Back to top

Analyst Blog

In compliance with the final version of the Volcker Rule, Zions Bancorporation (ZION - Analyst Report) recently completed the divesture of certain collateralized debt obligation securities (CDOs). While most of these vended CDOs were categorized as restricted investment as per the Interim Final Rule, others were sold for risk management.

The divestiture resulted in impairment charges of $142 million. However, this one-time expense has already been adjusted in its fourth-quarter results, wherein Zions reported its first earnings miss in the past twelve months. Adjusted earnings per share of 42 cents missed the Zacks Consensus Estimate by a penny.

Zions initiated the sale of CDOs in January and has completed the divestiture of 35 CDOs to date. The transaction generated total proceeds of $347 million and is expected to garner pre-tax gains of $65 million first-quarter 2014.

Further, the sales reduced the number of nonperforming CDOs by 36%, thereby improving Zions’ balance sheet position.

The presence of the aforementioned risky CDOs in the company portfolio would have been a major cause of the projected loss in the forthcoming quarters. However, the divestiture will help ease the loss burden. Therefore, Zions will likely re-submit its capital plan to reflect the change.

Moreover, given the improvement in Zions’ capital structure, we expect the company to get an approval from the Federal Reserve to reward its shareholders with a second dividend hike since the financial crisis.

The stringent regulatory requirements definitely weigh on the company’s profitability in the near term. However, these norms are expected to provide a secured and stable investment scenario for investors in the future.

At present, Zions carries a Zacks Rank #3 (hold). However, some better-ranked West banks include Summit State Bank , Preferred Bank (PFBC - Snapshot Report) and Sierra Bancorp (BSRR - Snapshot Report). All these stocks have a Zacks Rank #1 (Strong Buy).

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
CENTURY ALU… CENX 22.53 +4.50%
ERBA DIAGNO… ERB 2.91 +4.30%
PLANAR SYST… PLNR 4.31 +3.86%
MALLINCKROD… MNK 72.17 +3.83%
GTT COMMUNI… GTT 12.06 +3.52%