatically understating the destruction."
The Census bureau on Monday reported that estimated construction spending during October rose 1.4% from the revised September estimate, to an annual rate of $872.1 billion. The October figure was up 9.6% from a year earlier.
The KBW Bank Index (I:BKX) was down 1% to close at 48.16, with all but three of the 24 index components showing declines.
SunTrust's Coming Capital Return
SunTrust's shares have now returned 52% year-to-date, after declining 40% last year.
The shares trade just above times their reported Sept. 30 tangible book value of $25.72, and for 10 times the consensus 2013 earnings estimate of $2.71 a share, among analysts polled by Thomson Reuters. The consensus 2014 EPS estimate is $3.04.
The Atlanta lender during the third quarter made several moves to shore up its balance sheet ahead of the next round of Federal Reserve stress tests early this year, including the sale of its stake of Coca-Cola (KO) shares, resulting in a pre-tax gain of $1.9 billion. The company also reported a $371 million provision for mortgage repurchase claims during the third quarter, saying that the move had ""increased the mortgage repurchase reserve to a level that is expected to cover the estimated losses on loans sold to Government Sponsored Enterprises (GSEs) prior to 2009."
Other third-quarter balance sheet moves included "the sale of $0.5 billion of nonperforming mortgage and commercial real estate loans," along with ""the movement of $1.4 billion of delinquent and current student loans and $0.5 billion of delinquent Ginnie Mae loans to loans held for sale."