Synovus has to do another deal

Synovus needs to raise equity and cut debt. And then the common stock will be a winner.

By Jim Cramer Mar 19, 2010 7:22AM
Jim Cramer

By Jim Cramer, TheStreet


Crunch time for Synovus (SNV). SunTrust put the kibosh on the stock Thursday, citing its recent run and its need to raise more capital to repay the nearly $1 billon in TARP money that it took. In many ways, Synovus represents the last of the lottery tickets for the bank turn, one that we saw first with Fifth Third (FITB), then Huntington Bancshares (HBAN), Regions (RF), KeyCorp (KEY) and Zions Bancorp (ZION).


First, let me say I am not a fan of Synovus. But I wasn't a fan of Zions and that didn't stop me from making money here. Throughout the run from $13 to $23, Zions needed capital. The company, however, made a point of not raising it, instead letting the common stock run and that judgment was right. It can raise a ton of money now and get on even footing if it wants to. It can exchange debt for equity. It has a myriad ways out of its jam.

The question is, do we find Synovus more "in trouble" than Zions? I would say, obviously, yes.


But here's where I think Synovus is. They need to do another deal. They need to cut debt. The lower the stock goes, the harder it is and the more likely that they will have to do more than one deal. If they do, it will be the bonds that run first and not the common. The bonds are a better buy right here until they do the deals they need.


Bing: More on Synovus


Synovus feels like Huntington when it had to do its first deal. When that first deal wasn't enough, Huntington got sunk on a second one. But as the stock rallied it gained adherents because the marketplace knew no more money needed to be raised. However, owning Huntington through that period of double equity raises was painful as all get-out, and many people who bought it on my recommendation here and on "Mad Money" felt quite burned.


That's why the downgrade made so much sense.


Here's the issue: There is no doubt in my mind that Synovus has to raise equity. There is also no doubt in my mind that it is worth waiting for them to do. But you should wait in the bonds, not the common. When the deal is done, then it is time to swoop in -- not before then. Not when you have others that are kicking butt, notably BB&T (BBT) and First Horizon (FHN).


The only possible glitch in my "wait and see" posture would be a takeover, but I do not believe that this franchise is being looked at closely. I believe the banks that want other banks, notably, Santander (STD) and Bank of Montreal (BMO) and Barclays (BCS), want bigger and better franchises or they want FDIC-blessed transactions. Good luck with the latter, the ones being seized are smaller and smaller and you know that Blackstone (BX) will have enough clout to craft a new bank out of the "used" ones when it raises money.


So, bottom line: SunTrust is right short term. Let Synovus do the deal and reap the bond reward but do your best to buy as much common on the deal as you can. I think it will be a big winner.


Random musings: I await the new world of Monday post-health care and the selloff I expect. Last day to sell before it. I will be addressing this theme later today ... again.


At the time of publication, Cramer had no positions in the stocks mentioned.


Jim Cramer is co-founder and chairman of TheStreet. He contributes daily market commentary for TheStreet's sites and serves as an adviser to the company's CEO.


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