Zions Bancorporation (ZION), the Utah lender that forecast last month the new Volcker Rule would wipe out its profit, said losses will be about half what it expected after regulators eased enforcement.
Zions will report a net loss of 31 cents to 33 cents a share in the fourth quarter, the Salt Lake City-based lender said Tuesday. Costs for disposing of trust preferred collateralized debt obligations will be $135 million to $145 million instead of the $387 million predicted last month. The original figure was more than the bank had earned for any calendar year since 2007.
"It's not surprising that the guidance is better," Brad Milsaps, an analyst at Sandler O'Neill & Partners LP, said in a phone interview. "This is a net positive, it gives people more clarity." He rates the stock hold.
The firm's original announcement fueled complaints from regional and community banks that they were being hurt by the Volcker Rule, passed to stop large banks from holding risky assets or engaging in trading that might cause their collapse. Zions said it amended its guidance after regulators clarified the rule earlier this month to give "grandfathering" protection to some trust-preferred CDOs that banks already owned.
While "a substantial majority" of its portfolio will be allowed, the Salt Lake City lender said it still will sell some of the holdings. The quarterly loss includes charges for those sales, as well as an $80 million one-time expense for retirement of subordinated debt,
Zions will probably resubmit its 2014 capital plan to the Federal Reserve as a result of the change in the Volcker Rule, and tangible common equity per share may increase slightly from the prior quarter, the company said.
Before the announcement, which came after markets closed, shares of Zions rose 4.3 percent to $31.47, leading all its peers in the 24-company KBW Bank Index (BKX) and ranking fifth in the Standard & Poor's 500. At the day's best levels, it was Zion's biggest gain in almost two years, and trading volume was 268 percent of the three-month average.
James Abbott, a spokesman for Zions, didn't immediately respond to requests for comment. The company said full-year results will be disclosed Jan. 27 after the markets close.
Zions owned $1.2 billion of bank-issued trust-preferred CDOs as of Sept. 30, the most among all U.S. banks, analysts at Sterne Agee & Leach Inc. said last month. About 3% of U.S. banks held similar CDOs, and a sudden sale by Zions could roil the market, Sterne Agee had said.
The Volcker Rule, approved last month by regulators, is part of the Dodd-Frank Act that Congress passed in 2010 to prevent another financial crisis. It's named after Paul Volcker, the former Federal Reserve chairman who sought to ban banks from betting with their own capital.