As a result of the government’s “stress test” of the Atlanta-based SunTrust Banks Inc, – which required the bank to look for $2.2 billion of new equity capital – the bank Friday announced its move of cutting its dividend by 90 percent and selling nearly $1.25 billion of its common stock. SunTrust availed a $4.9 billion aid from the government’s TARP - Troubled Asset Relief Program.

The dividend-slashing move implies that SunTrust will cut its quarterly dividend from 10 cents a share to 1 cent a share as of September, thereby bringing along a $128-million annual saving, depending upon the reported shares outstanding.

In addition, SunTrust is also considering a 300-million equity raising by sale of assets and securities, as well as following private or public transactions to substitute part of its over $3.3 billion of preferred and hybrid securities with common stock.

Out of the 19 big US banks that underwent the recent “stress tests” – pertaining to their ability to last out a deep recession – by government regulators, SunTrust is one of 10 banks instructed to raise additional capital by November 9, and present a plan for the same by June 8. 

The SunTrust stress test had revealed that while the bank has adequate tier 1 capital for soaking up predictable loan losses, its holdings “tilted too strongly” to sources other than common equity.