) became one of the latest banks to repay its bailout money. On
Wednesday, the company redeemed $700 million of its Fixed Rate
Cumulative Perpetual Preferred Stock, Series D which were issued to
the U.S. Department of the Treasury under the Treasury Department's
Troubled Asset Relief Program (TARP) Capital Purchase Program. The
amount signifies the repayment of 50% of Zions' total dues.
Zions' repayment was financed by the proceeds from the recent
$300 million senior notes offering, in addition to other funds from
available resources. Last week, the company had announced the
pricing of its fixed-rate senior unsecured notes, which the company
offered with a maturity date of March 27, 2017 and a coupon rate of
The notes were priced at 94.25% of the face value. Including
commissions and fees, the net proceeds are anticipated to amount
In mid-March, Zions received an approval for its capital plan,
which was submitted to the Federal Reserve for the 2012 Capital
Plan and Review (CapPR). Following the approval, the company came
up with the partial repayment of the TARP and it is anticipated
that the remaining dues will be repaid by the end of 2012.
However, the payment of the second installment is subject to
certain conditions. These conditions require the parent company to
have sufficient liquidity and no significant weakness in its
overall condition. Additionally, Zions' subsidiary banks need to
return $500 million of capital to the parent company in 2012, after
seeking the approval of the primary bank regulator.
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
last three years, total dividends paid by the company on the TARP
preferred stock sums up to $270.4 million.
However, due to its moderately improving earnings after the
economic crisis, Zions was finding it difficult to get permission
to pay back the bail-out money. But, during the last earnings
conference call, the company claimed that it has ample liquidity to
repay the TARP dues without diluting its shares. This claim was
authenticated by the Fed's approval.
Meeting the stress test criteria signifies that Zions is
comfortably positioned in terms of capital and can survive another
economic downturn. In addition, after settling the TARP obligation,
Zions will look forward to deploy its capital through dividend hike
and share repurchase, which will further enhance investors'
confidence on the stock.
Additionally, Zions also announced the issuance of $600 million
of senior debt, redemption of Temporary Liquidity Guarantee Program
(TLGP) debt of $255 million on its maturity in June as well as
unchanged quarterly dividend of 1 cent per share throughout
Of the total $245 billion handed out to banks, more than $15
billion is still due. Many of the regional banks have still not
repaid the entire bailout money. Of the 31 banks under stress test,
apart from Zions,
Regions Financial Corp.
) also announced its plans to clear off TARP dues.
In March, Regions priced a public offering of 152.9 million
shares of its common stock at $5.90 per share. The common stock
offering will generate gross proceeds of about $900 million, which
are expected to be used for repurchasing the $3.5 billion of Series
A Preferred Stock that were partly issued to the U.S. Treasury
Department's TARP Capital Purchase Program.
While the larger Wall Street banks had repaid the TARP money
earlier in 2009 and 2010, many regional banks stepped back due to
continued high levels of losses in their loan portfolios. The
economy was also under tremendous stress. However, the recent
repayment of the TARP loan by a large number of these banks can be
viewed as a sign of economic recovery.
Furthermore, the TARP loan repayment is essentially a positive
for Zions. It will remove restrictions on both financial and
executives' pay package flexibility that the company was subject to
upon being a TARP receiver.
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.
REGIONS FINL CP (
): Free Stock Analysis Report
ZIONS BANCORP (
): Free Stock Analysis Report
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