Zions an early casualty of Volcker rule

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.

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Comments (6)
  • The Long Tail of Finance
    , contributor
    Comments (1717) | Send Message
    Yeah, of all banks, too.
    16 Dec 2013, 03:37 PM Reply Like
  • Stone Fox Capital
    , contributor
    Comments (9890) | Send Message
    always nice to see the govt force the company to sell assets and take a charge. The govt at its best. The problem with letting them hod to maturity is what?
    16 Dec 2013, 06:18 PM Reply Like
  • MisterJ
    , contributor
    Comments (1175) | Send Message
    No, it's more than time for the government to make stand against the TBTF banks who coldly calculated that they could take any risk for they had to be bailed out or the economy would have completely melted down. Time to end the financial terrorism by financial institutions.
    16 Dec 2013, 06:47 PM Reply Like
  • fourchan
    , contributor
    Comments (82) | Send Message
    im sure the mormons who own that bank will have the last laugh.
    16 Dec 2013, 10:11 PM Reply Like
  • funkletrumph
    , contributor
    Comments (14) | Send Message
    Mister J - you have no basis for such a silly statement.
    You must be a government employee.
    17 Dec 2013, 07:34 AM Reply Like
  • Mark Conner
    , contributor
    Comments (12) | Send Message
    Mist J, you are completely right on. Classifying the variety of Zion's securities that are affected as "held to maturity" is inappropriate. Under accounting rules, such a classification allows the bank to avoid disclosing the true unrealized gain or loss condition of the securities. Given the relative unpredictability of cashflows from these securities and the relatively illiquid nature of the market for them, their market value changes can be safely assumed to be wide-ranging. Classifying them as "available for sale" is the more appropriate choice as under this status, their unrealized gain or loss must be disclosed. Moreover, these gains or losses must be reflected on the bank's balance sheet, and, if unrealized losses should be deemed to be "other than temporary", as can often be the case with illiquid securities, any changes in market value must be added to or deducted from earnings. In simple terms, classifying CDOs as "held to maturity" is hiding the ball. I would add that their auditors should be taken to task as well for allowing this choice.
    10 Jan 2014, 10:30 AM Reply Like
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