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Zions: Bank Stock Winner

The Federal Reserve has kept the short-term federal funds rate in a range of zero to 0.25% since late 2008, and the FOMC has repeatedly said this "highly accommodative" policy was likely to remain appropriate at least until the U.S. unemployment rate dropped below 6.5%. The July unemployment rate was 7.4%, improving from 7.6% in June.

The steepening of the yield curve is good news for most banks, however, it can take quite some time for it to provide a major boost to net interest margins, because some assets are still repricing at lower rates from several years back.

The Federal Reserve will hold its annual conference in Jackson Hole, Wyo., beginning on Thursday. According to KBW analyst Brian Gardner, "Given the lack of a keynote speech by Fed officials at Jackson Hole, the minutes will probably be the more significant of the two events this week as the markets search for further clues on the timing as well as the composition of tapering of large scale asset purchases."

Janet Yellen -- vice chairwoman of the Federal Reserve Board and considered the frontrunner by many to succeed Federal Reserve Chairman Ben Bernanke next year -- will not be giving a speech at the Jackson Hole Conference. However, she will moderate a panel discussion on Friday. "[W]e expect every word she utters to be dissected," Gardner wrote in a note to clients on Friday.

KBW Bank Index (I:BKX) was rose 1% to close at 64.50, with all 24 index components ending with gains. Big banks showing 2% gains included Morgan Stanley (MS), which closed at $26.31; Cullen/Frost Bankers (CFR), at $73.11; and Regions Financial (RF), closing at $9.86.


Shares of Zions Bancorporation have returned 38% this year, following a 32% return during 2012. The shares trade for 1.3 times their reported June 30 tangible book value of 22.09, and for 15.2 times the consensus 2014 EPS estimate of $1.95. The consensus 2015 EPS estimate is $2.27.

2013 has been another year of transition for Zions, following last year's repayment of $1.4 billion in federal bailout funds received through the Troubled Assets Relief Program, or TARP. This year the company has continued to reposition its balance sheet, through the redemption of $285 billion in 8.0% Series B trust preferred shares, an announced call of $800 million in 9.5% Series preferred shares, and the redemption of $257 million in senior notes with a coupon of 7.75%. Zions has replaced some of that funding by issuing $800 million in preferred shares with a weighted average dividend rate of 6.23%.
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