SunTrust bails out two money funds

SunTrust Banks Inc., the country’s seventh-largest bank company, said it had bought $1.4 billion of mortgage-tainted securities from two money market funds it manages, becoming at least the seventh company to rescue customers from losses on an investment traditionally billed as one of the safest.

The bailout by the Atlanta-based firm was intended to keep the money funds from falling below the $1 a share promised to investors. Losses caused by a collapse in global credit markets have spurred companies including Bank of America Corp. and Wachovia Corp. to bolster money funds.

The securities purchased by SunTrust from its money funds were issued by so-called structured investment vehicles, which sell short-term debt and invest the proceeds in higher-yielding securities, often backed by home loans.

SunTrust’s move could lead it to take a $250-million write-down on the securities it bought from its funds, the bank said in a regulatory filing Thursday. That figure implies an 18% decline in the value of the securities.

Peter Crane, founder of Crane Data, publisher of newsletter Money Fund Intelligence, said SunTrust was being “extremely conservative” in taking the write-down because the holdings were unlikely to result in any actual losses.

“They will recover almost all of it next year,” Crane said.

The bank also said it might more than double reserves for credit losses to $337 million in the fourth quarter because of falling home prices.

SunTrust shares slid $2.40, or 3.8%, to $61.09 on the news. The stock has declined 28% this year.