This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Zions Fails Stress Test

NEW YORK (TheStreet) -- Zions Bancorporation (ZION - Get Report) of Salt Lake City is the only one of 30 large holding companies to fail the first round of the Federal Reserve's 2014 stress tests.

In its press release announcing the stress-test results, the Federal Reserve said that even under its "severely adverse" economic scenario, under which the 30 tested banks would lose a combined $366 billion over the nine-quarter period, the group's minimum Tier 1 common ratio would be 7.6%, "significantly higher than the 30 firms' actual tier 1 common ratio of 5.5 percent measured in the beginning of 2009."

This first part of the regulator's two-part annual process is known as the Dodd-Frank stress tests. The "severely adverse" this year assumes an increase in the U.S. unemployment of four percentage points, with the unemployment rate peaking at 11.25% in mid-2015. The scenario also includes a decline in real U.S. GDP of nearly 4.75% through the end of 2014, a 50% decline in equity prices and a 25% decline in home prices.

The severely adverse scenario also has international components, including recessions Europe and Japan, and slowing growth in Asia. For the U.S.-owned holding companies being tested, this part of the scenario is most important for Citigroup, which derives the majority of its revenue and earnings from outside North America.

Must Read: Bank Stocks Hit Multi-year Highs on Fed, Dividend Hopes

The second part of the stress tests is the Comprehensive Capital Analysis and Review (CCAR), which applies banks' plans to deploy excess capital through dividend increases, stock buybacks and/or acquisitions to the same "severely adverse" scenario.

For bank-stock investors, CCAR is the more important part of the stress-test process. The Fed will announce those results on March 26, with most of the stress-tested banks expected to announce dividend increases and/or stock buyback plans the same day.

This year the Fed has increased the number of banks undergoing the stress tests and CCAR, with Zions among several large regional banks added to the list.

Looking at the test results, 29 of the 30 banks would show minimum Tier 1 common equity ratios of over 5.0% through the nine-quarter scenario period, except for Zions Bancorporation, which would have a minimum Tier 1 common equity ratio of just 3.5%.

A call to Zions requesting comment was not returned.

The bank with the next-lowest Tier 1 common equity ratio through the "severely adverse" scenario was M&T Bank (MTB) of Buffalo, N.Y., which is also among the regional lenders added to this year's stress-test group.

Bank of America (BAC - Get Report) had the third-lowest minimum Tier 1 common equity ratio among the 30 stress-tested banks, at 6.0%.

Federal Reserve Governor Daniel Tarullo in the regulator's press release said, "Each year we are making substantial improvements, which have helped make the process even stronger than when we first conducted the stress tests in the midst of the financial crisis five years ago."

Shares of Zions Bancorporation rose 3.2% to close at $32.99 on a very strong day for bank stocks, leading into the stress-test results.

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.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
ZION $25.93 -3.35%
BAC $14.13 -1.60%
AAPL $94.19 -1.04%
FB $118.06 0.54%
GOOG $695.70 0.48%


Chart of I:DJI
DOW 17,651.26 -99.65 -0.56%
S&P 500 2,051.12 -12.25 -0.59%
NASDAQ 4,725.6390 -37.5850 -0.79%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs