) has finally redeemed the remaining $700 million of its Fixed Rate
Cumulative Perpetual Preferred Stock, Series D, issued to the U.S.
Department of the Treasury as part its participation to the
Troubled Asset Relief Program (TARP). With this redemption, the
company has completed the full repayment of $1.4 billion in TARP
REGIONS FINL CP (RF): Free Stock Analysis
ZIONS BANCORP (ZION): Free Stock Analysis
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In March, Zions had received Federal Reserve's approval for its
capital plan. Consequently, the company repaid 50% of its TARP
money in the same month. The remaining TARP money was supposed to
be repaid by the end of this year, subject to fulfillment of
These conditions required the parent company to have sufficient
liquidity and no significant weakness in its overall condition.
Additionally, Zions' subsidiary banks were to return $500 million
of the capital to the parent company this year.
The U.S. government had granted a $1.4 billion worth of TARP loan
to Zions in November 2008 in the form of preferred stock warrants
to help it recover from the financial crisis. Over the years, total
dividends paid by the company on the TARP preferred stock summed up
to $253 million. The Treasury still holds warrants to purchase
Zions' common stock, which are expected to be disposed-off for
additional profit for the taxpayers.
The Treasury Department stated that with Zions' final repayment, it
has now recovered a total of $266 billion through repayments,
dividends, interest and other income. It had actually invested $245
billion in about 707 banks under TARP.
As a result of the redemption, Zions will record a one-time
dividend expense of $16.6 million in the current quarter. As there
would be no further subordinated debt conversions, the company's
preferred dividend expenses would come down to $23 million in the
fourth quarter of 2012 compared with $37 million recorded in the
second quarter. Moreover, the redemption will improve the company's
annualized return on equity (ROE) in the fourth quarter by about 1%
on a sequential basis.
Also, during the second quarter 2012 conference call, Zions had
stated that for the next two years its capital plan does not
involve any dividend hikes and share buybacks. The company would
focus on lowering the cost of capital, which would, in turn,
The TARP repayment is essentially a positive for Zions. It will
remove restrictions on its financial and executives' pay packages.
Zions currently retains a Zacks #3 Rank, which translates into a
short-term Hold rating. Considering the fundamentals, we also
maintain a long-term Neutral recommendation on the stock.
Among other major regional bank,
Regions Financial Corp.
) repaid its TARP dues in March.