SunTrust Banks, amid a liquidity crunch that has affected several major financial institutions, is giving a $1.4 billion boost to two of its money market funds to protect investors from possible losses, the company said in a regulatory filing Thursday.
The regional banking company also said that its earnings for the fourth quarter will be hurt by material deterioration in market valuations, the outlook for consumer credit quality, Visa litigation and other items.
It said it still expects to be profitable in the quarter and maintain its current dividend. It did not elaborate on its expected results.
SunTrust said it plans to buy $1.4 billion of securities issued by structured investment vehicles from the STI Classic Prime Quality Money Market Fund and the STI Classic Institutional Cash Management Money Market Fund.
Trusco Capital Management, a subsidiary of SunTrust with roughly $74 billion in assets under management, is the investment adviser to the funds.
The Atlanta-based company is taking this action to protect investors in the funds from "possible losses associated with these securities in this unique environment."
"The company does not have a contractual or implicit obligation to take this action or provide additional support to the funds," SunTrust said in the Securities and Exchange Commission filing.
It added that the action should "not be considered a precedent for future actions or commitment by the company to provide additional support."
SunTrust will purchase the SIV-issued debt at full cost, including interest, to ensure returns on the money market funds. The bank will then take a writedown of $225 million to $250 million in the fourth quarter because the value of the SIV-issued debt has diminished.
SIVs are off-balance sheet entities created by banks to generate returns by issuing short-term debt at low interest rates and using the money to buy riskier debt at higher rates. Most SIVs have struggled since the summer because of difficulties refinancing their short-term debt. That has forced them in some cases to sell assets at fire-sale prices.
Money market funds, looking for increasingly larger returns, often invested in SIV-issued debt. As liquidity has dried up, the value of the debt has declined.
In the SEC filing, SunTrust said deteriorating real estate values and the outlook for consumer credit have increased the bank's expectations for losses in its portfolio. It said it will discuss more details when it releases its fourth-quarter results next month.
As for the Visa Inc. litigation, SunTrust previously announced it would recognize a $26 million liability in the fourth quarter related to a settlement with the card provider. SunTrust said Thursday an additional litigation accrual of about $50 million is also expected to be recorded in the quarter, bringing the total for the quarter to $76 million.
SunTrust also said Thursday it has completed an evaluation of its holdings in Coca-Cola , and would announce its plans later. In May, the bank said it had sold 9 percent of its holdings in Coca-Cola stock and would decide by the end of the year what to do with its remaining stake.
SunTrust said the sale of 4.5 million Coca-Cola shares returned $150 million in after-tax value to its own shareholders. It said the proceeds from the sale of the Coca-Cola shares would be used to partly fund the repurchase of $750 million to $1 billion of its own stock.
SunTrust had owned 48.2 million Coca-Cola shares as of March 31.
Atlanta-based Coca-Cola's secret formula has been in a SunTrust vault since 1919, the same year as Coca-Cola's initial public offering. SunTrust provided underwriting services to Coca-Cola when it went public and received some of Coca-Cola's first publicly traded stock for its services.
As of June 30, SunTrust had total assets of $180.3 billion and total deposits of $122.9 billion. The company operates mostly in the Southeast and Mid-Atlantic states.