USA, Apr. 23, 2009 (Info-Prod Research) -- Moody's Investors Service downgraded theratings of Synovus (NYSE:SNV) Financial Corporation (subordinate debt to B2 fromBaa1) and its subsidiary banks, Columbus Bank & Trust and FirstCommercial Bank (bank financial strength rating to D from C+; deposits toBa2 from A2). The short-term ratings of the banks were also downgraded toNot Prime from Prime-1. The rating outlook is negative. Synovus is amulti-bank holding company which operates 30 bank subsidiaries in thesoutheastern U.S. This concludes the review for possible downgradeinitiated on March 12, 2009. The multiple-notch downgrade and negative outlook reflects Moody's view that Synovus' capital position, both its regulatory capital and tangible common equity (TCE), could come under significant pressure over the next12 to 18 months because of its large real estate lending concentration.Although Moody's had previously incorporated this concentration into itsratings, in line with Moody's Structured Finance Rating Methodology datedFebruary 5, 2009, which states that commercial property values declinedsharply in 2008 and are expected to continue falling over the next 12 to24 months, Moody's has considerably increased its loss expectations forCRE. Since the initiation of the ratings review on March 12, Moody's hassharply increased its expected loss assumptions for land and residentialdevelopment, which is a large concentration risk for Synovus, accountingfor almost one-third of true CRE (excluding owner occupied), or 1.3 timesTCE. This concentration resulted in a more severe downgrade thaninitially anticipated. The rating agency noted that Synovus' Atlanta andWest Florida portfolios have demonstrated the greatest stress relative toSynovus' other markets of Georgia, South Carolina, Alabama, andTennessee. Moody's views Synovus' capital position as solid with Tier 1of 11.2% and TCE, calculated under Moody's definition, as a percentageof risk-weighted assets of 8.9% as of December 31, 2008. However,Moody's expects that as the credit cycle continues to unfold, assetquality deterioration could erode Synovus' currently healthy capitallevels. Synovus' true CRE equals approximately $13 billion, or 4.5 times TCE,including hybrid equity credit. Additionally, Synovus' construction,land, and development exposure is more than one-half of this amount,which Moody's considers an elevated level. Over the last five quarters,Synovus' nonperforming loans have increased rapidly, reaching $1.8billion, or 6.3% of loans, at March 31, 2009. Synovus' residentialconstruction, development, and land, which account for about 24% loans,have deteriorated the most and account for approximately 70% ofnonperforming assets. Moody's expects continued deterioration across CREcategories and geographies given the recessionary environment. Today's rating action is consistent with Moody's announcement that it isrecalibrating some of the weights and relative importance attached tocertain rating factors within its current bank rating methodologies.Capital adequacy, in particular, takes on increasing importance indetermining the bank financial strength rating (BFSR) in the currentenvironment. Synovus Financial Corporation, which is headquartered in Columbus, GA reported total assets of $36 billion as of December 31, 2008.
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