NEW YORK — Shares of Zions Bancorp dropped as much as 11% Tuesday after comments in a regulatory filing raised concerns about the regional bank's liquidity.

On Monday, Zions filed its quarterly report with the Securities and Exchange Commission, saying most of its subsidiary banks have seen profits drop or reported losses in recent quarters and are unable to pay dividends. The bank said cash earnings from the units and investments don't cover the parent company's interest and dividend payments and likely won't cover those for the rest of 2009, meaning the company will have to rely on its existing cash to fund the shortfall.

"In addition, the parent has had to increase its investment in several of its bank subsidiaries in order to maintain their 'well capitalized' status," Zions said in the filing.

Morgan Stanley analyst Ken Zerbe said recent liquidity concerns are a headwind for the stock, though he still sees considerable upside for the bank given its aggressive approach at addressing credit problems, among other factors.

"Given recent filings, it seems increasingly likely that Zions may need to raise debt or additional equity to bolster holding company cash needs, which would put downward pressure on earnings," Zerbe noted.

A representative from Zions wasn't immediately available to comment Tuesday.

In recent trading, Zions dropped 8% to $16.50 after earlier falling as low as $16. Shares have lost about 50% of their value in the past 12 months, but they've climbed nearly 20% in August, even with Tuesday's losses.

Morningstar analyst Maclovio Pina said shares could be re-adjusting from recent gains. Shares ended in the black for the past eight consecutive trading days.

Last month, Zions reported it swung to a second-quarter loss as its provision for loan losses soared. Regional banks have struggled during the economic downturn because they're tied to local real estate markets. Zions operates in Western states, which include some areas hit hardest by the housing downturn.

Morgan Stanley's Zerbe said Zions currently has about $1 billion of cash and securities, with an estimated $800 million quickly accessible. He said its cash needs are about $100 million in annual preferred dividend payments and a nearly $300 million debt maturity in December. He said that implies Zions' liquid cash position would still be about $355 million by the end of 2010.

"The primary risk, of course, is that Zions needs to push additional capital into the bank subsidiaries to fund greater-than-expected credit losses," Zerbe said.

To improve liquidity, Zerbe said Zions could issue new debt, roll its nearly $300 million in maturing debt at a higher rate or issue equity or convertible preferred shares.

"While new debt would likely come at a fairly steep cost, given debt market conditions, and common equity would be dilutive, they are viable options, in our view," he said, adding the most likely action is the issuance of more stock.

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