Zions Bancorp. announced a deal Wednesday to offload to Deutsche Bank the risk of its $1.16 billion of pooled, trust-preferred securities.
By handing off responsibility for the exposure, Zions significantly improved its capital position.
The deal, which involves a total-return swap on the securities coupled with interest-rate swaps, will cost Zions $35 million in the first year and $5.3 million a quarter thereafter. It can be canceled by Zions after the initial year, the company said.
Zions' trust-preferred exposure forced the company to take hundreds of millions of dollars in writedowns, and the securities' low credit ratings dented its capital position. As of June 30, the company's trust-preferred holdings had a risk weight of 455%. By entering into its deal with Deutsche Bank, however, Zions will lower that risk weight to 20%.
Had the deal been done before the end of the second quarter, the company's Tier One common ratio would have risen to 8.6% from 7.91%. Its total risk-based capital ratio would have risen to 16.47%.