The head of Zions Bancorp.'s online discount brokerage arm admits that it is not a fountain of profits.

For example, Zions Direct's bonds trade at $10.95 per transaction, said David Hemingway, the brokerage's chairman. "People have told me, 'You can't make any money selling bonds at $10.95,' " he said. "My usual response is, 'Don't I know it.' "

Hemingway would not disclose how much in assets under management or revenue Zions Direct has generated — or lost — but he said its 30,000 brokerage accounts are very valuable to the Salt Lake City parent company.

Zions Direct's platform of services has worked out as a kind of loss leader for the company, Hemingway said; the wealthy individuals attracted to the services are the type of customers Zions wants to do business with. "Our main business is that we're a bank holding company," he said in an interview last week. "We're more interested in the cash deposits."

The average Zions Direct brokerage account has $100,000, he said, which is far more than the average discount brokerage account at other providers.

Hemingway would not quantify the customers, assets and deposits that have flowed into the bank through Zions Direct, but he said he likes the unit's potential. Asked how much in bank deposits Zions has gained from its online brokerage unit, he chuckled and said, "We're still enthusiastic about the project."

As a result, Zions Direct continues to add products and services. Last month it added municipal bonds to its auction platform. Hemingway said municipal bond auctions are the sort of service that draws wealthier customers. Zions Direct already offered secondary issues from other dealers, for which it charges investors wholesale prices. The municipal bond auctions involve bonds that Zions Bancorp. bought in the secondary market.

There are no sign-up charges or brokerage fees to bid in an auction. To open a bidding account, customers provide their name, phone number and e-mail address, but must also open a Zions Direct account and deposit at least $1,000.

The company launched its auction platform in May 2007 with a sale of stock option-related securities. Since then it has used the platform to offer certificates of deposit, corporate bonds, commercial paper, collateralized debt obligations and preferred stock.

Certificates of deposit have accounted for most of the 651 auctions so far, Hemingway said. The bidders vie for CDs offered by multiple banks. The most recent auction involved six banks, five of which were Zions affiliates. The only outside bank was Continental Bancorp. in Salt Lake City. Dennis L. Higbee, vice chairman and chief financial officer of the $89 million-asset Continental, said the auctions give his company more control over rates and maturities.

"We can specify the amount we want, the time frame we want it for and the rate we want to pay," he said. "Those three components are critical when you're trying to keep your rate sensitivity and liquidity where they need to be." The auctions also serve as an option should the Federal Deposit Insurance Corp. restrict depository trust company brokered deposits, which are another funding source for Continental, Higbee said.

Hemingway said Zions Direct plans to expand participation by outside banks, but it will need a larger pool of bidders to do that. Zions Direct has about 8,000 bidding accounts. "If I had 100,000 bidders rather than 8,000, we'd have a bigger business," he said. "But it's growing." The number of bidding accounts rose 71% in the 12 months that ended Feb. 28, according to Zions Direct.

It is "being prudent in the growth of the business," Hemingway said, avoiding lavish marketing campaigns and sticking to targeted efforts such as "word buys" on Google, a newsletter and a blog. "We're not spending $150 million a year on TV and Internet ads."

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