Salomon Brothers analyst Andrew O. Brown Wednesday downgraded Synovus Financial Corp. to "hold" from "buy," saying the company's strong business already is reflected in its stock price.
Citing margin pressure, he also lowered his earning estimate for 1996 by a dime, to $1.75 per share. Synovus fell 50 cents to close at $18,875.
The downgrade comes just four days after shares in the Columbus, Ga. holding company hit a 52-week high of $19.875. Almost alone in the industry, Synovus has defied the decline in share prices and risen 6% since the stan of September. By contrast, the American Banker index has declined roughly 7% in that time.
Synovus' decentralized approach to banking and vibrant returns from its credit card processing affiliate, Total System Services Inc., has buoyed the company's return on equity to 18.2% and its return on average assets to 1.58%, Mr. Brown said.
"However...these returns are currently fully reflected in the share price," he said. "In fact, Synovus shares are currently the most expensive shares in our universe, wading at a significant premium to the regional bank group on both a price/earnings and price-to-book basis."
Synovus' price to earnings multiple is 13.2, while its peers trade at an average of 9.3 times earnings, Mr. Brown said. And Synovus trades at 265% price-to-book value, compared to its regional peers' average of 155%.
Nonetheless, Mr. Brown remained bullish on the bank, complimenting its decentralized approach. The company's 32 banks enjoy wide latitude, and the results have paid off, Mr. Brown said. Almost 85% of the banks have gained market share since 1989, he said.
As a result, Mr. Brown maintained his earnings estimates for 1994 and 1995, but cited the shrinking net-interest margin as forcing a downward revision in his 1996 estimate.
Likewise, Ronald I. Mandle of Sanford C. Bernstein & Co., Inc. lowered his 1995 earning forecast for PNC Bank Corp. from $3.25 per share to $2.75 per share because of pressure on its net-interest margin.
Bank stocks generally tumbled Wednesday as investors reacted in the usual way to a Federal Reserve rate hike, analysts said.
Bankers Trust continued to set new 52-week lows, losing $1.625 to finish at $59, while Signet Banking Corp. lost $1 to close at $31.75, a new year low.
Bucking the trend was U.S. Trust Corp./N.Y., which surged $3.125 to close at $64.625 after American Banker reported the company was in negotiations to sell itself to Chase Manhattan Corp. for $1 billion.
The deal would call for Chase to resell much of the company back to U.S. Trust's management, but retain the securities processing business, sources have said.
U.S. Trust denied the report, and repeated its statements from last month that it was in negotiations to sell only its securities processing units to an unnamed bidder.
U.S. Trusts more profitable asset management businesses remain off the table, the company said.
The investor response, however, would indicate the market was reacting to the possibility of a sale.
Chase closed down 37.5 cents at $36.375.