Moody's Investors Service, a rating arm of
), has completed the review for the upgrade in ratings of
) and its subsidiaries initiated on Oct 3. Following the
completion, Moody's upgraded the long-term ratings of Zions and
its subsidiaries, while reiterating the outlook at "Stable".
Zions' subordinated debt has been upped to "Ba2" from "B1", while
the short-term rating has been affirmed at "Not-Prime". Moreover,
the company's primary bank - Zions First National Bank - has been
upgraded to "Baa3" from "Ba1" for long-term deposits and to
"Prime-3" from "Not-Prime" for short-term deposits.
Further, Zions First National Bank has a standalone bank
financial strength rating of "D+", which has been affirmed. Yet,
the baseline credit assessment of "ba1" for the bank has been
revised upward to "baa3".
The rating agency is impressed with Zions' efforts toward
continuously improving asset quality and reducing its risk
profile. Moody's stated that the ratings revision came on the
back of improvement in most of the credit metrics. Along with net
charge-offs and delinquencies, level of nonperforming assets
(NPAs) have also improved. As of Sep 30, 2012, NPAs stood at $1.3
billion, declining more than 50% from the peak attained in late
Further, Zions has been working hard to lower its risk profile.
Though the company commercial real estate (CRE) concentration has
declined from the levels before the financial crisis, Moody's
anticipates these to remain high, thereby restraining future
Additionally, Zions has considerable investments in trust
preferred collateral debt obligations (CDOs) that are tied to the
performance of CRE. The risk of managing these investments will
result in higher impairment charges in the fourth quarter of
Moody's expects that the rationale for future revision will be
based on Zions' efficiency in managing additional risks related
to its strategic efforts including diversification of its revenue
base (at present significantly dependent on net interest income)
to overcome continuing earnings pressure in the low interest rate
The rating upgrades are valuable for Zions as they play a major
role in preserving investor confidence in the stock and help
boost its creditworthiness in the market.
Zions, currently, retains a Zacks #3 Rank, which translates into
a short-term Hold rating. On account of such ratings upgrade, we
believe there is a possibility of earnings estimate revisions.
This, in turn, is expected to lead to an improvement in its
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