I think a lot of folks are worried about massive dilution due to the TARP money which needs to be repaid, but I think management has the opportunity to make the repayment without much dilution.
Keep in mind there's no timeline on when it needs to be repaid! They could wait till the share value is back in the low twenties before repaying it.
Here's my simple yet reasonable model...
The stock was worth $32 in 2007. Considering the total share count has been increased from 320 million to 490 million with the latest capital raise, the best future share price we could expect based on past performance is the low 20's.
Now if they hold off! And repay the complete 968 million of tarp by issuing equity when the stock is in the $20 dollar range as indicated above, it would only further dilute shareholder value by 10 % (48 million shares x $20 = 960 million) bringing the share count up to 538 million from the present 490 million.
That would put the share price at roughly $18 dollars by 2012 if the economy rebounds reasonably strongly.
That translates into a seven bagger if you get in now at $2.60. There's not to many opportunities like this left in the market, and if anyone who is reading this knows of any? Please do share because i'm looking for more.
I strongly believe the economy is on the mend, and will start picking up steam quickly as we have seen in the vast majority of past recessions.
Synovus was $14 in 2007 NOT $32. They spun off TSYS and the $32 stock price included 81% ownership of TSYS. The chart - adjusted for the spin - shows the stock was $14. They've already diluted the shares by 50% and they've indicated they will issue more shares to buy back debt. They owe the government almost $1 billion. To repay TARP, they'll need to raise AT LEAST another $500 million in equity. That's another 150 million shares at a minimum. So shares start this debacle around 330 million - they're 490 million now and they'll go to 650-700 million before this is done. The share count will have DOUBLED and the bank will be NO bigger. Think of it like this - they gave away 1/2 the company to survive. So if the share count is going to be 100% higher, the stock is only going to be worth (in any best case) 1/2 the old high. $14 all time high divided by 2x the number of shares = $7 stock potential.
Agree on most points - I think $8 is about what we'll see until book value starts growing organically again (and i think $8 is a great return from the bottom). However, with $144mil in pre-provision, pre-tax income for Q4, once the quarterly loan loss provisions drop to "normal" levels and in light of the potentially large tax loss carryforward that may be available, earnings may be used to pay off a significant portion of TARP, as long as management is patient and doesn't get in a hurry to pay it off all at once.
The big banks rushed to repay TARP to avoid government meddling and pay restrictions. Under the terms of TARP, they had to issue equity to repay the treasury (no redemption of TARP is allowed in 1st three years of TARP unless at least 25% of redemption proceeds come from equity offering).
TARP's initial dividend rate of 5% is good for 5 years, so management has the time to be patient to allow for a return to profitability and a higher share price before offering any equity to repay the treasury. Further, enough profit could be generated in that time to pay off a big chunk of the TARP funds. I just hope management takes the shareholders' best interests in mind (which, to me, don't include higher executive pay to "attract and retain talent"- what a crock) when figuring out a redemption plan.