Fitch affirms SunTrust's issuer default ratings

Fitch Ratings on Tuesday affirmed the long-term issuer default ratings of SunTrust Banks Inc. and its bank subsidiary, SunTrust Bank at "A-".

The Atlanta-based regional banking company's ratings have been removed from "Rating Watch Negative," where they were placed on May 15 as part of Fitch's recent review of the major U.S. banks. The rating outlook is "Negative."

The rating action marks the completion of Fitch's recent review of SunTrust and reflects recent capital raising efforts. Fitch analysts said the cash infusion bolstered the company's capital base and substantially met its capital requirements.

SunTrust shares rose 3 cents to $15.02 in morning trading.

Fitch analysts expect SunTrust will continue to see further deterioration in credit quality, which will make it difficult for the company to return to profitability in 2009 and likely into 2010. However, the analysts believe that with the recent capital raise combined with other planned capital raising initiatives, SunTrust has sufficient financial resources, relative to its current ratings, to absorb the anticipated higher loss rates in its portfolio over the near to intermediate term.

The ratings are underpinned by its sizable branch franchise which provides a solid core funding base and contributes to the company's healthy liquidity position, the analysts noted.

The "Negative Rating Outlook" reflects concern that credit deterioration could escalate beyond Fitch's current expectations should economic weakness persist longer than anticipated.

SunTrusts credit problems largely result from its home equity, mortgage, and residential construction portfolios. Fitch analysts are concerned that greater problems could arise from the company's sizable core prime mortgage portfolio, which has significant concentrations in the still troubled markets of Florida and Georgia, as well as its commercial mortgages.

While the parent company has the financial resources to repay its preferred stock issued as part of the U.S. Treasury's Capital Purchase Program, given the credit environment, Fitch would view negatively a near-term repayment without the company raising a sufficient amount of replacement capital.

SunTrust has about $180 billion in assets and 1,700 branches mostly in the southeastern and mid-Atlantic regions of the United States.