Synovus Financial Corporation ( SNV ) jumped on the bandwagon of banks that are repaying the bailout money taken from the government during the latest financial crisis. On Friday, the company repurchased $968 million of its Series A Preferred Stock, which were issued to the U.S. Department of the Treasury as part of the company's participation in the Troubled Asset Relief Program (TARP).
Over two-thirds of Synovus' repayment was financed through internally available funds, which included dividend worth $680 million from Synovus Bank, the company's wholly-owned subsidiary. Further, balance funds were the proceeds from the recent $185 million common stock offering and $130 million preferred stock offering.
The U.S. government had granted a $968 million worth of TARP loan to Synovus during the 2007-2009 financial crisis in the form of preferred stock and warrants to help it recover from the economic downturn. Notably, non-payment of TARP funds before Dec 19, 2013, would have resulted in an elevation in the rate of dividends payable on the Series A Preferred Stock to 9% per annum from the current rate of 5% per annum, thereby causing additional financial burden on the company.
U.S. Treasury still holds warrants to buy common stock in Synovus with an expiry date in 2018. The Treasury has the right to buy 15.5 million shares of Synovus' common stock for $9.36 per share.
However, due to its moderately improving earnings after the economic crisis, Synovus encountered difficulty in paying back the bailout money. However, after getting regulatory approval along with dividends from Synovus Bank, the company successfully cleared its TARP dues.
After settling the TARP obligation, we expect Synovus to deploy its capital through dividend hike and share repurchase, which will further enhance investors' confidence in the stock. Notably, Synovus reported a more than double net income of $30.7 million in second-quarter 2013 compared with $14.8 million in the last quarter.
After Synovus' repayment of TARP dues, Puerto Rico-based Popular, Inc. ( BPOP ) holds the largest outstanding TARP repayment worth $935 million to the Treasury.
A total of $245 billion was handed out to the banks as bailout money. In the form of repayments, dividends, interest and other income, $271 billion has been returned as of Jun 30, 2013. However, many of the regional banks have not repaid the entire bailout money.
As of Jun 30, 2013, taxpayers have recovered approximately 95% of the total $420 billion distributed by the government across all TARP programs, which amounted to $399 billion. Notably, the Treasury is winding down its remaining TARP investments and trying to execute TARP initiatives for helping besieged homeowners to prevent foreclosure.
While the larger Wall Street banks had repaid the TARP money earlier in 2009 and 2010, many regional banks stepped back due to continued high levels of losses in their loan portfolios. In addition to this, the economy was under tremendous stress. However, the recent repayment of the TARP loan by several of these banks can signal toward a significant improvement in economy.
Furthermore, the TARP loan repayment is essentially a positive for Synovus. It will remove the restrictions on both financial and executives' pay package flexibility that the company was subject to, upon being a TARP participant.
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