Synovus to cut 650 jobs; slashes dividend

BANGALORE (Reuters) - Synovus Financial Corp (SNV.N) said it will cut about 650 positions, or 9 percent of its workforce, over the next two years and slashed its quarterly dividend by 65 percent to reduce costs and shore up capital.

However, the company is not looking to raise capital, Chief Executive Richard Anthony said in a conference call with analysts.

"We believe that we can go through this period of time with our capital position and come out without having to resort to those expensive tactics," Anthony said.

The company said it also expects about $20 million charge in the third quarter from sale of non-performing loans.

Synovus has been trying to sell-off nonperforming loans by participating in auctions and block sales. It had 3 auctions in the recent past and another one is coming up, Anthony said.

Synovus shares fell as much as 14 percent in intra-day trade but pared the losses and closed down 25 cents at $9.77 Wednesday on the New York Stock Exchange.

The financial services company expects restructuring charges of about $21 million, of which about $15 million will be recorded in 2008.

The cost-cut measures are expected to generate annual pre-tax earnings of $75 million, Columbus, Georgia-based Synovus said in a statement.

The company declared a quarterly dividend of 6 cents per share, down from 17 cents in the previous quarter, and is payable Oct 1 to shareholders of record Sept 18.

Analyst Scott Valentin from FBR Capital Markets said he expects a positive effect of this move on the stock.

When it comes to raising capital as opposed to cutting dividend, "I prefer they cut the dividend," Valentin said by phone.

TOUGH TIME AHEAD?

"This was not unexpected, it's just a matter of why it did not happen last quarter," Morgan Keegan analyst Bob Patten said by phone.

Patten, who had downgraded Synovus to "perform" from "outperform" a few months back, said the company has enough capital to get through the credit crisis, but expressed concern about the ongoing issue of falling housing prices in the southeastern markets of Florida and Georgia.

"We see two or three more tough quarters ahead," he said.

Patten said the need to preserve capital for Synovus came from its exposure to residential loans, and capital conservation should be the foremost priority for it.

For Synovus, which has about $34.2 billion in assets, residential, construction and development loan portfolio has been the major source of woes as defaults soared amid falling prices.

"We believe the stress on our loan portfolio will continue through at least 2009," CEO Anthony said.

Analyst Valentin expects a turnaround in Synovus by the end of 2009 at the earliest.

"They have quite a bit of headwind, but the company has been pretty aggressive in getting rid of problem assets," Valentin said.

Analyst Valentin said if Synovus faces higher charge-offs than what it expects, it may have to cut the dividend further.

"Paying dividend out to shareholders is a waste of capital right now," analyst Patten said.

The job cuts are part of a plan the company had been contemplating for some time, and was expected, Patten said.

"If credit costs go higher, I suspect you might see some more job cuts," FBR analyst Valentin said.

Synovus said it is also centralizing all major operations functions, including loan and deposit operations, to eliminate redundant work in bank back offices.

(Editing by Gopakumar Warrier)