The Daily Interview: Zions Bancorporation's Harris Simmons

The year 2000 will certainly go down as a memorable one for Salt Lake City-based Zions Bancorporation (ZION). A near-decade long period of solid growth and shareholder return was disrupted by a botched multibillion dollar merger with fellow home-state bank First Security, an event that promptly sent Zions stock into a tailspin early in the year.

Harris Simmons President and CEO Zions Bancorporation

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President and CEO Harris Simmons says the experience taught him lessons about how to look at potential deals going forward -- in particular, the importance of retaining valued employees amid potential mergers. Simmons took over the reins of the bank in 1990 from his father, Roy, who remains chairman of the board. The younger Mr. Simmons has presided over Zions' growth from a bank with $3.5 billion in assets and fewer than 100 branches then, to one with $22 billion in assets and about 370 branches spread across Utah, Arizona, California, Colorado, Idaho, Nevada and Washington now.

Since the First Security deal flopped last March, Zions has managed to pick up, dust off and get back on the growth track, albeit at a more familiar pace. Late last year, the bank announced three separate and relatively small acquisitions for bank franchises in three states.

Just two weeks ago, Zions announced it would take a 24.5% stake in Roth Capital Partners, a Newport Beach, Calif.-based investment firm that specializes in emerging-growth companies. Unlike many of its bank counterparts, which have plunged headlong into the brokerage world in search of higher profits, Zions has chosen to ease into the brokerage business at a slower pace, with an option to increase its stake if it decides to.

To the relief of many Zion investors, the company's stock recovered after its dive to the mid-$30's last March, gaining about 60% by year-end. It currently trades at around $57.

TSC: What prompted the move to take a minority stake in Roth Capital, as opposed to acquiring a brokerage/investment firm outright?

Simmons: We have certainly entertained [the idea of buying a brokerage firm] in the past . But I think there are a lot of businesses where the employees really control the franchise more than the owners do. You have to be really careful about the structure. You see that in spades in a lot of deals that have been done where banks move into investment banking. A company will acquire another and then have to go back and reacquire the employees.

[In this deal], we can derive a lot of the benefits from both companies while allowing both to continue as independent entities. We can share in their success by referring business back and forth. Notably, the Roth management team is actually bringing new capital to the table rather than taking it away [members of Roth Capital are investing $2.5 million in addition to Zions' $16.5 million stake]. It bodes well for a healthy relationship.

TSC: What do you think will be the major benefits from this deal?

Simmons: It's a further expansion of some businesses we've previously built. We already have fairly well-developed fixed-income capital markets and municipal finance businesses ... and those are certainly allied fields [to what Roth Capital does]. The investment really strengthens our middle market component. We see a lot of synergies coming out of this.

For example, we are one of the largest SBA (Small Business Administration) lenders. These are companies that started out doing small-business banking with us. This investment really gives us the opportunity to serve those companies further into the life cycle. Also, Roth's venture-capital arm gives us the ability to evaluate and make investments in start-ups. Quite often that will lead into bank financing such as SBA-guaranteed loans.

TSC: What are the major lessons you took away from the First Security deal?

Simmons: We gained a certain clarity with respect to the structure of the deal. We truly learned to appreciate the strength of our franchise and our people. If the merger went through, there would have been a lot of divestitures in Utah and many were going to be our offices. A lot of employees were under a lot of anxiety ... and they've come back nicely.

It was a pretty good test of how strong the semiautonomous model that we use is, in the way our subsidiary banks are run. It allowed some significant portions of the organization that weren't as affected to continue to build their businesses without being overly distracted. We learned to appreciate that structure.

TSC: What types of deals will you look for going forward?

Simmons: Typically, as we've grown it's been with community-bank types of acquisitions, but we never count out the deals that really make sense. At the end of the day, we are opportunistic but with some sense of purpose as to where we want to operate. We look at the deal and ask whether we can make it work. We engage in dialogue with the seller. We have a lot of opportunities that come to us.

TSC: What are the major changes in the banking landscape you've seen since you took charge of Zions?

Simmons: The major changes include the melding of lines of business and the ability of other financial service providers to provide banking services and vice versa. There is a lot of other nonbank competition in consumer and commercial credit. I can't get on an airplane without seeing a [tie-in] for a credit card. There are just any number of different kinds of players in the business anymore.

We've also seen a lot more growth in the way of certain technology and the role it plays. It is more complex and far-reaching than it was 10 years ago. But I think a lot of things haven't changed. Customers still largely appreciate the availability of a branch. A lot of things people thought were going to happen, such as checks becoming obsolete, have been a lot slower to take hold.

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