OREANDA-NEWS. Fitch Ratings has upgraded SunTrust Banks Inc.'s (STI) ratings to 'A-' from 'BBB+'. The Rating Outlook has been revised to Stable from Positive. The upgrade reflects an improved earnings profile that has converged to peer averages, good asset quality performance, and continual enhancements to the company's balanced and diverse business mix.

The rating action follows a periodic review of the large regional banking group, which includes BB&T Corporation (BBT), Capital One Finance Corporation (COF), Comerica Incorporated (CMA), Fifth Third Bancorp (FITB), Huntington Bancshares Inc. (HBAN), Keycorp (KEY), M&T Bank Corporation (MTB), MUFG Americas Holding Corporation (MUAH), PNC Financial Services Group (PNC), Regions Financial Corporation (RF), SunTrust Banks Inc. (STI), US Bancorp (USB), Wells Fargo & Company (WFC), and Zions Bancorporation (ZION).

Company-specific rating rationales for the other banks are published separately, and for further discussion of the large regional bank sector in general, refer to the special report titled 'Large Regional Bank Periodic Review,' to be published shortly.

KEY RATING DRIVERS

IDRs, VRs and Senior Debt

SunTrust Banks, Inc.'s (STI) earnings continue to exhibit improvement, and have since converged to large regional bank averages. STI's earnings benefit from a solid level of non-interest income, with revenues primarily from deposit service charges, investment banking, trading income, mortgage revenues, as well as trust and investment management income.

While deposit costs are roughly in line with its peers, STI's loan yields are lower than the other large regional banks, contributing to a relatively weaker net interest margin than its peers. To address its earnings profile, one of STI's overarching strategic objectives over the near term is to improve its efficiency.

STI's ratings also reflect the company's balanced consumer and commercial banking franchise, as well as a national mortgage banking franchise and a sizable and strong middle-market focused capital markets business. Since the financial crisis, STI has materially reduced its reliance on residential real estate, with more diversification between consumer and commercial loans, now comprising 45% and 55% of total loans, respectively, as of June 30, 2015.

STI has an attractive retail franchise with the number one share of deposits in Georgia, and the number three share in both Florida and Tennessee. The franchise includes many states with favorable demographic trends in the Southeast and Mid-Atlantic.

STI reported continued asset quality improvement in 2Q'15, with still very low balances of net charge-offs (NCOs) and continuing improvement in nonaccrual balances. STI's view of through-the-cycle loan losses is between 40 basis points (bps) and 70bps. With NCOs in 2Q'15 at just 26bps, Fitch expects some credit deterioration for STI, as well as the industry, as credit losses are likely at unsustainably low levels.

STI's level of non-performing assets (NPAs) remains somewhat elevated; however, this includes a large balance of mortgage-related troubled debt restructurings (TDRs). However, 97% of these accruing TDRs are current, mitigating the credit risk in the pool of modified loans. Excluding the accruing TDRs from problem asset totals, STI's ratio of NPAs to total loans and foreclosed real estate falls to the second lowest of the large regional banking peer group.

STI's securities portfolio continues to present nominal credit risk with approximately 96% of its holdings related to either agency mortgage-backed securities or U.S. Treasuries/agency debt, one of the highest levels among the large regional banks.

STI estimates its fully phased-in Common Equity Tier 1 ratio under Basel III was 9.8% as of June 30, 2015. This is somewhat below the peer average, though still high in absolute terms, and well above the requirement of 7%. STI received no objection to its capital plan this year, and quantitatively, performed well relative to other large regional peers. Its level of capital erosion under DFAST, or the starting Tier 1 common ratio less the minimum ratio under the severely adverse scenario tied for the third best of the large regional peers group. STI's internal results were very similar to regulatory results as well. STI did similarly well during last year's CCAR test.

STI's liquidity profile remains stable. Compared with large regional peers, STI's loan-to-deposit (LTD) ratio is on the higher end, although other liquidity metrics, percentage of liquid assets, and wholesale funding, are better. STI disclosed that its LCR continues to exceed the Jan. 1, 2016 requirement of 90%.

STI has access to diversified sources of funding, including deposits, FHLB advances, and access to the capital markets. In addition, STI completed its first indirect automobile securitization in eight years in 2Q15, taking around \\$1 billion of relatively low returning assets off the balance sheet. STI has also sold government guaranteed student loans in the past. Fitch views STI's funding profile as solid, which is reflected in the company's newly upgraded credit rating.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

STI's subordinated debt is notched one level below its VR of 'a-' for loss severity. STI's preferred stock is notched five levels below its VR, two times for loss severity and three times for non-performance, while its trust preferred securities are notched two times from the VR for loss severity and two times for non-performance. These ratings are in accordance with Fitch's criteria and assessment of the instruments' non-performance and loss severity risk profiles and have thus been upgraded due to the upgrade of the VR.

LONG- AND SHORT-TERM DEPOSIT RATINGS

The uninsured deposit ratings of SunTrust Bank are rated one notch higher than STI's IDR and senior unsecured debt because U.S. uninsured deposits benefit from depositor preference. U.S. depositor preference gives deposit liabilities superior recovery prospects in the event of default.

HOLDING COMPANY

STI's IDR and VR are equalized with those of its bank, reflecting its role as the bank holding company, which is mandated in the U.S. to act as a source of strength for its bank subsidiaries. Ratings are also equalized reflecting the very close correlation between holding company and subsidiary failure and default probabilities.

SUPPORT RATING AND SUPPORT RATING FLOOR

STI has a Support Rating of '5' and Support Rating Floor of 'NF'. In Fitch's view, STI is not systemically important and therefore, the probability of support is unlikely. IDRs and VRs do not incorporate any support.

RATING SENSITIVITIES

VR, IDRs and Senior Unsecured Debt

At STI's new rating level, Fitch envisions little near-term upward ratings momentum. Fitch's rating action expects further improvement in reported earnings measures over the medium term. The upgrade also assumes that capital will be deployed gradually over the near term. If capital is maintained at appropriate levels, asset quality remains good, and STI's earnings performance consistently improves to levels above the peer average, there could be further upside to STI's ratings.

Conversely, a meaningful deterioration in capital or asset quality may prompt negative rating action, though Fitch expects some level of mean reversion in loan losses, as well as a reduction in capital ratios over time. Long-term capital targets are expected to remain between 8% and 9.5% for the large regional bank peer group. For those banks whose long-term capital targets fall to the lower end of that range, Fitch expects they will also have superior earnings profiles that provide for adequate capital generation capabilities. Absent that, there could be negative rating actions.

While not anticipated, greater reliance on more volatile capital markets revenues may be a constraint to further upside in the company's ratings. On average, investment banking and trading income accounts for around 8% of revenues. A sustained reliance of greater than 20% to 25% may constrain further upside ratings momentum.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

The ratings for STI and its operating companies' subordinated debt and preferred stock are sensitive to any change to STI's VR.

LONG- AND SHORT-TERM DEPOSIT RATINGS

The long-and short-term deposit ratings are sensitive to any change to STI's long- and short-term IDR.

HOLDING COMPANY

Should STI's holding company begin to exhibit signs of weakness, demonstrate trouble accessing the capital markets, or have inadequate cash flow coverage to meet near-term obligations, there is the potential that Fitch could notch the holding company IDR and VR from the ratings of the operating companies. This is viewed as unlikely, though, for STI given the strength of the holding company liquidity profile.

SUPPORT AND SUPPORT RATING FLOOR

Since STI's Support and Support Rating Floors are '5' and 'NF', respectively, there is limited likelihood that these ratings will change over the foreseeable future.

FULL LIST OF RATING ACTIONS

The rating actions are as follows:

SunTrust Banks, Inc.
--Long-term IDR upgraded to 'A-' from 'BBB+'; Outlook Stable;
--Short-term IDR upgraded to 'F1' from 'F2';
--Viability Rating upgraded to 'a-' from 'bbb+';
--Preferred stock upgraded to 'BB' from 'BB-';
--Senior debt upgraded to 'A-' from 'BBB+';
--Subordinated debt upgraded to 'BBB+' from 'BBB';
--Short-term debt upgraded to 'F1' from 'F2';
--Support affirmed at 5;
--Support Floor affirmed at 'NF'.

SunTrust Bank
--Long-term IDR upgraded to 'A-' from 'BBB+'; Outlook Stable;
--Short-term IDR upgraded to 'F1' from 'F2';
--Viability Rating upgraded to 'a-' from 'bbb+';
--Long-term deposits upgraded to 'A' from 'A-';
--Market-linked securities upgraded to 'Aemr' from 'A-emr';
--Senior notes upgraded to 'A-' from 'BBB+';
--Short-term deposits upgraded to 'F1' from 'F2';
--Subordinated debt upgraded to 'BBB+' from 'BBB';
--Short-term debt upgraded to 'F1' from 'F2';
--Support affirmed at 5;
--Support Floor affirmed at 'NF'.

SunTrust Capital I
SunTrust Capital III
National Commerce Capital Trust I
--Preferred stock upgraded to 'BB+' from 'BB'.

SunTrust Preferred Capital I
--Preferred stock upgraded to 'BB' from 'BB-'.