Wall Street sours on Synovus since stock sale

By Paul Donsky

The Atlanta Journal-Constitution

Over just a few days in September, Georgia’s second-largest bank managed to raise $600 million from investors – proof, the chief executive of Synovus said, of the market’s confidence in the company’s future despite a string of losses.

Since then, Synovus’s stock price has tumbled sharply, falling more than 60 percent amid worries about the Columbus-based company’s ability to absorb more losses as hard times for the state's banking industry continue. On Tuesday, the stock fell 7 percent to $1.49 a share, close to an all-time low.

In an effort to ease concerns, the company on the past two Fridays has taken the unusual step of issuing a news release saying it has enough capital to weather an even deeper economic downturn.

But skepticism remains. An analyst with Morgan Keegan downgraded Synovus two weeks ago, saying he had "heightened concerns" the company will eventually need to sell even more stock to bolster its capital cushion.

Synovus continues to work through a deep pool of troubled loans, most tied to the collapsed housing industry. Despite the problems, the bank has built up a sizable capital cushion and is in much better shape than the dozens of small Georgia banks that are on a list of troubled institutions.

That makes the stock slide all the more frustrating for executives at Synvous, a regional banking company that operates in metro Atlanta as Bank of North Georgia and Bank of Coweta.

“I wish I could control the stock price movements,” said Richard Anthony, Synvous’s president and CEO, in an interview. “We don’t like for our stock to trade at low, unrealistic levels.”

The change of fortune has been stark. In September, Synovus was able to sell 150 million shares of the company’s stock at a price of $4 per share.

In late October, a month after the capital raise closed, the company announced larger-than-expected third quarter losses of $423.7 million. That spooked many investors into selling, said Chris Marinac, an analyst with Atlanta-based FIG Partners.

"There are a lot of investors who have become what I consider to be doubting Thomases about Synovus's capital levels, and ultimately the amount of loan losses they will have," Marinac said. “They’ve basically panicked and sold their stock.”

Marinac said Wall Street is unfairly pummeling Synovus for aggressively recognizing its loan losses. His firm recommends buying the company’s stock.

Another analyst, Jeff Davis with FTN Equity Capital Markets, said he’s neutral on Synovus stock. Its fate rests on how large losses are going forward, he said.

“From where I sit, [Synovus] is what we call a ‘Missouri’ stock,” he said. “The burden of proof is on Synvous. It’s a ‘show-me’ burden.”

Bank stocks across the board are down over the past year, but Synovus's recent slide has been particularly steep.

Anthony, the company’s CEO, suggested many investors have a “misunderstanding” about the company’s financial health. In recent weeks, Anthony and his leadership team have held numerous one-on-one meetings with anxious investors, with most concerns focusing on the company’s capital levels.

Last Friday, the company issued a report asserting its capital levels are robust enough to withstand an even more dire economic scenario than the company used in previous "stress tests."

“We’re trying hard to do a better job of educating and informing the investing public and answering questions regarding capital,” Anthony said.

While acknowledging problems remain, Anthony said the company is making progress and is on track to return to profitability sometime next year. Synovus is systematically cleansing its balance sheet by selling off its troubled assets,  he said.

Synovus operates community banks across five Southern states -- Georgia, Alabama, Florida, Tennessee and South Carolina.

Like many community banks, Synovus ramped up lending in recent years to home builders and subdivision developers. But losses mounted once the housing market collapsed. The bank raised nearly $1 billion last year by selling preferred shares to the federal government as part of the U.S. Treasury's economic stabilization efforts.

Synovus's stock was hammered after the financial crisis erupted a little more than a year ago. It sold at more than $11 a share in October 2008. The company has reported five straight quarters in the red since then, posting $2.2 billion in total losses.

Marinac, the bank analyst, said the biggest fear investors have is that Synovus will continue to suffer losses at current rates, requiring yet another stock sale to bolster its capital cushion. That could depress share prices further, causing some investors to bail out now.

Marinac said he doesn't expect Synovus to continue bleeding at current rates, and he notes the company has other means of raising capital should the need arise short of selling shares.