* Does not see rapid return to normal credit costs
* Says exploring capital raising measures
* Sees balance sheet declining till H1, 2010
* Analysts express concern over capital levels
* Stock plummets 29 pct on heavy volumes
(Adds conference call details, analyst comments; updates stock
BANGALORE, Jan 27 Shares of South Financial
Group Inc TSFG.O slumped as much as 29 percent, a day after
the troubled lender posted its eighth straight quarterly loss
and warned that credit woes may not be over yet.
The company does not see a rapid return to normal credit
costs, and is actively pursuing capital raising measures, Chief
Executive Lynn Harton said on a conference call with analysts
"We will see 2010 losses declining. However, I do believe
the decline will be moderate," Harton said.
Morgan Stanley analyst Ken Zerbe said he strongly believes
the company needs to raise equity to boost its capital ratios,
but it is unclear exactly how or when management plans to do
"Until we see signs of credit stability and management can
present investors with a clear plan of how it will rebuild its
capital position, we do not recommend an investment in South
Financial," Zerbe said in a note to clients.
South Financial, which received a $347 million investment
from the U.S. Treasury, has taken a huge hit from its exposure
to bad construction loans and is aggressively looking to curb
its non-performing assets and return to profitability.
The company expects its balance sheet to continue to
decline over the first half of 2010 and begin to level off
thorughout the remainder of the year.
While there were some positive trends in the quarter like
margin expansion and improved funding costs, capital remains
the biggest concern for the company, as the tangible equity
ratio remains as low as 3.7 percent, Keefe, Bruyette & Woods
analyst Jefferson Harralson said in a note.
Last year, a $200 million writedown on future tax assets,
called valuation adjustments, also hurt the company.
Although valuation allowance does not impact a company's
regulatory capital ratios, it does hurt tangible common equity,
a measure of capital increasingly important to stock investors
and debt rating agencies.
Fitch Ratings downgraded its ratings for South Financial
Group and its principal banking subsidiary, Carolina First
The Greenville, South Carolina-based bank posted a net loss
available to common shareholders of $193.9 million, or 90 cents
a share on Tuesday, compared with $319.4 million, or $4.29 a
share, a year back. [ID:nSGE60P0D8]
Shares of the company were down 20 cents at 49 cents in
morning trade on Nasdaq. More than 20 million shares changed
hands by 11 ET, compared with a 50-day moving average volume of
just over 4 million shares.
(Reporting by Anurag Kotoky in Bangalore; Editing by Maju