Zions Warns of Large Impairment Charge Relating to Trups

Zions Bancorporation (ZION) in Salt Lake City has warned investors that it is facing an impairment charge of up to $100 million in connection with its investments in smaller banks.

The investments in question are trust-preferred securities on which issuing banks have deferred payments to investors like Zions in an effort to preserve capital but are nearing the end of their deferral periods. The $53.1 billion-asset multi-bank holding company disclosed in a brief Securities and Exchange Commission filing late Tuesday that, following discussions with federal regulators, it is "reviewing its assumptions" on the value of those securities.

Zions did not say how many banks in which it invested are deferring payments, but in a research note Wednesday Sandler O'Neill & Partners estimated it to be "a couple hundred." Some of those banks are healthy enough to resume making payments to investors, but Sandler O'Neill said in its note that prospects of others making payments are "iffy."

Combined with its disclosure last week that it is facing impairment charges related to prepayments of certain collateralized debt obligations, Zions said that its other-than-temporary impairment charges in the fourth quarter could reach, but would not exceed, $100 million.

Investors were largely unfazed by the disclosure as Zions' shares were down only a penny late Wednesday, to $19.63. But in its research note Sandler O'Neill said it was lowering its 2012 earnings per share estimates by 23%, to 93 cents and reducing its fourth-quarter estimates by 64%, to 15 cents.

"At the end of the day, the additional charges are not crippling," Sandler O'Neill analysts wrote.

"That said, we still think the additional charges are a negative. The need to pre-release twice in just over a week on the same issue is never a plus. Nor is the notion that the additional charges follow discussion with regulators."