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FBR: SunTrust Expected to Improve, but Still Vulnerable

""SunTrust"":https://www.suntrust.com/PersonalBanking is taking steps to improve its position in the market. The bank has continued to grow its mortgage banking division, which earned $258 million last quarter, according to ""FBR Capital Markets."":https://fbr.bluematrix.com/sellside/EmailDocViewer?encrypt=15431c53-1eb9-4fb3-be63-18b8966a3851&mime=pdf&co=fbr&id=ryan.schuette@dsnews.com&source=mail&pdfFileExtension=.pdf While this was offset by repurchase provisions, the bank has now settled short-term losses, leaving FBR with expectations of profitability ""especially as the refi boom continues.""


FBR expects the Atlanta-based bank to bring in $531 million from its mortgage banking division this year and close to twice that next year.


With the announcement of a $375 million reps and warranties provision, FBR announced Friday that ""[t]his charge will likely take care of any reps and warrants losses [SunTrust] may incur in the short term.""

In FBR's previous report, it suggested SunTrust was likely to see $800 million in repurchases losses from the GSEs. However, FBR now says, ""we believe that today's $375 million charge should alleviate investor concerns in the short term.""

FBR has revised its 2013 estimates up as a result but does expect about $250 million reps and warrants losses next year.

As a regional bank operating in the Southeast, SunTrust is vulnerable to the volatile Southeastern markets, including Florida, which has experienced significant price depreciation. ""Continued weakness in this market will amplify future losses and have a material impact on the profitability and health of the company,"" FBR stated.

""To date, the company's slow credit improvement reflects its disproportionate exposure to Southeast residential mortgages,"" FBR stated.


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