Following the news of reverse stock split, shares of Synovus Financial Corp. (SNV - Analyst Report) slipped 2.44% to close at $3.20. This is a typical trend that stocks witness if they take reverse stock split action as existing investors take it negatively for several reasons.
Last week, Synovus got shareholders’ consent at its 2014 annual meeting for 1-for-7 reverse stock split plan of its common stock. Additionally, Synovus’ shareholders approved the proposal to augment authorized common stock to 2.4 billion shares from 1.2 billion, effective Apr 24, 2014.
According to the nature of the reverse stock split, 7 shares of issued and outstanding Synovus common stock will be combined into one share of common stock without any change in the par value per share. Effective May 16, 2014, the company expects the reverse stock split to come into effect.
Moreover, trading on a post-split basis on the New York Stock Exchange (NYSE) is expected at the opening of trade on May 19, 2014. Notably, the share price of Synovus will increase 7 times the price per share, trading prior to the effective date of the reverse stock split.
Further, the number of authorized shares of Synovus’ common stock will be reduced to about 342.9 million from 2.4 billion. Synovus’ common stock will continue trading on the NYSE under the symbol "SNV" but under a new CUSIP number.
No fractional shares will be issued in the reverse stock split. However, shareholders holding a fractional share of common stock will be paid cash.
Normally, shares trading at a lower price become less attractive to certain categories of investors including mutual funds and other institutional buyers. Therefore, reverse stock split increasing the share price of Synovus common stock will make it more attractive for all investors. Further, increased liquidity of the stock will benefit the existing shareholders.
Recently, Synovus posted encouraging first-quarter 2014 results. Driven by lower provisions, net income of 5 cents per share in the reported quarter more than doubled from 2 cents in the prior-year quarter. Provision for loan losses was $9.5 million, down 73.4% year over year.
We believe Synovus has emerged from a recovery phase and come a long way by improving operating efficiencies. Though regulatory issues and a low interest environment remain concerns, repayment of Troubled Asset Relief Program (TARP) dues in 2013 depicts sustainable earnings in the upcoming quarters.
Currently, Synovus carries a Zacks Rank #2 (Buy). Other better-ranked Southeast banks include Capital City Bank Group Inc. (CCBG - Snapshot Report) , First NBC Bank Holding Co. and Farmers Capital Bank Corp. (FFKT - Snapshot Report) . All these carry a Zacks Rank #1 (Strong Buy).