Synovus Facing Some Tough Decisions

Credit where due - Synovus Financial (NYSE:SNV) management has done a great job over the last three or four years. One of the weakest mid-cap banks in the depths of the credit crisis, Synovus has done a very good job of cleaning up its credit, reinvesting in the business, and building up its capital position. With that, the return on tangible equity has improved about four points, tangible book value has improved about 10%, and the shares have solidly outperformed many regional peers.

But there is what I believe to be a very relevant "now what?" question with Synovus. Management has been returning capital to shareholders (which the market has certainly appreciated), but I think there's a choice to be made now whether to continue with the "slow and steady" approach of improving profitability through cost efficiency, continue a shift toward more C&I and retail lending, and maintaining solid buybacks, or whether to deploy capital more aggressively with M&A.

On its own, I don't think Synovus is particularly cheap right now. I do think the bank will return to low double-digit ROEs in time and I think the interest sensitivity here is appropriate, but the valuation seems right for all of that. Given the bank's footprint, though, ongoing M&A remains a real possibility - whether as a buyer or a seller.

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Synovus Facing Some Tough Decisions