Synovus Financial Corp. plans to sell $400 million in stock and $200 million in tangible equity units to boost its Tier 1 common equity.
The bank, with a market capitalization of about $1.75 billion, will also offer to swap up to 97 million shares for notes maturing in 2017.
Shares dropped 7.6%, to $3.18 in after-hours trading, on the potential dilution. The stock was up 6% in the past year through the close, far below market averages.
Synovus has been suffering from soured loans tied to real estate developments, particularly in Atlanta, a market that is among the hardest hit by the mortgage meltdown. Numerous community banks have failed around the city. Synovus lost $1.4 billion last year, and $575 million in 2008. Last week, Synovus reported its first-quarter loss widened on a large loan-loss provision.
Chairman and Chief Executive Richard Anthony said Monday the sales and swap are part of a previously announced plan to strengthen Synovus' capital position. "Additional capital will contribute to our ability to come out of this cycle soon and take advantage of future opportunities that arise from an evolving financial services landscape," he added.
After the steps are completed, the company's capital structure will better match industry and regulatory standards and it will have a capital cushion in case the economy weakens, increasing losses. In addition, Synovus should be better able to repay federal funds it received under the Treasury Department's Troubled Asset Relief Program.
Synovus also announced a shareholders' rights plan, or poison pill, that would protect its ability to use losses to offset taxes. It said that ability could be hurt if there were an ownership change.
The tangible equity units, valued at $25 each, will comprise a prepaid stock purchase contract and a junior subordinated amortizing note.