SunTrust Bank has recently announced its decision to jettison nearly $2 billion of Coca-Cola stock, an investment which has remained in their portfolio since underwriting the initial public offering of the carbonated beverage behemoth way back in 1919.
The bank states it is doing so to raise capital, which, during such an economic crisis, is a rather valid approach to doing so. But this will come at the cost of one of the most reliable and growing revenue streams the company had at its disposal, namely the $60 million or so Coca-Cola pays to SunTrust annually in dividends, which was set to rise to $80 million, before the investment was sold by SunTrust.
Cashing in on $2 billion may very well prove to be the best move the company can make, but this will undoubtedly be quite a tall order. Is there any better way to invest than in a multi-million dollar revenue stream? One which has proven reliable for the better part of a century and has no indication of declining anytime soon? Perhaps. But the investors over at SunTrust will have to find quite an incredible opportunity to match that kind of income.
This also may end the cozy relationship that SunTrust and Coca-Cola have had with one another, with members serving on the other’s board and vice versa, or the recipe for Coca-Cola being stored in the vault of a SunTrust Bank. This will likely continue, of course, but with less to bind the two together, it’s certainly no longer ironclad.
This comes recently after many other American banks have seen many of their assets decline, and many of them have attempted to find some way or another to raise capital in this quite difficult of economic times. Bank of America has sold its MBNA credit cards to TD Bank, for example; the upheaval is only likely to continue, depending on the settlement negotiations currently under way at the federal level, but the bottom line is that many American banks are unloading assets, some of which are being purchased by international companies eager to cash in on valuable, but currently undervalued assets.
This was not quite the case of the SunTrust stock selloff, as the stock is not currently at a bargain-basement price, relative to some of the other assets being unloaded elsewhere. But it’s a difficult move to reconcile when the steady flow of over a million dollars a week will be cut off.
Speculation as to the use of such enormous capital will likely concentrate on expansion plans, which at this moment are likely to be very lucrative; if SunTrust can buy up some struggling regional banks or other undervalued assets at bargain prices, those acquisitions may come to be seen as the right move, very much in line with what many other national and multinational banks are doing while the recession continues to sputter onward. Now is the undisputed time for expansion, and any bank that can expand right now should pursue that avenue relentlessly...though responsibly, as well.
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