Truist: Low Expectations And More Flexibility Create Opportunities (Rating Upgrade)

Core Viewpoint - Truist has faced challenges in executing the SunTrust merger and has been losing organic market share in key markets, leading to underperformance compared to peers. However, there is potential for recovery and growth following the sale of its insurance business, which has provided capital for repositioning the balance sheet and improving yields [1][2][6]. Financial Performance - Truist's shares have lagged behind peers by approximately 10% since the last update, over 15% in the last five years, and 35% over the last ten years [1]. - The sale of the insurance business was executed at a decent price of 18x trailing EBITDA, generating over $10 billion in after-tax proceeds, which will be used to absorb losses and reposition the balance sheet [2]. - The bank sold nearly $28 billion in lower-yielding securities with a yield of 2.8% and purchased $18.7 billion in higher-yielding securities at 5.3%, which is expected to drive around $1.1 billion in net interest income leverage [2]. Strategic Direction - Management has indicated a focus on improving core banking operations and addressing the challenges of integrating the SunTrust merger, which has historically been difficult [6][8]. - The bank's management has expressed optimism about future growth opportunities, particularly in the Southeastern markets, despite recent losses in market share [9][10]. Growth Opportunities - Truist is expected to benefit from ongoing repricing in a higher interest rate environment, with higher-yielding loans being added to the portfolio [11]. - There are opportunities for Truist to expand lending as the economy recovers, and the bank is positioned to invest in non-banking growth opportunities, including capital markets and payments businesses [11]. Market Position - Truist has been losing organic market share in key markets such as Atlanta, Miami, and Nashville, while facing competition from smaller banks [9]. - Despite losing deposit share, Truist has maintained a strong efficiency ratio of around 59%, which compares favorably to peers [10].