SunTrust Banks Inc may be losing its taste for Coke, the beverage it helped to become a national icon nearly a century ago. The large south-east US regional bank has begun to unload shares of Coca-Cola Co that it has owned since 1919, as part of a restructuring expected to save $530 million a year by 2009.
SunTrust, which keeps a copy of the original formula for Coca-Cola in a vault, said it sold 4.5 million, or 9 percent, of its shares in the world's largest soft-drink maker on Tuesday morning. It will use proceeds to help fund a $750 million to $1 billion buyback of its own stock this year.
The seventh-largest US bank, which recently donated some Coke shares, plans before year end to decide what to do with its remaining 43.7 million shares. A predecessor bank, Trust Company of Georgia, helped take Coca-Cola public in 1919. SunTrust and Coke are based in Atlanta.
"It's a startling development," said Richard Bove, an analyst at Punk Ziegel & Co in Lutz, Florida. "It had been an article of faith at SunTrust not to touch its Coca-Cola stock. A decision to sell is the right one if it can redeploy proceeds in its business and strengthen its capital base."
Coke shares soared during much of the 1980s and 1990s, but have fallen by one-fifth in the last decade. Some shareholders urged SunTrust to sell its stake. SunTrust is Coke's largest institutional shareholder other than Warren Buffett's Berkshire Hathaway Inc, Thomson ShareWatch data show.
Before Tuesday, SunTrust's stake in Coke was worth about $2.5 billion, though its book value was just $110,000. SunTrust said its restructuring also includes expected savings from real estate, supplier management, outsourcing and other areas, and an unspecified number of job cuts.
"All options are on the table," SunTrust Chief Executive James Wells said at a UBS financial services conference. "There are no preconceived notions or sacred cows." Wells succeeded L. Phillip Humann as chief executive in January.
The bank ended March with $186.4 billion of assets and 1,691 branches in 11 US states and Washington, D.C. "This is a consolidating industry, and returns at SunTrust are not at the top like they should be, given its footprint in some of the country's best markets," said Jeff Davis, an analyst at FTN Midwest Research in Nashville, Tennessee.
SunTrust shares fell $1 to $86.86 in late afternoon trading on the New York Stock Exchange. Coke shares fell 15 cents to $52.45. Wells said selling the remaining Coke shares is not a certainty, but would "clearly result in a more liquid and less volatile form of capital, which could prove to be desirable."
Like many banks, SunTrust has struggled with heightened competition and a tough interest-rate environment, which has crimped margins. First-quarter profit fell 3 percent to $532 million as mortgage revenue plunged and loan losses increased.
SunTrust shares nonetheless hit a record high on May 11, amid speculation the bank might be sold.
But Gary Townsend, an analyst at Friedman Billings Ramsey & Co, said Tuesday's plans "signal that (no take-over) is likely in the immediate future." Other analysts shared this view. SunTrust spokesman Barry Koling declined to comment.
SunTrust and Coca-Cola have close ties. Coke Chief Executive E. Neville Isdell and former chief M. Douglas Ivester sit on SunTrust's board. Former SunTrust chief James Williams sits on Coke's board. Humann sits on the board of Coke's largest bottler, Coca-Cola Enterprises Inc.