Sun Trust Bank and the Coca-Cola Stock

The original $62,295 investment in Coca-Cola stock grew to 30 million shares worth more than $1,700,000,000 and generated $52,800,000 in annual cash dividends for the bank. That was before the idiots that were put in charge of the asylum decided to sell it, destroying nearly a century of tradition and turning Sun Trust into another pointless, nameless banking commodity. Image from Wikimedia Commons.

I’m reading the Sun Trust annual report and I realized that many, if not most, of you are probably unaware of the Sun Trust connection to Coca-Cola and how it gave rise to one of the greatest investments in history.  (As many of you know, we used the Coca-Cola direct stock purchase plan and dividend reinvestment plan to teach my youngest sister about stocks when she was a child.)

When Coca-Cola went public in 1919, the underwriting was handled by two institutions, one connected to J.P. Morgan and the other to a predecessor of Sun Trust bank.  The former took their fee of approximately $100,000 in cash.  The latter took their fee in shares of Coca-Cola common stock.  After taxes and other adjustments the cost basis of these shares ended up being $69,295.

The Coca-Cola stock certificates were locked in the Sun Trust bank vaults along with Formula X, the secret recipe to the original Coca-Cola beverage.  For 90 years, they have compounded in value and have grown to 30 million shares worth more than $1.7 billion.  The bank collected roughly $52.8 million in cash dividends each year.

That, of course, was before the idiots that run Sun Trust decided to desecrate nearly a century of tradition and sell the Coca-Cola stock, triggering a huge tax liability but bolstering Tier 1 capital. 

To be fair, the transaction is slightly more complicated than a simple sale of Coca-Cola stock.  Basically, Sun Trust entered an agreement that allows it to sell the Coke shares for no less than $38.67 per share and no more than $66.02 to $65.72 per share, while still receiving dividends until it actually completes the disposition.  These agreements were then treated as Tier 1 capital by the Federal Reserve because theoretically, Coke stock could fall to $10, say, whereas the agreements set a guarantee sales price floor.

One of the so-called justifications the bank management gave was the desire to focus on banking.  How are they doing with that?  They reported more than $1.7 billion in losses for fiscal 2009.

If there were a capitalism hell, they would deserve to go there.  That’s just my opinion …

Related posts:

1. Building a $250,000 Coca-Cola Portfolio By 35 Through the Coca-Cola Direct Stock Purchase Plan
2. Coke Sent Me Coca-Cola Manufacturer Coupons and An Apology Note
3. How We Used Shares of Coca-Cola to Teach My Youngest Sister About Investing (and Why the Cycle of Consumption and Financial Stress Starts as a Teenager for Most Americans)
4. Mexican Coca-Cola vs. American Coke
5. Chopin Opus 10, Number 1 Done Right by Mei-Ting Sun
6. An Uneventful, Perfectly Okay, Somewhat Good Day
7. Trust Funds Aren’t Just for the Rockefellers
8. The Collapse of Wachovia – How a Bank with $38 in Book Value Per Share Became Almost Worthless Overnight
9. The Ceramic Mr. Monopoly Bank Arrived
10. A Great Passage from the 2010 Berkshire Hathaway Shareholder Letter