is finally spinning off its card payments processor,
Total Systems Services
The long-expected spinoff, which Synovus announced late Thursday separately from a lower-than-expected third-quarter earnings report, is planned for the end of the year. It will allow Total Systems to broaden its investor base and "enhance its growth and strategic position in the industry," without being constricted under a bank holding structure, Synovus says.
While shares of both Synovus and Total Systems were rising in late trading, Moody's was bearish on the news. The ratings agency placed the long-term ratings of Synovus and its subsidiaries under review for possible downgrade, saying the spinoff could further expose the stock to its risky commercial loan portfolio.
Columbus, Ga.-based Synovus, which owns 81% of Total Systems stock, plans to distribute 0.49 shares of Total Systems for each share of Synovus stock. It will distribute a total of 159.6 million shares.
Separating Synovus, a largely commercial-oriented bank, from its card processor has been speculated about for some time by analysts. The issue has particularly come to the forefront as
Marshall & Ilsley
gets ready to spin off its own payments processor,
, this quarter.
Synovus believes spinning off Total Systems "will provide both companies opportunities to strategically accelerate growth," says Synovus CEO Richard Anthony.
Once the spinoff is complete, Synovus plans to expand its investment banking business, he says.
"Giving our bankers and investment professionals the resources they need while empowering them to make relationship- and market-based decisions that are best for their customers offers us a truly unique edge in our markets," Anthony said. "Leveraging our competitive differentiators, combined with our track record for excellent financial performance, strong leadership and highly ethical business standards, positions us for long-term success."
Total Systems will pay a one-time cash dividend to its shareholders of $600 million, or $3.04 a share. Synovus will receive approximately $485 million from the special dividend.
Immediately following the spinoff, Synovus will lower its annual dividend by 14 cents to 68 cents a share. Total Systems intends for its annual dividend to remain at 28 cents a share.
Synovus is taking the step at a time its bottom line has taken a hit due to weakness in its residential construction and development portfolio.
In the three months ending Sept. 30, Synovus made $142.1 million, or 43 cents a share, down 8% from the year-ago quarter. Analysts expected the company to earn 49 cents a share.
Synovus blamed an increase in nonperforming loans and provision for loan losses on its residential construction and residential development portfolios, particularly in Florida.
The company increased its provision for loan losses 220% to $59 million. It said net charge-offs rose 172% to $33 million, while nonperforming loans rose 136% to $224 million.
Moody's said the review will focus on the degree to which the spinoff affects Synovus' "profitability metrics, earnings diversification and double leverage."
In addition, the bank's commercial real estate portfolio "represents a significant concentration risk," Moody's said.
"This concentration will become even more pronounced as earnings diversification and capital levels are reduced as a result of the spinoff," Moody's said. "In addition, construction and land loans, which Moody's views as inherently risky, represent a high proportion of the CRE portfolio."
Shares of Synovus rose 14 cents in after-hours trading to $25.73. Total Systems rose 60 cents, or 2%, to $30.