UPDATE: Nomura Initiates Coverage on SunTrust Banks with Neutral Rating, $31 PT on Signs of Progress
In a report published Wednesday, Nomura initiated coverage on SunTrust Banks (NYSE: STI) with a Neutral rating and $31.00 price target.
Nomura noted, “Initiating coverage with Neutral rating. While SunTrust is making progress on reducing expenses and credit is improving, we see NII declining in 2013, given continued NIM pressure; the potential loss of $25-30mn of swap income; and sluggish loan growth. In addition, fee revenue could be under pressure, because while mortgage revenue (11% of revenue in 4Q12) may remain healthy in 2013, it will likely not reach 2012‟s strong levels. Finally, while STI has a solid 8.2% Basel III T1C ratio, management is being conservative in its capital return requests, so buybacks are not expected. Mortgage revenue is a key driver for STI, accounting for 11% of core revenues in 4Q12. We expect mortgage revenue to remain strong in 2013. STI is focused on cutting expenses, and headcount declined 8% in 2012, which should bring down comp expense in. Unfortunately, this already appears to be factored into the stock, with 2013 consensus calling for a $440mn expense decline.”
SunTrust Banks closed on Tuesday at $28.76.
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