Analysts say they plan to listen closely this week for any change in tone from Zions Bancorp. on its guidance about its credit exposure, especially concerning the deteriorating commercial real estate market in the Southwest.

Zions has been up front. It issued a profit warning for the third quarter and has told Wall Street — most recently on Nov. 15 at a conference sponsored by Merrill Lynch, when it gave some rough guidance — to expect credit issues to linger for the foreseeable future.

But analysts said they are concerned that credit deterioration has become a moving target for Zions and the sector in general.

On Tuesday Moody's Investors Service put the ratings of Zions and its affiliates on review for a possible downgrade, saying it would review whether Zions' real estate exposure would affect "profitability and capital metrics."

Tony Davis, a bank analyst at Stifel Nicolaus & Co. Inc. of St. Louis, said Wednesday: "I would not be surprised if we did see another statement at that conference that would probably suggest that the fourth quarter provision is going to be as high, or higher, than the third, just based on what we're seeing in the market. My confidence in this quarter's provision being lower than the third is not high."

Richard Bove, financial strategist at Punk, Ziegel & Co. of New York, said, "The fear is that whatever number they give is not going to be the full number, because the situation continues to erode."

The $50 billion-asset Zions took a $55.4 million loan-loss provision for the third quarter, 285% higher than a year earlier and 211% higher than the second-quarter provision.

The Salt Lake City company cited exposure to the residential construction and development sectors in Arizona, Southern California, and Nevada. Net loan and lease chargeoffs were $18.1 million, up 178% from a year earlier. Nonperforming assets rose 163%, to $196.6 million.

Net income for the quarter fell 11.7% from a year earlier, to $135.7 million.

Doyle Arnold, Zions' chief financial officer, told analysts in New York on Nov. 15 that "provisions are likely to remain at a somewhat elevated level, certainly higher than the $18 million-a-quarter kind of range that it has been for the past number of quarters. But, at this point, I would say probably not at the $55 million range."

"We think we understand those exposures," Mr. Arnold said. "What we don't know exactly is where the bottom is and how long this cycle will still be on the downswing. But in general, we think we are kind of in the second year of a four- to five-year cycle with regard to residential construction and development in particular."

Scott Siefers, an analyst at Sandler O'Neill & Partners LP in New York, estimates that Zions' provision for loan will be around $37.9 million in the fourth quarter and average $40 million through 2008. But he called that metric "a wild card" given the market. Stifel Nicolaus is modeling provisions of $40 million for the fourth quarter, Mr. Davis said, while Punk Ziegel estimates provisions for the quarter at $45 million.

Analysts will also be watching for guidance on Lockhart Funding, a $3.1 billion-asset commercial paper conduit that Zions sponsors and that contains Zions-originated loans and other commercial paper.

When Zions reported third-quarter earnings Oct. 18, it said it had purchased paper issued by Lockhart after failing to sell it in the secondary market. On Sept. 30 it had about $500 million of commercial paper on its books, but by Oct. 18 executives said it had reduced that amount by 68%.

However, on Wednesday, Sandler's Mr. Siefers said that though Lockhart remains an issue, a very small portion of the assets are unsaleable. On Nov. 15 Mr. Arnold said that Lockhart had about $136 million in residential mortgage-backed exposure, with $33 million of that portion backed by subprime.

Clark Hinckley, Zions' investor relations executive, who will present Wednesday on the company's behalf, said on Nov. 21 that he did not expect to share any new fourth-quarter guidance this week.

As for the action Moody's took, Mr. Hinckley said, "I think that's not a surprise in this market environment."

Zions' shares rose 0.42% Wednesday. They are down 28% since Oct. 1.


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