Shares fall as SunTrust says it will restate earnings upward
By Compiled from staff and wire reports
Published October 12, 2004
ATLANTA - SunTrust Banks Inc. said Monday that it expects to restate earnings higher for the first and second quarters of 2004 because of an error in entering the data used to calculate loan loss allowances, and plans to delay its third-quarter earnings release pending completion of an audit committee review.
For the first quarter, earnings are expected to rise by $17.4-million, or 7 cents per share. Income for the second quarter will increase by about $4.8-million, or 1 cent per share. SunTrust had originally reported net earnings of $358.5-million, or $1.26 a share, in the first quarter and $364.8-million, or $1.29 a share, in the second quarter.
This was the second time in six years SunTrust has had to restate profit to fix errors over how much to set aside for bad loans.
"I don't like this," SunTrust chief executive Phillip Humann, 58, said during a conference call with analysts.
Investors weren't happy either.
News of the restatement, delayed earnings and disciplinary action against executives sent SunTrust shares down 78 cents to close Monday at $69. Shares have fallen 3.5 percent this year.
"It's never a good thing when you restate earnings, even upwards," said Kevin Fitzsimmons, an analyst at Sandler O'Neill & Partners LP who has a "hold" recommendation on the stock. "It's severe enough that they are putting two senior executives on paid administrative leave and they are postponing earnings."
The company has placed chief credit officer Sandra Jansky and controller Jorge Arrieta on paid administrative leave until the review is completed. Humann said no determination of improper conduct on the part of the two executives has been made.
"You prefer not to see errors like that," said Mark Batty, who helps manage $51-billion, including SunTrust shares, at PNC Financial Services Group Inc. "You just question how something like this could slip through the cracks. The controls in this reporting area seem to be lacking."
The restatement is being blamed on an error in inputting data used to calculate the amount in a loss reserve related to loans SunTrust finances for people who buy cars through auto dealers, spokesman Barry Koling said.
The error was discovered during final preparation of third-quarter financial results, which SunTrust had been scheduled to release today. The company did not give a new date for it to release its earnings.
"It creates a black eye regarding its reputation," Prudential Equity Group analyst Michael Mayo, who rates SunTrust shares "underweight," wrote in a report. SunTrust will have less reserves for future loan losses and the restatement might bring inquiries by the Securities and Exchange Commission and the Federal Reserve, he said.
SunTrust's audit committee and independent counsel Wilmer Cutler Pickering Hale and Dorr LLP have begun a review of the errors, communications by certain SunTrust personnel to its independent auditors about the errors, loan loss reserve issues and related matters.
SunTrust said the review could result in additional restatements to previous financial reports, including further adjustments to first- and second-quarter 2004 results.
In May, SunTrust said it was buying National Commerce Financial Corp., which is known for its outlets in supermarkets and retail stores, for nearly $7-billion. The deal, which closed Oct. 1, makes SunTrust the nation's seventh-largest bank, with $148-billion in assets and $97-billion in deposits.
In the bank's 1998 restatement, SunTrust boosted net income by $61-million for 1994, 1995 and 1996 to correct accounting for loan losses. After discussions with the SEC at the time, the bank reduced the money it set aside for bad loans by $100-million over the three years.
Times staff writer Jeff Harrington contributed to this report, which used information from the Associated Press and Bloomberg News.
