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June 17 (Reuters) - Friedman Billings Ramsey reinitiated coverage of SunTrust Banks (STI.N: Quote, Profile, Research) and Regions Financial (RF.N: Quote, Profile, Research) with "underperform" ratings on concerns over higher credit costs and capital adequacy, but gave a "market perform" rating on BB&T Corp (BBT.N: Quote, Profile, Research) for its better capital position.

Friedman, which has a price target of $37 on SunTrust, said the stock's attractive price from a historical perspective is offset by a number of negatives it believes are of major concern.

Shares of Suntrust were down about 5 percent to $42.42 in morning trade on the New York Stock Exchange.

The brokerage said its price target represents a significant discount to the value of the franchise based on a lack of positive catalysts for the stock. There is uncertainty surrounding ultimate credit costs, sustainability of the dividend, and SunTrust's lack of desire to monetize the franchise at the current depressed valuation, the brokerage said.

Friedman said credit will decline further, capital levels will fall, and the bank's nonperforming assets will be higher than the peer average.

Also, the brokerage said SunTrust's net charge-offs performance has been worse than peer averages, reflecting a combination of its geographic location and greater percentage of loans composed of residential mortgage and home equity.

SunTrust has No. 1 and No. 3 market share in Georgia and Florida, respectively, states that are experiencing substantial economic slowdown and sharp declines in home prices, the brokerage said.

Real estate is about 60 percent of SunTrust's loan portfolio, while commercial and industrial lending makes up about 30 percent and consumer about 10 percent.