SunTrust's quarter was pretty bland. Revenues increased 3% compared to the year-ago period, with a mix of 11% growth in non-interest income -- partly because of some one-time items -- offset by a 2% decrease in net interest income. The company kept a tight lid on expenses, with non-interest expenses rising 2%, which left quarterly net income with a 1% increase over last year's period.
It's almost standard procedure nowadays for a company's management, following a not-so-great quarter, to pay lip service to cost-cutting initiatives and implement snazzy-sounding plans to improve results. Although SunTrust got the snazzy-sounding part down with its E squared (excellence in execution) and S cubed (sell, serve, sustain) initiatives, it's safe to say that the company was paying more than lip service. During the earnings call, Jim Wells, who was handed the reins as CEO at the start of the year, outlined a detailed and impressive plan to cut $400 million in operating expenses by the end of 2009.
In general, companies that run a tight ship continually find ways to shed hidden fat, and companies with bloated structures somehow find ways to waste additional shareholder dollars. Luckily, SunTrust falls into the former category. For starters, SunTrust's management identified 1 million square feet of office space it could cut, and plans to cut a total $75 million in real estate expenses by the end of 2009. Management also reviewed its relationships with its 61 largest suppliers and locked in $19 million in savings, out of a total $115 million expected in this area. Offshoring and outsourcing and process re-engineering were additional cost-cutting areas identified.
If I were a shareholder, hearing management present a credible three-year plan to cut $400 million in expenses -- nearly 5% of SunTrust's $8.2 billion in 2006 sales -- would be music to my ears. It's also noteworthy that those expenses are from "non-core" items. For example, it'd be easy for a company to cut its advertising or R&D expenses, but that cost-cutting might actually damage the company. So the company's reinvesting some of those savings into growth initiatives like de novo branching means SunTrust shareholders should benefit.
For some related banking commentary, check out:
- BB&T Doesn't Sweat Stormy Environment
- Washington Mutual Regroups for 2007
- M&T: A Page from Buffett's Playbook
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Fool contributor Emil Lee is an analyst and a disciple of value investing. He doesn't own shares in any of the companies mentioned above. Emil appreciates comments, concerns, and complaints. The Motley Fool has a disclosure policy.