Yahoo Finance Synovus (SNV) Arm Ratings Affirmed by Moody's, Outlook Stable
Synovus Bank’s, the banking subsidiary of Synovus Financial Corp. SNV, ratings have been affirmed by Moody's Investors Service. The outlook remains stable.
The bank’s long-term issuer rating has been affirmed at Baa3. Its long- and short-term local currency deposit ratings were maintained at A3 and Prime-2, respectively.
The bank's Baseline Credit Assessment (BCA) and adjusted BCA of baa2, as well as its long- and short-term Counterparty Risk Ratings (in local and foreign currency) of Baa2 and Prime-2, were also affirmed. Synovus' long- and short-term Counterparty Risk Assessments ratings were affirmed at Baa1(cr) and Prime-2(cr), respectively.
Moody's upheld the stable outlook for the long-term issuer and deposit ratings.
Ratings Rationale
Moody’s rating affirmed Synovus Bank's ratings, demonstrating a balance between the credit headwinds related to a significant concentration in commercial real estate (CRE) loans and the pressures that result in asset quality and profitability.
Synovus' capitalization, as assessed by TCE/risk weighted assets (RWA), stood at 10.3% as of Mar 31, 2024, up from 9.7% a year earlier. This increase, combined with the recent sale of medical office building loans, strengthened the bank's resilience against its CRE concentration risks.
The higher level of capitalization, together with long-term profitability (0.97% average net income to tangible assets between 2019 and 2023) and competent credit risk management, function as sufficient mitigants at the current grade level to mitigate such concentration risks.
Synovus' profitability is at relative strength. To boost asset yields, it has taken offsetting strategic initiatives such as shifting its investment portfolio.
Moody's further stated that the affirmation reflects Synovus' core deposit funding, which is about 68% insured or collateralized and is sufficient to mitigate funding constraints as depositors continue to convert to higher interest-bearing accounts.
Switching those amounts to the bank's insured cash sweep program could result in an additional 17% of deposits being insured. When combined with the company’s balance-sheet liquidity (20.5% liquid banking assets to tangible banking assets on Mar 31, 2024), the liquidity profile is considered a rating strength.
Factors That Might Trigger Change in Ratings & Outlook
Per Moody’s, the BCA might be upgraded if Synovus maintains a TCE/RWA ratio well over 11% while significantly lowering asset risk. An increase in pre-provision profitability and a sustained improvement in its liquidity profile are also likely necessary before an upgrade is considered. A higher BCA is likely to lead to higher ratings.
However, if Synovus' asset quality deteriorates considerably and/or its risk appetite increases, it might put downward pressure on the BCA and the ratings. Capital levels below 9.5% TCE/RWA would also have a negative impact on the ratings, as would a continuous decline in profitability to a net income/tangible assets ratio of 0.6%. A steep decline in the level and/or composition of deposits, as well as balance sheet liquidity levels, would also put pressure on ratings.
SNV’s shares have gained 0.3% year to date compared with a 2.3% decline of the industry it belongs to.
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Currently, SNV carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Rating Actions on Other Banks
In May 2024, Truist Financial’s TFC ratings have been downgraded byMoody's. The rating agency lowered all the long-term ratings and assessments for TFC. The company’s long-term senior unsecured debt has been downgraded to Baa1 from A3.
The outlook for Truist’s senior unsecured debt rating and long-term issuer rating have been changed to stable.
The same month, New York Community Bancorp, Inc.'s NYCB Long-Term Issuer Default Ratings were downgraded to BB from BB+ by Fitch Ratings. Nonetheless, the rating outlook remains stable.
The primary reasons behind the downgrade were NYCB's weak earnings and profitability, along with execution risk associated with its restructuring plan.
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