Last week, the Federal Reserve notified Zions Bancorp (ZION) that it had approved certain strategic actions of its capital plan, which was submitted in regard to the Fed's 2013 Capital Plan and Review (CapPR). However, Zions will be required to re-submit its capital plan after making a few amendments.
The Fed has approved all the strategic actions pertaining to the reduction of cost and quantity of Zions' non-common capital as well as term-debt financing. These actions include redemptions of Series B trust preferred securities, $600 million worth of Series C perpetual preferred stock and $250 million worth of subordinated debt and senior debt.
In addition, Zions is looking forward to issue $600 million of additional perpetual preferred stock that includes $171 million of Series G preferred shares already issued in Feb 2013. Further, the company is planning certain other issuances.
Under its plan, Zions had sought to redeem $798 million of Series C shares. Also, management is keen to ask for an approval to issue an additional perpetual preferred stock worth $200 million to fully redeem the Series C stock.
Last year, the Fed had approved Zions’ capital plan. Majority of the actions involved the company’s effort to repay Troubled Asset Relief Program (:TARP) dues. Additionally, Zions had announced the issuance of $600 million of senior debt, redemption of Temporary Liquidity Guarantee Program (:TLGP) debt of $255 million on its maturity in June and an unchanged quarterly dividend of 1 cent per share throughout 2012.
The current capital plan may not seem very attractive as it has little to enhance shareholder value. However, over the long-term, this plan will prove highly beneficial as it aims at restructuring the balance sheet and cost reduction. Moreover, this plan is at par with Zions’ strategy to rationalize its balance sheet and reduce overall cost.
Zions currently carries a Zacks Rank #3 (Hold). Among other banks in the West, Columbia Banking System Inc. (COLB), Western Alliance Bancorporation (WAL) and BBCN Bancorp, Inc. (BBCN) are performing well and are worth considering. Columbia and Western Alliance retain a Zacks Rank #1 (Strong Buy), whereas BBCN Bancorp holds a Rank #2 (Buy).
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