SunTrust 2011 Annual Report Download - page 47
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of volatility during 2011 due to the economic uncertainty, the long-term U.S. debt downgrade by S&P, and the European
sovereign debt crisis. As of December 31, 2011, we had no outstanding exposure to sovereign debt of European countries
experiencing significant economic, fiscal, and/or political strains. See additional discussion of European debt exposure in
"Other Market Risk" in this MD&A.
Amidst these challenging economic conditions, domestic and abroad, the Federal Reserve indicated in January 2012 that it
expects to maintain key interest rates at exceptionally low levels, at least through late 2014. Additionally, the Federal Reserve
continues to conduct accommodative monetary policy through the maintenance of large portfolios of U.S. Treasury notes and
bonds and agency MBS. As of the end of 2011, the Federal Reserve held approximately $2.6 trillion of such securities. The
Federal Reserve is pursuing these policies to stimulate the economy in light of its January 2012 outlook for moderate real
GDP growth, a high unemployment rate, and modest consumer price inflation in 2012.
Regulatory and financial reform continued in 2011, as regulatory agencies proposed and finalized numerous rules during the
year, some of which became effective in 2011 and others that will begin to impact us in 2012 and beyond. In 2011, the FDIC
finalized its rules related to the calculation of banks' deposit insurance assessment that were effective beginning in the second
quarter of 2011. The rules required banks to base the deposit insurance calculation on our total average assets less average
tangible equity, rather than based only on domestic deposits. In addition, the FDIC revised the overall pricing structure for
large banks, which resulted in assessment rates being affected by specific risk characteristics, such as asset concentrations,
liquidity, and asset quality. The impact of these rules has caused our regulatory expenses to increase during the year by 13%.
During the year, we expanded our deposit product offerings, in response to revisions to Regulation Q, that became effective
in the third quarter, to include payment of interest on business DDAs. As expected, the interest paid on these products was
nominal, and we expect that to continue while the low rate environment exists. Conversely, during the fourth quarter of 2011,
the Federal Reserve's final rules related to debit card interchange fees became effective. The debit card interchange rules
limit the amount of interchange fee income that can be received for electronic debit transactions. When comparing the fourth
quarter interchange revenue to the third quarter, we experienced a decrease of $44 million, and as such, continue to believe
going forward, the estimated impact of this rule may decrease our interchange revenue by about 50%, or approximately $50
million per quarter. We continue to expect to mitigate about 50% of the approximately $300 million combined annual revenue
reductions from Regulation E (implemented in 2010) and rules related to debit card interchange fees. These mitigating actions
are expected to begin impacting revenue over the course of 2012 and into 2013, and inherent in this expectation is our ability
to charge certain deposit-related fees for value-added services we provide. See additional discussion in the “Noninterest
Income” section of this MD&A. During the fourth quarter, a joint agency proposal was presented for implementation of the
Volcker Rule of the Dodd-Frank Act related to increased regulation of derivatives and proprietary trading. While the rule
remains in the formulative stage, based on the current proposal, we do not expect a material impact to our operations when
it becomes effective in the third quarter of 2012.
In 2011, the Federal Reserve conducted a horizontal review of the nation's largest mortgage loan servicers, including us.
Following this review, we and other servicers entered into a Consent Order with the Federal Reserve. We describe the Consent
Order in Note 20, “Contingencies,” to the Consolidated Financial Statements in this Form 10-K. See also, Part I, Item 1A,
“Risk Factors,” in this Form 10-K and "Nonperforming Assets" in this MD&A. The Consent Order requires us to improve
certain mortgage servicing and foreclosure processes and to retain an independent consultant to conduct a review of residential
foreclosure actions pending during 2009 and 2010 to identify any errors, misrepresentations or deficiencies, determine whether
any instances so identified resulted in financial injury, and then make any appropriate remediation, reimbursement, or
adjustment. Our work required to comply with the Federal Reserve’s Consent Order is continuing. We currently anticipate
modest increases in certain expenses, namely personnel and consulting, as we implement and comply with the provisions of
the Consent Order.
We are actively evaluating other proposed rules and regulations, and as they emerge from the various stages of implementation
and promulgation, we expect to be in a position to comply with new requirements and take appropriate actions as warranted.
Capital
During 2011, the Federal Reserve completed its CCAR for the nineteen largest U.S. bank holding companies. Upon completion
of their review, the Federal Reserve did not object to the capital plan that we submitted. As a result, we initiated and completed
certain elements of our capital plan, including issuing $1.0 billion of common stock and $1.0 billion of senior debt. In addition,
we used the proceeds from those offerings, as well as other available funds, to repurchase $3.5 billion of Fixed Rate Cumulative
Preferred Stock, Series C and $1.4 billion of Fixed Rate Cumulative Preferred Stock, Series D that was issued to the U.S.
Treasury under the CPP in November and December, 2008. The repurchase of the preferred stock eliminated approximately
$265 million in annual preferred dividend payments and discount accretion that has been negatively affecting our earnings
the past two years. Additionally, by keeping our shareholders’ best interest in mind and demonstrating a patient and deliberate
approach to the repayment of the U.S. government's TARP investment, we believe that we successfully lessened the impact
to our shareholders by issuing less common stock than what would have been required had we chosen to repay earlier. The