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).
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Tickers in this Article: SNV, CFNL

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