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Here's How SunTrust Fared in the Stress Tests

Matt Koppenheffer
March 8, 2013

For SunTrust (NYSE: STI), what a difference a year makes.

During last year's stress tests, SunTrust got a bit of a black eye as its capital plans were rejected by the Federal Reserve. Fast forward to this year, and the bank looks like it's in a much better position.

Unlike the Fed's Comprehensive Capital Analysis and Review -- which comes out next week -- the Dodd-Frank stress tests do not determine whether or not the banks involved can pay higher dividend or pay out stock. But since they use essentially the same modeling and stress-case scenarios, they're a good way for investors to get a sense for how the banks will perform in the CCAR, and whether they'll be able to increase capital distributions.

Capital ratios
Perhaps the key metric that the Fed and investors are looking at in the results of the stress tests is the Tier 1 common capital ratio, and, in particular, how that low that ratio falls under the hypothetical stressed conditions. 

Here's a look at how that ratio looked for SunTrust -- both pre-test actual and under stressed conditions -- as compared to similar numbers during last year's CCAR tests.

Source: Federal Reserve.

The outcome of the tests is practically night and day when compared to last year. What accounts for the change? Part of it was the bank's lower projected loss. In last year's CCAR, the Fed projected that SunTrust would lose nearly $6 billion under the stress scenario. This year, that loss fell to just $4 billion.

But let's dig in a bit further on that loss projection.

Projected net loss
How do the regulators get to the stressed capital ratios? A big piece of the puzzle is using the stress-scenario inputs to estimate how much of a profit -- or, in most cases, a loss -- the bank will register over the nine-quarter test period.

In SunTrust's case, the answer is a $4 billion loss on $4.6 billion of p