SunTrust Warns: Sign of the Times for U.S. Banks

Gary Tanashian submits: Sun Trust sees lower revenue growth, large bad loan. Interestingly, that little ratio I keep harping on, the yield spread, plays quite a role here:

SunTrust Banks Inc., the No. 7 U.S. bank, cut its 2006 revenue growth forecast on Monday, citing interest rate pressures, competition for deposits, and a $200 million problem loan....

The bank's shares fell as much as 3.9 percent, their biggest one-day decline since a 7.6 percent drop on May 10, 2004...

Like many banks, SunTrust is being hurt by the flat yield curve, where long- and short-term interest rates are about the same. As depositors shift into certificates of deposit and other higher-yielding accounts, competition leaves banks unable to charge enough on loans to offset the higher deposit costs.

"The mix of (deposits) has shifted into higher cost (products), particularly CDs," said L. Phillip Humann, SunTrust's chief executive, at a Keefe, Bruyette & Woods banking conference. "You're getting a crunch from that dynamic. The second crunch is from the flat yield curve.... That does a lot of damage to net interest income and net interest margin."