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Morgan Keegan downgrades regional bank Synovus on concerns about capital growth, credit issues
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NEW YORK - Shares of Synovus Financial Corp. tumbled to their lowest point in more than 17 years Wednesday after a Morgan Keegan analyst downgraded the regional bank, saying government pressure for banks to build capital reserves as well as ongoing credit issues will pressure the stock.
Analyst Robert Patten cut his projection for 2010 to a loss of $1.10 per share from 75 cents per share because of the expected cost of bad debt provisions. Analysts polled by Thomson Reuters expect a loss of $1.02 per share in 2010, on average.
In a regulatory filing with the Securities and Exchange Commission on Monday, Synovus used "cautious wording" on "potential regulatory enforcement increasing," Patten noted.
Synovus warned that the possibility of deteriorating credit, further regulatory directives, more non-performing assets and the need to set aside more money to cover bad debt could hurt its liquidity position and capital ratios and require the bank to seek additional capital.
"The potential need for more capital and/or loan loss reserve has heightened our concerns," Patten said. Meanwhile non-performing loans — loans written off as not being repaid — are still high.
Even though Columbus, Ga.-based Synovus currently has a sufficient amount of capital according to regulators specifications, Patten said, "it is challenging to handicap whether regulators could require management to further bolster capital ratios given the ongoing uncertainty surrounding regulatory reforms and the strength of the economic recovery."
In its filing, Synovus said that its regulators maintain a "well-capitalized" bank would have Tier 1 ratio of 6 percent or greater, along with other criteria. As of Sept. 30, Synovus said, it and its subsidiary banks fall into that category. Synovus has bolstered its balance sheet this fall, raising $570.9 million in equity in September and swapping debt for equity earlier this month.
But Patten sees the bank's Tier 1 ratio, a key measure of a bank's solvency, dropping to 7.5 percent at the end of next year from 10.5 percent on Sept. 30.
Patten cut his rating to "Market Perform" from "Outperform," saying uncertainty about the company's cash position will keep shares from rising.
Synovus shares slid 21 cents, or 10.5 percent, to $1.79 in afternoon trading. They bottomed at $1.78, their lowest point since 1992, earlier in the session. Over the past 12 months, Synovus stock had changed hands between $1.86 and $8.93 and is down 76 percent this year.
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