TARP Stretch Could Work for Synovus: Street Whispers

NEW YORK (TheStreet) -- A move by M&T Bank (MTB) last week could serve as the model for Synovus Financial (SNV) to delay repaying bailout money and avoid a dilutive offering of common shares.

M&T of Buffalo, N.Y., currently owes $230 million in bailout money provided through the Troubled Assets Relief Program, or TARP, in December 2008. That is in addition to another $151.5 million for TARP assistance provided to Provident Bancshares before that company was acquired by M&T in May 2009.

The U.S. Treasury on Friday commenced a public offering of the $381.5 million in M&T TARP preferred shares held by the government. The preferred shares have a 5.00% coupon, which is scheduled to rise to 9.00% in February 2014 for the remaining $230 of the bank's original TARP bailout, with the coupon on the $151.5 million in assistance originally provided to Provident Bancshares rising to 9.00% in November 2013.

M&T on Monday proposed an amendment under which the dividend rate on all of the former TARP preferred shares will rise to 6.375% on November 15, 2013. The amendment needs to be approved by common shareholders, who will be sure to do so, since it will reduce the possibility of a dilutive common equity raise. The amendment also needs to be approved by the new preferred shareholders, who are likely to give the plan the nod, because 6.375% is a decent rate in the current environment, especially when the issuer is a strong, consistent earner like M&T.

If M&T's preferred shareholders approve the lower rate increase, M&T won't redeem the preferred share until November 15, 2008. Otherwise, the company will probably redeem the shares in 2013, leaving the investors to pursue dividend income elsewhere. The big icing on the cake for M&T is that the former TARP preferred shares qualify as regulatory Tier 1 capital.

KBW analyst Jefferson Harralson on Tuesday said that M&T's "ingenuity is positive," for Synovus Financial of Columbus, Ga., "as it increases the chance of exiting TARP with a limited common raise and the chance of even having no common raise at all."

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