Short Suntrust Bank, Inc. (STI)

For banks, Moody’s limits the amount of common equity credit for hybrid instruments to 25% of tangible common equity plus hybrid equity credit. “The limitation reflects our view that common equity may be more reliable as a source of credit support under stressful circumstances, and therefore should be the dominant component of a company’s capital structure.”

Moody’s said that of the rated U.S. banks, Citigroup (C) and Washington Mutual (WM) have issuances that exceed the 25% hybrid equity cap. Others that are at or getting close to the limit include U.S. Bancorp, (USB), Bank of America, (BAC) Fifth Third, (FITB), National City, (NCC), SunTrust (STI), and Wachovia (WB). Hybrids beyond the 25% equity credit limit will be treated as debt in Moody’s analysis.

The material below is summarized from Associated Press :

NEW YORK (AP) -- A Robert W. Baird & Co. analyst reduced his price target Monday on some regional and national banks because of further losses tied to loan defaults as banks begin reporting second-quarter results.

Analyst David George wrote in a research note, "credit trends will continue to show deterioration, particularly in residential construction, credit card and home equity."

Baird cut price targets and earnings estimates for multiple banks because of continued weakening in the credit markets.

Credit deterioration, which began to accelerate in the middle of 2007, will likely get worse in the second quarter with charge-offs and non-performing loans rising, George wrote in the note.

Charge-offs are loans written off as not being repaid.

George said he expects charge-offs to total about 1.02 percent of total loans in 2008 and 0.98 percent in 2009. Charge-offs totaled about 0.45 percent in 2007.

Banks will see some improvement though during the quarter from spread income growth and stable interest margins -- the profit margin on lending.

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