Targeting the Too Big To Fails, the Volcker rule hits Zions Bancorp (ZION +0.5%), which says substantially all of its portfolio of bank and insurance trust preferred CDOs and certain other asset-backed CDOs will not be allowed under the new regulation. "This is not something that we had anticipated nor do we think we reasonably could have anticipated based on what was in the proposed rule,” says CFO Doyle Arnold on an analyst call following the announcement.
The final rule requires banks sell disallowed assets by July 21, 2015. Zions will thus reclassify all covered CDOs from "Held to Maturity" to "Available for Sale," and mark them to market. The move will eliminate about all of the AOCI to equity related to the securities.
The bank thus expects a Q4 pre-tax non-cash charge of $629M, and September 30 Tier 1 common ratio to fall to 9.74% from 10.47%. Zions reminds the actual impact may be materially greater or less depending how the market moves, and suggests the market for this paper had been improving prior to the implementation of the final rule. "We’re not going to just go out and dump those things tomorrow,” says Arnold.
The stock knee-jerked lower on the news, but has since reversed and turned higher.