Fitch has upgraded its rating outlook on Synovus Financial Corporation (SNV - Analyst Report) and its subsidiaries from ‘Negative’ to ‘Positive.’ Moreover, the rating agency has affirmed the Issuer Default Ratings (IDRs) – long-term as well as short-term – for the company.
Rationale Behind Upgrade
The rating revision came on the back of constantly improving asset quality metrics of the company. Fitch stated that the credit risk of the company has stabilized and the company is persistently looking to trim down the high levels of problem credits in the near term. Further, Fitch believes that the company’s strong capital base is adequate to absorb credit losses in the future.
Further, the affirmation of ratings reflected the company's elevated levels of non-performing assets (inclusive of accruing TDRs) as well as a future outlook of weak earnings.
Fitch commented that the company’s initiatives to lower the high risk profile and stabilize its balance sheet by loan sales, loan workouts and raising of equity have made modest progress. These are anticipated to lead to improved operating results in the upcoming quarters. Further, deferred tax asset (DTA) reversal of $800 million considerably enhanced core capital levels at the end of 2012.
However, Fitch warned that compared with other higher credit rated banks in the peer group, Synovus’ credit quality was distinctly inferior. Therefore, core earnings will be substandard compared with peer companies due to higher credit costs pressurizing the bottom line.
This rating outlook revision depicts creditworthiness of the company and will instill investors’ confidence. Further, lower non-performing assets and improving operating efficiencies will help the stock sustain investors’ interest.
However, we are concerned about the impacts of the prevailing low interest rate environment, sluggish economic growth and stringent regulatory landscape on the company’s financials in the subsequent quarters.
Synovus carries a Zacks Rank #3 (Hold).