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Zions Leads Regional Banks Higher (Update 1)

Updated from 4:20 p.m. ET with an important announcement from Zions, made after the market close.

NEW YORK (TheStreet) -- Zions Bancorporation (ZION - Get Report) was the winner among major U.S. banks on Tuesday, with shares rising 4.3% to close at $31.86.

The broad indices ended mixed as earnings reports continued to come in.  European and most Asian markets ended higher after the People's Bank of China said it would intervene in money markets to cool the "squeeze in interbank-lending lending/borrowing rates."

Tuesday's economic calendar was light.  The Federal Open Market Committee's next regular policy meeting is scheduled for Jan. 28-29, and the committee in its last meeting chaired by Ben Bernanke is expected by most economists to trim the Federal Reserve's monthly purchases of long-term bonds further, after announcing in December a $10 billion reduction in the monthly purchases to $75 billion.  Janet Yellen takes over as Federal Reserve chair on Feb. 1.

The KBW Bank Index (I:BKX) rose 1.1% to 71.09, with all but four of the 24 index components ending with gains.  Strong performers among large U.S. banks included Comerica (CMA) of Dallas, which was up 3.8% to $49.44, adding to gains following Friday'searnings report, and KeyCorp (KEY) of Cleveland, which will announce its fourth-quarter results early on Thursday.

Shares of Regions Financial (RF - Get Report) of Birmingham, Ala., rose 2.7% to $10., after the Birmingham, Ala., lender announced its fourth-quarter results, which included a number of extraordinary items at the end of what CEO Grayson Hall called a "foundational year" for the bank.


Zions of Salt Lake City is expected to announce its fourth-quarter results on Jan. 27, with analysts polled by Thomson Reuters on average expecting operating earnings of $82.6 million, or 42 cents a share, declining from $84.1 million, or 44 cents a share, during the fourth quarter of 2012. 

After federal regulators on Dec. 10 finalized plans to implement the Volcker Rule's ban on "proprietary trading," Zions on Dec. 16 said it had determined that "substantially all" of its investments in trust preferred collateralized debit oblations (CDOs) would be disallowed. The company said it would record a fourth-quarter other-than-temporary impairment charge of $629 million on the transfer of disallowed held-to-maturity securities to held-for-sale. The bank also said it had until July 21, 2015 to sell the trust preferred CDOs, "unless, upon application, the Federal Reserve grants extensions to July 21, 2017."

But following an outcry from community banks, the regulators on Jan. 14 announced they had "approved an interim final rule to permit banking entities to retain interests in certain collateralized debt obligations backed primarily by trust preferred securities (TruPS CDOs) from the investment prohibitions," of the Volcker Rule.

Earlier on Tuesday, a Zions spokesperson said the company was still "evaluating" the regulators' interim rule.

But after the market close, the company announced that because of the interim rule permitting the CDOs in question, Zions Bancorporation's fourth-quarter results wouldn't reflect the previously announced transfer a transfer of the securities to held-for-sale, nor the previously announced $629 million impairment charge.

Instead, the bank plans to sell some of its CDO portfolio, in order to reduce capital requirements and to lower its risk profile.  This is expected to result in "pre-tax securities impairment charges of between $135 million and $145 million in the fourth quarter of 2013," the company said.

The company went on to say that along with the reduced CDO impairment charges, its fourth-quarter results will include "$80 million of one-time expense related to the successful tender and retirement of subordinated debt during the quarter," leading to an estimated net loss ranging from 31 cents to 33 cents a share.

The company still expects its tangible book value per share to rise slightly from the previous quarter, "because of the material improvement in the unrealized loss position on its CDO portfolio during the fourth quarter, Zions expects its tangible common equity per share to increase slightly from the prior quarter."

Shares of Zions trade for 15.3 times the consensus 2015 EPS estimate of $2.08.  The consensus 2014 EPS estimate is $1.86.

The following table shows the performance of Zions Bancorporation's stock against the KBW Bank Index and the S&P 500 (^GSPC) since the end of 2011:

ZION Chart data by YCharts


-- Written by Philip van Doorn in Jupiter, Fla.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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