Zions BanCorp Is Cheap But It Has A Revenue Problem
Higher Rates Can't Come Fast Enough For Zions Bancorp
Stephen Simpson, CFA
Stephen Simpson, CFA
Fri, Jul. 22, 7:13 AM
Thu, Jul. 7, 3:09 PM
- FBR's Paul Miller figures Zions (ZION +1.3%) could improve its ROTCE to about 9% from the current 5.3% over the next 12-18 months, thanks to cost-cutting efforts, the sale of CDOs, and the redeployment of capital.
- With the stock currently around book value, he sees little downside should the bank not be able to achieve those targets. He upgrades to Outperform, with price target raised to $36 from $30.
- Management is expected to disclose cost-cutting plans in the next two-three months, and Miller sees an efficiency ratio target of 65%, with expenses declining from about a $400M quarterly run rate to $385M.
- The CDO portfolio sale should free up about $500M for capital moves - be they buybacks, or purchases of securities and loans.
Wed, Jun. 29, 9:41 AM
- The details aren't available, but one can be pretty sure a common theme through all of the downgrades is a "lower for longer" interest rate scenario, and for any Texas or energy-exposed banks a possible topping in oil prices.
- Comerica (CMA -0.1%) is cut to Underperform from Neutral, Franklin Financial (FSB) to Neutral from Buy, Lincoln National (LNC -0.8%) to Neutral, Principal Financial (PFG +0.5%) to Neutral, Prudential (PRU -0.4%) to Underperform, Regions Financial (RF +0.5%) to Neutral, Synovus (SNV +0.4%) to Neutral, Unum Group (UNM -1.2%) to Underperform, and Zions (ZION -0.3%) to Underperform.
- Previously: Texas Capital downgraded at BAML (June 29)
Thu, Jun. 23, 4:51 PM
- Ally Financial (NYSE:ALLY): Actual end of 2015 CET1 ratio of 9.2%, Q1 2018 CET1 ratio under severely adverse scenario of 6.1%, minimum 6.1%.
- American Express (NYSE:AXP): Actual 12.4%, Q1 2018 12.3%, minimum 11.4%.
- Bank of America (NYSE:BAC): Actual 11.6%, Q1 2018 8.1%, minimum 8.1%.
- BNY Mellon (NYSE:BK): Actual 11.5%, Q1 2018 11.2%; minimum 10.5%.
- BB&T (NYSE:BBT): 10.3%, 6.9%, 6.9%
- BBVA Compass (NYSE:BBVA): 10.7%, 6.5%, 6.5%.
- BMO Financial (NYSE:BMO): 11.9%, 5.9%, 5.9%.
- Capital One (NYSE:COF): 11.1%, 8.2%, 8.2%.
- Citigroup (NYSE:C): 15.3%, 9.2%, 9.2%.
- Citizens Financial (NYSE:CFG): 11.7%, 8.8%, 8.8%.
- Comerica (NYSE:CMA): 10.5%, 8.3%, 8.3%.
- Discover (NYSE:DFS): 13.9%, 12.4%, 11.9%.
- Fifth Third (NASDAQ:FITB): 9.8%, 6.8%, 6.8%.
- Goldman Sachs (NYSE:GS): 13.6%, 10.2%, 8.4%.
- HSBC N.A. (NYSE:HSBC): 15.7%, 9.1%, 9.1%.
- Huntington Bancshares (NASDAQ:HBAN): 9.8%, 5%, 5%.
- JPMorgan (NYSE:JPM): 12%, 8.3%, 8.3%.
- KeyCorp (NYSE:KEY): 10.9%, 6.4%, 6.4%.
- M&T (NYSE:MTB): 11.1%, 6.9%, 6.9%.
- Morgan Stanley (NYSE:MS): 16.4%, 10%, 9.1%.
- Northern Trust (NASDAQ:NTRS): 10.8%, 9.6%, 9.6%.
- PNC Financial (NYSE:PNC): 10.6%, 7.6%, 7.6%.
- Regions (NYSE:RF): 10.9%, 7.3%, 7.3%.
- Santander Holdings (NYSE:SAN): 12%, 11.8%, 11.8%
- State Street (NYSE:STT): 13%, 9.6%, 9.6%
- SunTrust (NYSE:STI): 10%, 7.5%, 7.5%.
- TD Group (NYSE:TD): 13.1%, 8.4%, 8.4%.
- U.S. Bancorp (NYSE:USB): 9.6%, 7.5%, 7.5%.
- Wells Fargo (NYSE:WFC): 11.1%, 7.2%, 7.2%.
- Zions (NASDAQ:ZION): 12.2%, 6.6%, 6.6%.
- Previously: All 33 banks pass this year's stress tests (June 23)
Wed, Jun. 15, 3:17 PM
- Having already shed value in June as expectations for rate hikes evaporated, the financial sector (XLF +0.7%) is showing relative strength following the FOMC's standing pat and dialing back expectations for the future level of the Fed Funds rate.
- The S&P 500 is higher by just half the amount of the financials.
- Within financials, the banks (KBE +1.1%), (KRE +1.1%) are particularly strong, led by Bank of America (BAC +1.5%), Morgan Stanley (MS +1.3%), Citigroup (C +1%), BB&T (BBT +1.2%), Fifth Third (FITB +2.2%), SunTrust (STI +1.4%), Zion (ZION +1.3%).
Mon, Jun. 13, 2:25 PM
- Not very excited about the prospects for bank stocks given the significant flattening in the yield curve as potentially signaling a deteriorating H2 and 2017 environment, a bank stock analyst nevertheless needs to recommend bank stocks.
- Given low expectations as reflected in its cheap valuation, its highly asset-sensitive balance sheet, and the chance for good news from CCAR, Bank of America (BAC -1.3%) is the team's top bank idea.
- Looking at regionals, they like the M&A optionality in Comerica (CMA -1.1%), but don't see much value in names like Citizens Financial Group (CFG -1.1%), Regions Financial (RF -1.1%), SunTrust (STI -0.9%), and Zions Bancorp (ZION -0.9%). Baird also sticks with its Underperform rating on M&T Bank (MTB +0.3%), which trades at 13.5x 2017E EPS vs. about 11x for the peer group.
Tue, Jun. 7, 9:37 AM
- The team at Susquehanna upgrades Zions Bancorp (ZION +0.1%) to Positive from Neutral, while cutting SunTrust (STI -0.2%) to Neutral from Positive.
- Checking the scorecard, Zion is up 6.6% YTD vs. SunTrust's 2.2% advance. On a year-over-year basis, STI's 1.8% gain has outperformed ZION by about 1K basis points.
Mon, May 9, 9:56 AM
- Catching upgrades to Outperform from Neutral at Raymond James today are BOK Financial (BOKF -0.6%), Comerica (CMA), and Hancock Holdings (HBHC +1.4%).
- Boosted to Strong Buy are Zions Bancorp (ZION -0.3%), Texas Capital (TCBI +0.7%), and Midsouth Bancorp (MSL +1.1%).
- Prosperity Bancorp (PB +0.8%) gets a two-notch upgrade to Outperform from Underperform.
- The group has already put in a strong rally off the lows, with each higher by anywhere from about 10-30% over the past three months, but down by about 7-30% on a year-over-year basis.
Fri, Apr. 29, 1:49 PM
Mon, Apr. 25, 4:39 PM
- Q1 net interest income of $453M up 1% Q/Q, up 9% Y/Y. NIM of 3.35% up 12 bps Q/Q, up 13 bps Y/Y.
- Adjusted pre-provision net revenue of $182M up 5% Q/Q, up 21% Y/Y. Efficiency ratio of 68.5% improves 106 bps from Q4.
- Provisions of $42M up from $23M a quarter ago. NPAs of 1.33% of all loans vs. 0.87% in Q4. Net charge-offs of $36M up from $13M - all energy related as net charge-offs for oil and gas were $36M. The oil and gas portfolio allowance increased to 8.1% of the portfolio. Criticized oil and gas loans rose to 38% of all energy loans from 30% a quarter ago.
- Conference call at 5:30 ET
- Previously: Zions misses by $0.01, misses on revenue (April 25)
- ZION flat after hours
Mon, Apr. 25, 4:17 PM
Sun, Apr. 24, 5:35 PM
Thu, Apr. 7, 12:44 PM
- "We are confident in the capital strength of the large and mid-cap banks - and with that, their capacity for increased capital returns," says Credit Suisse's Susan Roth Katzke.
- Stronger balance sheets, she says, should outweigh what is a harsher adverse scenario from the Fed.
- Roth and team see a total net capital return increase of 77% vs. 58% in 2015, with a median payout ratio of 31% vs. 27%. Incremental dollars should be skewed to buybacks given cheap stock valuations and the Fed's preference for the flexibility afforded by repurchases.
- Best positioned for the highest capital return are Morgan Stanley (NYSE:MS), Regions Financial (NYSE:RF), Goldman Sachs (NYSE:GS), Fifth Third Bancorp (NASDAQ:FITB), PNC Financial (NYSE:PNC), and U.S. Bancorp (NYSE:USB).
- The highest incremental capital returns should come from Zions Bancorp (NASDAQ:ZION), Citigroup (NYSE:C), Bank of America (NYSE:BAC), and M&T Bank (NYSE:MTB).
- The lower end of payout ratios should fall on Huntington Bancshares (NASDAQ:HBAN) and Bank of America.
- Now read: Sell The Banks: The Invisible Hand Is Broken (April 4)
Tue, Apr. 5, 10:05 AM
- In a research note to clients, Goldman noted that investors typically over-penalize declining profitability. To wit, the S&P 500 currently trades slightly above its 2014 year-end level of 2,059, but its P/B ratio is 4% lower at 2.7x.
- Goldman recommends clients consider the following stocks with low P/B ratios:
- AIG - P/B of 0.73, implied upside 22%.
- BAC - P/B of 0.89, implied upside 26%.
- C - P/B of 0.7, implied upside 25%.
- CFG - P/B of 0.89, implied upside 24%.
- HES - P/B of 0.8, implied upside 29%.
- LNC - P/B of 0.92, implied upside 17%.
- RF - P/B of 0.96, implied upside 34%.
- ZION - P/B of 0.88, implied upside 24%.
- Now read Best-Performing Value Strategies: The Price-To-Book Ratio »
Tue, Feb. 23, 2:38 PM
- Holding its investor day today, JPMorgan said it was going to add another $500M to energy-related loan-loss reserves. This followed a $67M provision in Q4, which at the time brought total oil and gas loss reserves to $815M (vs. a portfolio with book value of $44B).
- In addition, the bank said it could need to add another $1.5B to reserves should oil hang around $25 per barrel over the next 18 months. For perspective, prior to Q4, JPMorgan hadn't had to add to reserves for six years - in fact reserve releases were a big boost to profits across the industry.
- "When the biggest bank increases reserves for potential oil losses it sets a tone for the industry,” says Mike Mayo.
- Separately, the FDIC says bad loan provisions across the banking sector were $3.8B higher in Q4 than a year earlier.
- JPMorgan (JPM -3.5%), Citigroup (C -2.9%), Bank of America (BAC -2.9%), Wells Fargo (WFC -2%), U.S. Bancorp (USB -3%), Regions Financial (RF -3.8%), Comerica (CMA -4.2%), Zions (ZION -4.1%), PNC Financial (PNC -2%).
- ETFs: KRE, KBE, IAT, KBWB, QABA, KBWR, KRU, KRS
Mon, Feb. 8, 6:49 AM
Zions Bancorp. is a financial holding company. The company, through its subsidiaries, provides a full range of banking and related services. It provides variety of commercial and retail banking and mortgage lending products and services. The company offers personal banking services to... More
Industry: Regional - Pacific Banks
Country: United States
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