More cash for state banks?

By Paul Donsky

The Atlanta Journal-Constitution

Georgia’s biggest bank, SunTrust, raised more than $2 billion last spring to build an extra-large cushion to protect against a further erosion of the economy.

Will the state’s second- and third-largest banks — Synovus and United Community Banks — follow suit?

Company officials, treading carefully, say it’s possible. Some analysts say it may be necessary so that the money-losing banks can absorb further losses and be in a position to buy failed banks.

The easiest and fastest way would be by issuing stock.

Both Synovus, based in Columbus, and United, based in the north Georgia mountain town of Blairsville, received large infusions of taxpayer cash last year as part of the federal government’s effort to stabilize the financial industry.

The money — $973 million for Synovus and $180 million for United — has thus far helped the banks maintain a sound capital cushion despite mounting losses.

Both companies have put their loan portfolios through “stress tests” and say they have enough resources to make it through a prolonged downturn without raising new capital.

But some analysts see it differently.

Jennifer Demba with SunTrust Robinson Humphrey in Atlanta said under her “worst-case” economic scenario United will need to raise $175 million. Synovus, more than four times the size of United, could need $300 million to $400 million, she said.

In addition to needing cash to cushion against more losses, she said, the banks will likely be required to raise money before they’re allowed to repay their government bailout money. Regulators want to make sure banks emerge from the federal Troubled Asset Relief Program in sound shape.

“So I think capital raises are an eventuality for both these companies,” Demba said. “The question is timing.”

Chris Marinac, an analyst with FIG Partners in Atlanta, said Synovus may need $400 million and United about $150 million to bolster their reserves.

Why do the bankers and analysts differ on such a critical question as the need for more capital?

Demba said the stress tests analysts and investors put banks through are often tougher than those the banks themselves use.

Synovus officials couldn’t be reached for comment. But in a recent report, Demba said the company “seemed more willing to explore some capital augmentation,” including an exchange of debt for common stock.

Rex Schutte, executive vice president and chief financial officer at United, said the bank would consider a capital raise, in part to pursue acquisitions of failed banks. But selling stock at this time would dilute existing shareholders, something the company wants to avoid, he said.

“It’s a hard question to answer,” he said.

Both Synovus and United have seen share prices rebound a bit recently, though they remain at or near historic lows.

It wouldn’t be difficult for the companies to find investors at these prices, Marinac said. But they’re leery of diluting the holdings of existing shareholders, especially at United, where board members, executives and other insiders own a sizable stake of the company, he said.

“It’s a very painful decision,” he said. Both Synovus and United Community could survive without any new capital. But an infusion of cash would keep investor confidence high for the next few years, he said, given the uncertain economic future.

Numerous other Georgia banks have been hobbled by the recession and are hungry for more capital. But only the big players like SunTrust, Synovus and United have the size and clout to raise capital in the public markets, Demba said. SunTrust was ordered to raise money by the government, along with nine other large U.S. banks.

The smaller banks will be looking to raise money from other sources, such as board members and private equity funds, she said.