Zions Cites Volcker Rule on 387 Million Charge Tied to CDOs
Comment of the Day

December 16 2013

Commentary by Eoin Treacy

Zions Cites Volcker Rule on 387 Million Charge Tied to CDOs

This article by Elizabeth Dexheimer for Bloomberg may be of interest to subscribers. Here is a section: 

The cost is more than Zions earned for any calendar year since 2007, marring the turnaround engineered by Chief Executive Officer Harris Simmons. The bank has posted two straight annual profits including last year¡¯s $349.5 million. That followed three years of losses starting in 2008 driven by bad real estate loans as well as writedowns tied to CDOs.

Zions stands out among regional lenders for the size of its CDO portfolio because “most banks just didn’t choose to make these types of investments,” Brad Milsaps, an analyst at Sandler O’Neill & Partners LP, said in an interview. “It wouldn’t surprise me if other banks make similar disclosures but it would be on a much smaller relative scale.”

Eoin Treacy's view

Zions Bank Corp has outgrown the KRX Regional Banks Index but remains a significant bellwether for the sector nonetheless. Its performance has been hampered by considerations such as its large CDO book but much of this appears to have already been priced into the share. Following today’s disclosure on how the newly enacted Volcker Rule will affect the company, investors are likely to begin to look beyond this short-term hurdle.

The share has been consolidating above the 200-day MA and mostly below $30 for much of the year. It found support today above $28 and a sustained move below that level would be required to question medium-term scope for additional higher to lateral ranging.

The KRX Regional Banks Index completed an almost four year base in March with an impressive breakout and continues to extend the advance. The Index has been ranging below 80 for much of the last few weeks and while some additional consolidation is a possibility, a sustained move below the 200-day MA, would be required to question medium-term upside potential.

The relative strength of the regional banking sector can be viewed as a positive for wider economy beyond the machinations of Wall Street banks. 

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