June 23, 2008 / 1:56 PM / 11 years ago

UPDATE 2-RESEARCH ALERT-SunTrust a likely takeover target: Bove

(Adds Bove comments, updates share movement)

BANGALORE, June 23 (Reuters) - SunTrust Banks Inc (STI.N) could be a potential acquisition target said Ladenburg Thalmann analyst Richard Bove, who slashed the regional bank’s price target, and called it another bank “that is now worth more dead than alive”.

Potential suitors for SunTrust could be Wells Fargo & Co (WFC.N) or JPMorgan Chase & Co (JPM.N), Bove said in an email sent to Reuters.

He chopped the price target on the stock to $42 from $63, and for the second time this year revised downward 2008 earnings estimates, now to $3.19 a share from $3.97.

The revisions reflect the company’s view that loan losses may grow by 10 percent to 15 percent in the second quarter, Bove said.

SunTrust shares were down 2 percent to $36.48 in afternoon trade on the New York Stock Exchange. Early in the session they rose 4 percent.

Bove said the key areas of concern for SunTrust continue to be Alt-A mortgages and loans of all types in Florida. The bank has $48.2 billion in residential real estate and home equity loans, which represent 39 percent of its loan portfolio, he wrote in a June 21 research note to clients.

“Alt-A” loans are usually given to those with clean credit histories but who have limited income documentation.

The bank’s non-performing assets are 1.87 percent of loans and its 90-day past due loans have increased by 21.8 percent in the last quarter, Bove noted. He said the bank believes that the rate of gain on these troubled assets has slowed.

Despite these serious issues, the bank has said it would not tamper with its dividend or raise additional capital, Bove said.

It is believed that SunTrust is likely to do a convertible bond that would convert into its holdings of Coca-Cola Co (KO.N) stock rather than into SunTrust stock, he added.


Bove also cut earnings-per-share estimates for the bank to $3.51 from $5.04 for 2009, and to $3.83 from $6.06 for 2010.

Bank stocks have suffered from the credit crisis and large losses that have been taken due to bad loans and many investors feel the worse is not over.

“There is continued panic selling in all bank stocks. In addition, portfolio managers want these names off their books before June 30,” Bove said.

Shares of Bank of America Corp (BAC.N), JPMorgan and Citigroup Inc (C.N) were all trading down 2-3 percent on the NYSE.

Bove said SunTrust has $32.1 billion in cash and securities, which is 2.5 times the company’s market capitalization.

He maintained his “neutral” rating on the stock. (Reporting by Dilipp S. Nag in Bangalore; Editing by Jarshad Kakkrakandy, Bernard Orr)

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