ZION - Zions Bancorp

[PlanMaestro]

W: http://www.sec.gov/Archives/edgar/data/109380/000119312510214137/d424b3.htm

Z: http://www.sec.gov/Archives/edgar/data/109380/000119312512482935/d444935d424b7.htm

 

W vs Z

Strike        36.63 36.27

Expiration: 05/2020 11/2018

DPS:        0.01 0.32

Circulation  28M 5.8M

 

Seems to me the Z does not have Designated Event protection.

 

Are there any other differences?

[thomcapital]

I skimmed through the prospectus and didn't notice any differences, other than the lack of a Designated Event adjustment, as you already mentioned.

 

In terms of circulation, there are actually ~28m of the zionw warrants outstanding. Besides the 7m, there was another 21m brought earlier in 2010 under the same terms.

 

See: http://www.sec.gov/Archives/edgar/data/109380/000119312510125574/d424b5.htm

[PlanMaestro]

In terms of circulation, there are actually ~28m of the zionw warrants outstanding. Besides the 7m, there was another 21m brought earlier in 2010 under the same terms.

 

Thanks Thomcapital. Changed it.

[PlanMaestro]

Good info on the CDOs in today's presentation.

http://www.sec.gov/Archives/edgar/data/109380/000010938012000565/exhibit_991.htm

[negative alpha]

Anyone look at the Z warrants? Not sure why there's such a large disparity between the Z's and the W's. A 2 year difference in life and a higher dividend adjustment threshold, but a 70% difference in price.

[PlanMaestro]

Rumors,

 

Mitsubishi UFJ Lists Potential Targets for U.S. Bank Acquisition

http://www.bloomberg.com/news/2013-01-11/mitsubishi-ufj-lists-potential-targets-for-u-s-bank-acquisition.html

[dcollon]

Plan,

 

The quarter just reported this afternoon look very solid to me.  Their credit quality looks great and appears to be improving.  They have a fantastic deposit base with 40% non-int and if they can get rid of the high cost debt/preferred (actually mgmt mentioned just this in the press release) int exp should drop down nicely. 

 

I'm looking forward to watching this one over the next few quarters.

[PlanMaestro]

Hi, dcollon. Hearing the CC but at first sight it looks OK.

 

OTTI cannot go forever when actually the CDOs are recovering. Also, it looks that not many are giving credit ZION for the $48 million per Q in D&A: that's more than $1 per share per year and most of it is real cash flow.

 

Was hoping for more progress in the refinancing of their liabilities, but it will come.

[PlanMaestro]

Convexity:

And then a final comment, just about convexity risk. We're seeing increasing signs of economic activity around the country. And while it's unclear of when interest rates will rise, we're one of the very limited number of banks that are significantly asset-sensitive, as many of you know. Not only do we expect earnings to increase when rates rise, we expect to be able to avoid a significant haircut to equity that many banks may experience due to the heavy concentrations of mortgage-backed securities and other fixed-rate obligations with convexity or optionality in them that we could see in a rising-rate environment.

 

Preferred Refinancing:

Preferred stock dividends. We also, for those of you who haven't seen it, released after market today a press release announcing our intent to issue a new Series G preferred stock, and we expect to be issuing some additional preferred stock during the first half of 2013. We've previously discussed with you the fact that our Series C preferred stock, 9.5%, is callable in the third quarter of 2013 and we're -- and that we would be unlikely to call it without issuing probably not 100% of it in replacement preferred but a significant portion. So we'll be issuing some of that preferred which will temporarily drive dividend expense up. But in the long term, it should reduce the -- further reduce preferred stock dividend costs significantly.

 

Reserves:

Well, I will just point out and you can decide whether or not to give us credit for 2 facts. One, we're -- among our peers, we had just about the lowest charge-off rate or one of the very lowest charge-off rates this quarter, and we've got one of the highest loan loss reserves. Those 2 facts, and we've got one of the highest reserve on funding commitments relative. So I mean, you put all that together and it says there's very little pressure to boost reserves at this point. Our models and our process are going to drive it. There's not a specific number we're targeting toward, but we're -- I just can't point to anything on the horizon that says that there's a reserve build in the future for the next 2 quarters, and probably continue to drawdown some reserve. I can't find anything that points otherwise. One of my credit officers here staring at me from the other end of the table, but I'm a long way from him. He can't reach me right now.

[dcollon]

Thanks for the highlights Plan

[fareastwarriors]

Per PlanMaestro request

 

ZIONW warrant holders

 

 

 

~sorry, there was no info on the ZionZ

 

[PlanMaestro]

Convexity:

 

Banks That Will Benefit the Most From Rising Interest Rates

http://www.thestreet.com/story/11828384/2/banks-that-will-benefit-the-most-from-rising-interest-rates.html

 

Usdin listed the regional banks that Jefferies would expect to see the most significant increase in earnings if short-term rates rose by 200 basis points, based on detailed balance sheet data from third-quarter 10-Q filings. Here are the top three from that list, with projections based on the firm's 2013 earnings estimates:

 

(…)

 

For Zions Bancorporation (ZION_), Jefferies estimates 2013 EPS of $1.60. If short-term rates were to rise by 200 basis points, Usdin estimates the company's earnings would rise by 45% to $2.32 a share.

 

 

[PlanMaestro]

New Presentation:

http://www.sec.gov/Archives/edgar/data/109380/000114036113005885/exhibit99_1.htm

 

Key slides on the liabilities opportunity:

 

http://farm9.staticflickr.com/8511/8468484355_38762eeaeb.jpg

 

(plus OTTI, goodwill amortization, rate sensitivity)

 

http://farm9.staticflickr.com/8231/8469535250_8a5b6de156.jpg

 

http://farm9.staticflickr.com/8234/8468484515_1fa0075523.jpg

 

[dcollon]

Thanks Plan

[PlanMaestro]

No problem, this was also interesting: estimated option-adjusted duration. The net interest margin is suffering, but they will kill it when/if interest rates rise.

 

Loan portfolio  1.4 years

Cash portfolio  0.1 years

Securities port 1.8 years

 

Securities / Earning Assets 8% (WFC 19% USB 23% MTB 9%)

MBS / Earning Assets    < 1% (WFC 7% USB 6% MTB 4%)

 

http://farm9.staticflickr.com/8383/8469717000_05026474ff.jpg

[PlanMaestro]

FDIC ROA 2012 by State.

 

http://farm9.staticflickr.com/8365/8522880594_928faa3044.jpg[/url]

 

[dcollon]

Plan,

 

I'm sure you saw this, but http://www.snl.com/irweblinkx/file.aspx?IID=100501&FID=16771472.

 

I continue to think they are doing a very nice job of running the bank.

 

[PlanMaestro]

Plan,

 

I'm sure you saw this, but http://www.snl.com/irweblinkx/file.aspx?IID=100501&FID=16771472.

 

I continue to think they are doing a very nice job of running the bank.

 

Not much to add. Nice TBV increase. $0.04 new dividend means the Ws strike price starts moving.

[PlanMaestro]

In case you are wondering why it was up 2% today …

 

http://www.americanbanker.com/syndication/regional-banks-gain-as-rates-seen-boosting-interest-margins-1060043-1.html

[PlanMaestro]

http://www.bloomberg.com/news/2013-07-05/regional-bank-stocks-advance-on-signs-of-improving-u-s-economy.html

 

“These banks are generally more levered to economic growth,” Mosby said of KeyCorp, SunTrust and Zions today in an e-mail.

 

“There’s going to be a distinct difference between the regionals and small banks and the too-big-to-fail banks and the amount of capital they have to carry,” Cassidy said today in a telephone interview. “That unknown is affecting the relative performance.”

 

TREASURIES-Yields rise to two-year highs on strong jobs data

http://www.reuters.com/article/2013/07/05/markets-usa-bonds-idUSL2N0FB0R620130705

 

Ten-year notes were last down 1-19/32 in price to yield 2.70 percent, the highest level since August 2011.

[dcollon]

As it relates to Zion's announcement a few weeks ago and many other community banks.  Comments below on Trust Pfd CDO's from Compass Point Research:

 

House GOP to Introduce TruPs CDO Legislation. Top House Financial Services Committee Republicans are working on draft legislation which would exempt all banks from needing to divest holdings of CDOs backed by TruPs that were issued prior to December 10, 2013.

 

As a reminder, on December 10 the final Volcker Rule was released and it included TruPs CDOs as “covered funds” for the purposes of the rule which caused a number of banks to announce that they will adjust their holdings of these securities to Fair Value. On December 27 the prudential bank regulators released a statement regarding the treatment of TruPs CDOs under Volcker announcing that a review of the provision would be concluded by January 15.

 

We do not believe this legislation will become law due to Democratic opposition to at least two elements of the bill: (1) the draft legislation being advanced in the House would exempt all banks no matter the institution’s asset size; and (2) the legislation’s exemption would grandfather in pools comprised of assets issued prior to the finalization of the Volcker Rule which is a broader timeline than the Dodd-Frank Act envisioned.

 

We do not believe that this legislative effort will become law but believe that it is a notable mile marker as we await the conclusion of the regulatory review scheduled for January 15. We believe that regulators are likely to embrace a TruPs CDO exemption following the review but our sense remains that the exemption will be targeted to cover solely community banks

[PlanMaestro]

Trups cdos don't count as capital in the new basel. Most banks getting healthier. Recoveries in these securities, even distressed ones, have been good. Many banks are retiring them par.

 

“regulators are exploring whether to exempt CDOs backed by trust-preferred securities from the Volcker Rule"

 

My take? trups cdos are on their way out anyway … it's just a question of a couple of years, and regulators will give those years even if there were no lawsuits or congress action.

[dcollon]

PlanMaestro,

 

I would be interested in your thoughts on the quarter.

 

Thanks

 

 

[PlanMaestro]

Still listening trying not to fall asleep. Wondering when they will start using the $9 billion in money markets at 0.26% if only to buy MBS. CDO trups performing very well. TBV growing nicely. Some loan growth. I guess that sums it up.

 

Anything else that grabbed your attention?

[dcollon]

Like you, I think there is still room to increase their margin.  I continue to like the amount of non-int deposits that they have, but I really would love to see them refi the long-term (high cost debt) as soon as possible.  The loan growth was solid, especially in C&I and Residential and the drop in NPA's/Non-accruals from an already low level was nice to see as well.  I can really see an environment where they get back to generating a 1%+ ROA. 

 

I'm cautiously optimistic about the Fed review.