Is Zions Bank insolvent?

Here’s an analysis from ZeroHedge with calculated Texas ratios in February 2009 that includes ZION and it appears that ZION is in relatively good shape.


Also, when the FDIC took over Silver State Bank, they sold the assets to ZION. Why would they do that if they expected to take ZION into receivership in the near future?

Positive factors as stated by the company itself include:

“-Zions Bank has a total capital to risk-weighted assets ratio of 11.33%, significantly above the 10.00% required by bank regulators to be deemed “well capitalized.”

-At December 31, 2008, Zions Bancorporation had a total capital to risk-weighted assets ratio of about 14.71%; also well above the 10.00% required by bank regulators to be deemed “well capitalized.”

-Zions Bancorporation and Zions Bank have paid off all net short-term borrowings, leaving Zions with borrowing capacity with the Federal Reserve Bank and various Federal Home Loan Banks equal to more than one-third of total deposits.

-Zions Bancorporation issued medium-term notes, providing the company with a 2-year cash reserve.

-Residential land development loans in California, Nevada, and Arizona (the most troubled loan types in the most troubled geographies) constitute just 6% of total loans.”

On the other hand, the company’s ratings have been cut recently:

“Standard & Poor’s…cut its counterparty ratings on Zions Bancorp to one notch above junk status, citing significant losses and the risk of more to come.   Moody’s Investors Service…slashed Zions’ senior debt rating by eight notches to B2, its fifth-highest junk grade, from A3.

S&P cut Zion’s counterparty credit rating by two notches to BBB-minus, the lowest investment grade, from BBB-plus.  Both agencies assigned a negative outlook, indicating another cut is likely over the long term.    S&P said it is most concerned about Zion’s roughly $2.7 billion portfolio of collateralized debt obligations and believes additional markdowns are likely.”

Moody’s thinks that “Zions’ capital position will come under significant pressure in the short-term because of its large commercial real estate lending concentration and CDO portfolio, consisting primarily of bank trust preferreds. Moody’s expects that future credit costs in Zions’ residential construction book and CDO portfolio cause a significant risk of the firm becoming undercapitalized.  Zions’ CRE portfolio represents more than four times tangible common equity ratio, with approximately 60% comprised of construction and land. These categories typically have relatively high loss content.”

If one assumed a 25% haircut on the CRE, that would imply that Zions’ tangible common equity would be wiped out.   So, I think that Zions could be considered insolvent at this time.  However, there are a number of banks that are in worse shape, so I doubt Zions would be taken over by the FDIC anytime soon.


1 Comment »

  1. Ron Hatfield said

    The rating services have not had a reliable”pre-recession” record . Apparently they admit that they didn’t see it coming?

    Is theirs a “snapshot in time” analysis or are they really looking at the company AND the DYNAMIC economy? (The reports are full of “coulds” and “mights”, all from a pessimistic perspective.)

    Do they see this economy changing now? As this recession seeks it’s bottom and the bleeding slows and stops… then what is Zion’s position? Short term (next 6 months) or longer term (next 12 months). I didn’t see any hints here of “recovery”…. only status quo. The report did not address that potential outcome.

    April Business Week reported that B of A refused to accept it’s reduced valuations of Bank Held Assets because Appraisals were not realistic but instead based on the anomaly of the recession. Is that the case with the rating services too? Are they like the “Appraisers” who can’t find “normal” comps and so rely on their “running scared worst case senerios” (or in real estate the ugly stepsister, “distressed sales”) to give a “market” price or valuation?

    Were the services embarassingly “too optimistic” in the pre-recession times and are now hoping to bandage their reputation with a “too safe” pessimistic analysis?

    Bottom line…. Can we really trust the rating services?

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