Zions Bancorp (ZION) said the Volcker Rule will force it to take a $387 million charge on its portfolio of collateralized debt obligations.
The Salt Lake City company will be forced to sell nearly its entire portfolio of bank and insurance trust-preferred CDOs under the Volcker Rule of the Dodd-Frank Act, it said Monday. The final version of the rule banning proprietary trading by large banks, which federal regulators issued last week, would require Zions to sell the assets by July 2015.
Zions plans in its fourth-quarter results to reclassify the CDOs as "available for sale" rather than "held to maturity," a change that would require it to price the securities at fair value. This reclassification would require the $54 billion-asset company to record a charge it estimates at $629 million before tax and $387 million after tax, it said.
The writeoff could end up being higher or lower, depending on how the rule effects the price of trust-preferred CDOs, Zions said.
"It is unclear what impact, if any, the divestitures mandated by the Volcker Rule across the bank and insurance trust preferred CDO asset class may have on trading prices," Zions said in a news release.
The reclassification of CDOs would also cause Zions' Tier 1 capital ratio to drop to 9.74% from 10.47%, and its total risk-based capital to 12.40% from 13.10%, based on its holdings as of Sept. 30, the release said.
Banks and lawyers have been struggling to determine how the Volcker Rule will affect their trading and risk-management processes. The rule - a 71-page document, with more than 800 pages of supplementary material - leaves many limits at the discretion of the regulators.