Synovus Offloads Distressed Assets - Analyst Blog

By Zacks | December 14, 2012 AAA

Synovus Financial Corp. (SNV) completed the bulk sale of its distressed assets. The selling process was initiated on Dec 10 with an aim to reduce balance sheet risk. 

Inclusive of the aforementioned sale, the company anticipates vending distressed assets worth roughly $530 million in the fourth quarter of 2012. This will involve roughly $400 million of non-performing assets, $110 million in accruing substandard rated loans, along with $20 million of loans rated special mention. 
 
The company anticipates incurring a pre-tax charge of $155 million in the fourth quarter as a result of these sales. The Georgia-based lender also anticipates that its deferred tax asset valuation allowance of $787 million will be reversed anytime between the end of the fourth quarter of 2012 and the second quarter of 2013.
 
Subsequent to the reversal, Synovus will be allowed to make the repayment of bailout funds it received under the Troubled Asset Relief Program (TARP). The company was burdened with approximately $1 billion of bailout since it was having difficulties with bad loans, which plagued it during the housing crisis. The company anticipates repaying of the TARP funds anytime as early as the second quarter of 2013 and not after the fourth quarter of 2013.
 
Many banks sell their distressed and troubled real estate mortgages in order to get rid of these loss-making investments. Investors try to purchase these loans at a discount and often foreclose principal properties for sale or redevelopment. 
 
Management at Synovus believes that the sale of distressed assets is a pivotal and tactical step in its efforts to further reinforce the balance sheet, enhance credit quality, and improve earnings in the future.
 
We believe that the restructuring initiatives taken by Synovus will be a key growth driver over time. Moreover, lower non-performing assets and improving operating efficiencies should make the company more profitable in the upcoming quarters. Nevertheless, the sluggish macroeconomic environment and stringent regulations make us cautious.
 
Synovus currently retains a Zacks #3 Rank, which translates to a short-term Hold rating. However, one of its peers, Cardinal Financial Corp. (CFNL), retains a Zacks #1 Rank (a short-term Strong Buy rating).
Related Analysis
  1. The Global Impact Of De-Centralized Banking
    Stock Analysis

    The Global Impact Of De-Centralized Banking

  2. Global Markets Not Spooked by Japan - Ahead of Wall Street
    Stock Analysis

    Global Markets Not Spooked by Japan - Ahead of Wall Street

  3. Bull of the Day: Kennedy Wilson (KW) - Bull of the Day
    Stock Analysis

    Bull of the Day: Kennedy Wilson (KW) - Bull of the Day

  4. Bear of the Day: Vale Sa (VALE) - Bear of the Day
    Stock Analysis

    Bear of the Day: Vale Sa (VALE) - Bear of the Day

  5. GDP Numbers Bear Out Fed Decision - Ahead of Wall Street
    Stock Analysis

    GDP Numbers Bear Out Fed Decision - Ahead of Wall Street

Trading Center