Zions Bancorp said Tuesday it has gotten substantial support from institutional investors for its preferred-to-common stock conversion.

About half of preferred shareholders converted, it said, but participation by institutional investors was high.

The conversion failed, however, to resolve the standoff between Wall Street's demand that the Salt Lake City banking company raise capital and the resistance by management at Zions to do a large, dilutive capital raising as many other banks have recently.

The message by Chairman and Chief Executive Harris Simmons to investors who demand more common equity capital: "I don't work for those who would like to come into the stock," he said during an investor conference this month. "I work for those who are in it."

The standoff has had real consequences for the stock of the company, once considered one of the best managed in America. Its share price is down 46% this year, compared to a 19% decline in the Nasdaq bank index. It closed Tuesday at $13.22 a share, virtually unchanged.

Zions announced last month that it planned to convert its roughly 5.6 million series A preferred shares into common shares. The offer was for half of the preferred stock's face value but 25% above its trading price.

On Tuesday, the bank said 51.3% of holders agreed to convert. This was less than Macquarie Capital analyst John Pancari had expected. But Zions' head of investor relations, James Abbott, said nearly all institutional investors participated.

"We are very pleased" with the participation of investors like mutual funds and pension funds, who requested the conversion, Abbott said.

Through the stock swap, Zions will issue 2.8 million common shares, about 2% of the total outstanding.

Getting retail investors to participate was tough, in part because they were less willing to spend time to understand the complicated transaction.

Pancari said the tepid response from retail investors illustrated concerns about Zions' potential need for more capital.

He has calculated that equity capital at Zions could decline eight basis points this quarter, to 5.35% of total assets, despite the exchange, because the bank unit's bad loans and its own investment portfolio are weighing on capital. He said he expects bank regulators eventually to demand a 6% tangible equity ration at all banks.

Zions' Abbott said the exchange added 12 basis points to the bank's 5.43% tangible common equity as of Sept. 30. Loan losses are showing signs of stabilization, he said.

Zions has been hit with troubled loans, and worries have grown about its securities investments and deferred tax assets, which can be eroded by steady losses. Analysts said the bank might need as much as $1 billion in additional capital, and shareholders fear dilution.

Zions' management has been adamant that its periodic, deliberate capital raises have been sufficient.

CEO Simmons told investors during the conference this month: "We've issued about $1 billion so far through this [credit] cycle. We may do some more, but we do believe that we are reaching what we expect to be the end of that need."

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