Zions Permitted To Hold CDOs After Volcker Rule Change – ValueWalk Premium

Zions Permitted To Hold CDOs After Volcker Rule Change

Sterne Agee analysts Todd L. Hagerman and Robert Greene rate Zions Bancorporation have a new report on Zions Bank, which gets into the latest changes to the Volcker Rule and CDOs.

After the close, Zions Bancorporation (NASDAQ:ZION) announced the updated 4Q13 impact of the Volcker Rule. Consequently, ZION has lowered the expected pretax charge on its CDO portfolio to $135-$145mm versus $629mm previously. The revised charge largely ties to discretionary asset sales in the quarter. ZION pre-announced 4Q13 EPS at a loss of $0.31-$0.33. Adjusted for the expected charges, this implies GAAP EPS of $0.45- $0.47 in 4Q13, or ahead of consensus estimates about $0.43.

Zions Permitted To Hold CDOs After Volcker Rule Change

ZION releases updated Volcker Rule Impact

In light of the issuance of the interim final rule published on January 14, a substantial majority of Zions Bancorporation (NASDAQ:ZION)’s trust preferred securities (TruPS) collateralized debt obligations (CDOs) will remain permissible holdings under the interim final rule adopted under section 619 of the Dodd-Frank Act (the “Volcker Rule”). The company previously indicated that it would have been required to reclassify all covered CDOs currently classified as “Held to Maturity” (HTM) into “Available for Sale,” resulting in an estimated $629mm (pretax, or $387mm after tax) charge via a non-cash charge through otherthan- temporary impairment. The company now expects to take a $135-$145mm (pretax) charge in 4Q13, related primarily to the company’s decision to sell a portion of its CDO portfolio during the quarter. However, Zions Bancorporation (NASDAQ:ZION) will also record a modest accounting charge related to certain CDO securities not covered by the interim final rule.

Preliminary 4Q13 guidance above Sterne Agee estimates

Zions Bancorporation (NASDAQ:ZION) also announced that it expected to report (after the close on January 27) a net loss of $0.31- $0.33/share, owing to the $135-145mm (pretax) CDO impairment charge and an additional $80mm (pretax) expense related to a sub-debt tender in the quarter. The $215-$225mm (pretax) charge amounts to roughly $0.78/share (after tax), which would imply 4Q13 GAAP of about $0.46, higher than the Sterne Agee estimate of $0.40 and consensus of $0.43.

Ultimately, a positive for ZION

Given the narrowing of the potential CDO charge, early indications of better-than-expected 4Q13 earnings, and modest accretion to tangible book value (owing to an improved unrealized loss position on the CDO portfolio in the quarter), we view this afternoon’s announcement as a modest positive for Zions Bancorporation (NASDAQ:ZION) shares.


Saved Articles

The Life and Career of Charlie Munger

Charlie is more than just Warren Buffett’s friend and Berkshire Hathaway’s Vice Chairman – Buffett has actually credited him with redefining how he looks at investing. Now you can learn from Charlie firsthand via this incredible ebook and over a dozen other famous investor studies by signing up below:

  • Learn from the best and forever change your investing perspective
  • One incredible tidbit of knowledge after another in the page-turning masterpiece of a book
  • Discover the secrets to Charlie’s success and how to apply it to your investing
Never Miss A Story!
Subscribe to ValueWalk Newsletter. We respect your privacy.

What’s missing today for many investors is real, straightforward advice.

Especially when it comes to Value Investing and Hedge Funds. 💵

That’s what makes ValueWalk Premium different. Some would say we’re “unusual.”

Our subscribers look forward to clear, easy-to-understand information they can act on.

Sign up for  today for only a few dollars a day and get a 3 day no obligation trial with a targeted 20% discount coupon code.

Cancel anytime during trial and you are never charged.

Limited time offer: For first 50 subscribers