Zions Bancorp., a recipient of funds from the Treasury Department's Capital Purchase Program, expects to be putting some of its capital to work fairly soon — acting on failures that executives anticipate will occur once other companies learn they have been denied access to the program.

Doyle Arnold, the chief financial officer of the $54.3 billion-asset Salt Lake City company, said on Wednesday that rejections from the bailout program would probably expedite bank failures in the next two to three quarters. One possible consequence of the federal program, he said, is that failures actually may accelerate.

"It is very possible that banks that don't get it have a much shorter life expectancy than they might otherwise, and therefore may fail," Mr. Arnold said. Had there been no Treasury funding structure in place, he said, the expected failures might have occurred during a four- to eight-quarter period.

Zions is expected to receive $1.4 billion from the government program.

Mr. Arnold, whose comments were part of a presentation at a conference held by Merrill Lynch & Co., said that a rise in bank failures could enable Zions to pick up a "few billion" dollars in deposits. So far, it has succeeded with a bid to assume $800 million of deposits from Silver Bank in Henderson, Nev., which failed in September, but lost out on bids for the deposits of two other failed banks.

Mr. Arnold was not the only bank executive who discussed potential merger fallout as more decisions on the capital program come to light. Richard Davis, the chairman and chief executive at U.S. Bancorp, also said that banks that fail to get funded might see their interest in selling become "more peaked than others," but he also made a case that even companies that get Tarp funding may opt to sell.

"Having capital doesn't change your ability to earn money," he said. "In fact, technically, it is a little dilutive if you can't use it. … If they are stressed, it is just a matter of time."

Publicly traded banks have until today to apply to the Treasury for a capital injection.

At Zions, an assumption of deposits from failed banks would play a big role in spurring lending, Mr. Arnold said.

"We need deposits in addition to capital in order to profitably grow the loan book — if all you did was lend with capital, it'd be expensive," he said in a follow-up interview Thursday.

Mr. Arnold is one of a few bankers who has been willing to detail how government bailout money could affect loan originations. He estimated that the infusion of money from the bailout program could potentially result in Zions' originating $500 million to $750 million of loans per quarter in the near term. This would be less than its roughly $1 billion of quarterly originations in normal times. Third-quarter originations were zero, "for all intents and purposes," he said.

The decline he sees for future quarters is attributable to both liquidity constraints and weaker loan demand in a number of its markets.

There is still demand for commercial and industrial loans in Zions' Southern California markets, but commercial real estate demand there has dropped off considerably due to the effect of the housing meltdown on the region's residential construction market, he said. Markets that are less dependent on real estate development, he said, particularly Texas, the Pacific Northwest, and to a lesser degree Colorado and the intermountain West, should continue to produce fairly decent loan demand.

"But that also depends on the softening economy and on our ability to grow funding to sustain" loan growth, Mr. Arnold said Thursday.

He also told investors during his Wednesday presentation that the infusion of capital from the government should expedite the resolution of its bad loans, mainly residential real estate construction and development credits. In the third quarter, Zions' net income fell 75% from a year earlier, to $33.4 million, due mainly to a near tripling of its loan-loss provision from a year earlier, to $156.6 million.

Mr. Arnold said that the eventual chargeoffs of nonperforming loans may total less than many have speculated. Still, there could likely be some "lumpiness" in loan losses for the next two to three quarters as Zions expedites the resolution of bad loans after its capital infusion.

For example, Zions may make a modest disposition of bad residential real estate loans originated in Arizona, which might lead to losses above and beyond the norm in the next quarter or two. He said any sale would be of a subset of the $200 million in such loans that are nonperforming.

Mr. Arnold also said the government's bailout program could probably mitigate, though also accelerate, the resolution of its portfolio of bank trust-preferred collateralized debt obligations. Zions could record a net capital reduction of $50 million to $125 million, he estimated, in other-than-temporary-impairment charges due to losses on the CDOs it holds from banks that could fail after being denied bailout money.

However, Zions could offset those losses with higher valuations for the CDOs it holds from banks that get capital from the government and, therefore, are deemed more creditworthy.

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