Zions' TARP Exit Barely Moves Share Needle

NEW YORK ( TheStreet) -- Zions Bancorporation ( ZION) on Wednesday announced that it had redeemed the remaining preferred shares held by the government for bailout assistance received in November 2008 through the Troubled Assets Relief Program, or TARP.

The company's shares were up 1% in afternoon trading, to $20.54.

The Salt Lake City lender bought repurchased the remaining $700 million in TARP preferred shares held by the U.S Treasury, after repaying its $700 million, after repaying $700 million in TARP money during the first quarter. The company said it had paid the government total dividends of $253 million and that as a result of the repayment, its third-quarter "dividend expense is expected to be approximately $23 million, compared to $37 million recorded in the second quarter 2012 results."

Zions CEO Harris Simmons said the company was "pleased to report that we have completed the steps that we had proposed to the Federal Reserve in January, which were accepted as terms to redeem the TARP shares," and said that the preferred stock redemption was expected to "increase our annualized return on equity in the fourth quarter by approximately one percentage point compared to the third quarter results."

Zions will report its third-quarter results on Oct. 22, after the market closes. Analysts polled by Thomson Reuters estimate the company will report third-quarter earnings of 33 cents a share, although estimates will no doubt be changing as a result of the TARP preferred redemption.

The U.S. Treasury said that "with today's repayment, the overall positive return on TARP's bank programs now totals more than $21 billion," as the government "invested a total of $245 billion through TARP's bank programs and has now recovered more than $266 billion to date through repayments, dividends, interest, and other income."

"Going forward, each additional dollar recovered through TARP's bank programs represents an additional dollar of profit from those programs for taxpayers," the agency said.

Zions Bancorporation's shares closed at $20.33 Tuesday, returning 25% year-to-date, following a 33% decline during 2011.

The shares traded for just over their reported June 30 tangible book value of $19.65, and for 12 times the consensus 2013 Earnings estimate of $1.75 a share, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $1.15.

The company reported second-quarter earnings applicable to common shareholders of $55.2 million, or 30 cents a share, increasing from $25.5 million, or 14 cents a share, during the first quarter, and $29.0 million, or 16 cents a share, during the second quarter of 2011. The earnings improvement mainly reflected "dividends and other investment income from private equity investments," primarily at its Amegy subsidiary. The second-quarter results were also boosted by a $32 million release of loan loss reserves.

Guggenheim Securities analyst Marty Mosby has a neutral rating on Zions Bancorporation, with a $23 price target, and on Friday predicted that investors would see "favorable short-term headlines" heading into third-quarter earnings season. In addition to the repayment of TARP, Mosby predicted that the company would "likely report stronger loan growth than expected in 3Q12... and see an increase in reported earnings per share due to less debt conversion costs."

Mosby raised his third-quarter EPS estimate for Zions by a nickel to 42 cents. The analyst estimates the company will earn $1.32 a share for all of 2012, followed by 2013 EPS of $1.96.

Mosby said that "after achieving the full benefit from the TARP repayment and lower debt conversion costs, we have forecasted that net interest margin compression and less release of loan loss reserves could stall quarterly earnings at around the $0.50 level until 4Q13," and that "ZION's Recovery: ZION's recovery could take longer than other banks' as the two levers of capital restructuring and the eventual rise in short-term interest rates could take the next three to four years to complete."

After those events take place Mosby sees "we see significant upside potential for ZION."

ZION Chart ZION data by YCharts

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

>Contact by Email.

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 TheStreet.com 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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