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* JPM, BB&T, SunTrust, TD, RBC may want to look
* Purchase accounting, 30 banks make deal harder
* Synovus has insisted it has enough capital
By Paritosh Bansal and Dan Wilchins
NEW YORK, Jan 13 Synovus Financial Corp (SNV.N)
might need to look for a partner if its losses deteriorate, and
it could drum up interest thanks to its U.S. Southeast
footprint, but a deal without government assistance will be
Synovus, which has about $35 billion in assets, holds many
commercial real estate and construction loans in some of the
worst markets in the country, making credit quality a major
concern and raising questions about whether the bank will need
to raise more capital.
If the economic recovery continues apace, the bank -- which
received $968 million in U.S. government bailout money -- could
be just fine, and perhaps even overcapitalized. But at least
some investors see capital raising as a real possibility.
As of the end of last year, nearly 10 percent of the
company's shares were sold short in a bet their value would
drop -- up from 8 percent in the middle of December and well
above the average of 3.4 percent.
"Synovus' future is not in their hands -- it's in the hands
of the economic recovery," said James Ellman, president of
hedge fund Seacliff Capital in San Francisco.
Synovus sold $600 million of shares at $4 apiece in
September and exchanged some of its debt for equity, which
helped bolster its capital position.
But soon after raising capital, the bank said it was
writing down its deferred tax assets, which are expected future
tax benefits, by about $150 million, in part because it may not
generate enough profit to realize those assets any time soon.
Concerns about profitability, combined with the bank's
current share price of about $2.80, could make raising capital
in the public markets difficult.
If Synovus does need more capital, selling all or a portion
of itself to a bank could be a logical choice.
"It's not a pretty picture going forward, and there are
those who believe they will have to partner up or they won't be
able to continue," a senior banking executive familiar with
Synovus' markets said.
Bankers who did not want to speak on the record about
potential deals said some banks might be interested in Synovus
because of its presence in markets -- such as Florida -- that
are considered desirable over the long term as Americans retire
and move to warmer climates.
Toronto Dominion Bank (TD.TO), which wants to grow in the
U.S. Southeast, and Royal Bank of Canada (RY.TO) could be
potential suitors, the senior banking executive said.
A financial institutions investment banker also saw
JPMorgan Chase & Co (JPM.N), BB&T Corp (BBT.N) and SunTrust
Banks Inc (STI.N) as possible fits, although BB&T is still
digesting Alabama-based Colonial Bank and SunTrust has problems
of its own. [ID:nN08257412]
Synovus spokesman Greg Hudgison declined to comment, citing
a quiet period before the company's earnings announcement. The
other banks either declined to comment or were not immediately
Synovus has above-average concentration in commercial real
estate loans, including a higher exposure to loans to
investors, which are considered riskier than those for
owner-occupied properties, according to Citigroup analyst Greg
One of the bank's largest problem loans was made to fund a
real estate development spearheaded by a former director.
Synovus loaned more than $300 million to former director
Bill Jones' Sea Island Co to redevelop the coastal Georgia
resort into a luxurious destination for the wealthy. Synovus
has since classified Sea Island as a nonperforming asset.
Insider loans account for $1.1 billion of Synovus's total
loan portfolio of $26 billion as of Sept. 30, according to the
most recent data available.
One reason Synovus has so many of this kind of loans is
that it is really an amalgamation of 30 banks, each with its
own board of directors. That structure could make acquiring the
bank complicated for a potential buyer.
Moreover, with accounting rules that mandate a bank's book
be marked to market value at the time of an acquisition, any
buyers could face an unattractive capital hole if they tried to
take the bank over without support from the Federal Deposit
Insurance Corp (FDIC).
Synovus, which posted $1.2 billion in losses in the first
nine months of 2009, is operating under a regulatory directive
to minimize credit losses and reduce nonperforming loans.
In late November, a Collins Stewart analyst estimated that
the bank will need about $700 million of additional capital.
Still, the bank may not need to sell. Synovus has been
aggressively selling problem loans and insists that it has
enough funds to ride out the credit cycle.
"The big question with Synovus is, do they need to raise
more capital or not?" said Michael Rose, an analyst with
Raymond James. "I am in the camp that they can make it through
in the near term, but at some point they may need to raise
(Additional reporting by Joe Rauch in Charlotte; Editing by
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