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TWST: Kate, what drives investor sentiment toward the bank stocks and what drives the stocks?

Ms. Blecher: Investor sentiment is driven by three main factors, the primary factor being interest rates. There is a belief among investors that when interest rates are falling, that’s the time to be in the interest-sensitive sectors, especially the banks. The second factor is the expected growth rate of banks’ earnings. If we’re in a stage where the economy is doing well and we don’t have credit quality concerns, people look at the sector as a potential of solid, consistent growth growth. Lastly, a pickup in mergers and acquisitions draws investor interest to the group. What moves the stocks is investor sentiment, sector rotation, and valuations. This is certainly not unique among the banks. Banks benefit when other sectors have fallen out. We saw that specifically last year when the technology stocks went out of favor and investors went back to the old economy stocks. Then sectors such as the banks were major outperformers. So the stocks go up on rotation that’s favorable to the group, and when they have historically low valuations and interest rates are falling, investors are particularly drawn to the group.

TWST: What else do you like about SunTrust (NYSE:STI) as an investment?

Ms. Blecher: I also like where it’s located. In addition, the stock is incredibly inexpensive, which is why I recommend it. Many people may not remember, but they were one of the original underwriters of Coca-Cola (NYSE:KO) stock. And they never sold this position. Actually, now the value of their investment is worth $2.9 billion. So the after-tax value of the Coke stock, about $6.00 per share, needs to be subtracted from the price of the stock in order to compare it to other banks on an apples to apples basis. So in that regard, it’s currently trading at an over 10% discount to the group. Interestingly, this is a company that has historically traded at a premium to the group. While the stock has done well, I think it definitely still has a lot of upside to it. It’s a very safe investment.

TWST: Also, you find that internal risk management systems have improved.

Ms. Blecher: Definitely. The internal risk management systems are like the chicken or the egg — which came first? But the banks have definitely gotten much more sophisticated in tracking their problem loans through the system, and also determining the proper amount of reserves that need to be put against each loan. This is due to the improvement in the technology that we’ve had, and also the banks’ necessity to do this. Lastly, the accounting rules are changing; regulators are now attempting to get capital requirements in line with the Basel Accord. So large banks are going to be partially responsible for risk rating their portfolio, in order to determine the amount of capital required. And that has required a much more sophisticated computer tracking system. Because they’re able to do that, again, it gives a much greater sense of comfort. amount of reserves that need to be put against each loan. This is due to the improvement in the technology that we’ve had, and also the banks’ necessity to do this. Lastly, the accounting rules are changing; regulators are now attempting to get capital requirements in line with the Basel Accord.