Zions Bancorp. Inc. announced Monday that it plans to swap about $140 million of preferred shares for up to 7 million common shares to boost its common-equity levels.

The Salt Lake City company also said in a filing with the Securities and Exchange Commission that it would hedge some of its securities portfolio to make its balance sheet more "asset sensitive." Raymond James analyst Dennis Klaeser said that would provide Zions with a significant tax benefit, reduce the size of its deferred tax assets and allow Zions to recoup taxes paid in 2007.

Before Monday the stock had been underperforming against its peers, and it had been in a steep sell-off since Zions reported earnings in October, Soleil-Tenner Investment Research analyst Gary Tenner said.

The stock closed Monday up nearly 13%, to $14.12, but it is off 41% so far this year and 21% in the last three months.

Klaeser said the recent underperformance was related to concerns about Zions' exposure to commercial real estate and construction lending, as well as worries that its capital ratios were light.

Edward Timmons, an analyst with Sterne, Agee & Leach, said there has been a lot of speculation that Zions was going to have to write down some of its deferred tax assets, which led to a lot of the stock weakness. Based on pre-provision cash flow and excluding goodwill impairment, he said he does not think it will have to impair the deferred tax assets in the current quarter.

Meanwhile, the exchange offer, while a nearly 50% discount to face value, is close to a 25% premium to where the preferred shares were trading Friday. Zions has about 114 million shares outstanding.

Several analysts pointed out that the amount the exchange offer can raise depends on the number of shares tendered, and Tenner added that it is hard to say what that will be.

Klaeser said the exchange offer will "incrementally bolster" tangible common equity but will not necessarily increase regulatory capital, since it is just changing out one form of Tier 1 capital for another. He and Timmons said they thought there was still more capital to be raised.

Timmons said that, depending on its collateralized debt obligation portfolio and how long the current credit cycle lasts, there is talk that Zions could need to raise about $500 million.

The company has been hurt by the problems in the real estate market in the West, which have factored in losses it posted for four consecutive quarters. But last month it said it saw some signs of stabilization and more moderate increases in credit costs.

Tenner upgraded Zions to "buy," from "hold," on Monday before it announced the exchange offering.

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