Zions Bancorp (Nasdaq: ZION) produced a scary quarter for June. Not scary in so much as the results were poor (though they were not very good at all), but scary because there are so many different ways to look at them. Depending on what you see as "core" and what adjustments you think are necessary, you can get a very large range of outcomes. I am a sucker for clean statements and easy reporting, so that is not a positive in my book.
Revenue for the quarter was anything from up 1% sequentially to down 7% depending upon how you want to look at it. I will not go into all of the forensic accounting here (unless somebody asks me to), but I think the most accurate peg is "down mid-single digits". Within that, core net interest income fell about 2%.
Expenses were problematic for Zions, particularly those related to REO (that is, bank-owned foreclosed properties). The company did reported lower provisioning for bad debts (lower by almost $40M), but charge-offs were about 30M higher and the NPA (non-performing assets) is still a way-too-high 7%. All in all, net losses were about 12% higher than the first quarter, and the company is unsure if it will make a profit at all this year.
Continuing a theme, loan performance was weak - down about 2% sequentially, with a larger drop in commercial real estate lending. I like the fact that Zions confirmed something I had been thinking for a little while now - namely, that banks are competing more aggressively for high-quality loans. See, banks have been saying that loan demand is weak, but that does not sync with what business owners are saying. So, I happen to believe that Zions came closer to scratching the truth - demand is weak among good borrowers.
I happen to think that there is still a risk that Zions could need more capital, particularly if there is another soft patch in markets like California, Washington, and Texas. Still, for a bank that was seen as a sure-fire goner in the worst of the crisis, I think Zions deserves some credit for hanging in there.
Would I buy Zions shares? No thanks. Even if I estimate that the bank can return to 14% ROEs (and I think that is a *big* "if"), the stock is worth about $25. That is a lot of risk to take for a roughly one-third gain. Given that I think future ROEs will be more in the range of 12%, I am even less interested.
Regional banks are getting thumped right and left today; Zions, Marshall & Ilsley (NYSE: MI), Fifth Third (Nasdaq: FITB), Regions (NYSE: RF), and so on. If I were looking to buy a bank in Zion's neighborhood, I would be more inclined to go big (Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC), US Bancorp (NYSE: USB)) or maybe even smaller (Umpqua (Nasdaq: UMPQ)).
Either way, I would leave Zions alone for now.
No comments:
Post a Comment