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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35400  
Subject: Re: Opportunity, or Value Trap? Date: 3/22/2012 7:01 PM
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I tried digging up Zions bonds on Etrade but only came up with two very overpriced issues. It's a pity because some of them look like good CD substitutes.

Really? Are you aware that Zion's is one of the banks that has yet to repay it's borrowing from TARP - not because they haven't tried, but because the Fed hasn't allowed them to? And that the 'passing grade' that they got from the stress test apparently did not stress them as much as the banks that failed were stressed?

http://finance.fortune.cnn.com/2012/03/21/federal-reserve-st...

Nonetheless, it appears the Fed was more lenient with Zions than with other banks. Last month, Zions told analysts it projected that $1.7 billion, or 4.5% of its loans, would go unpaid under the Fed's stress scenario. That's significantly lower than average 8.1% loan loss estimate that the Fed used to determine whether the nation's 19 largest banks had enough capital or not. Go with Zion's estimate, which it appears the Fed did, and the bank comes out of the stress test with 60% more capital than is required. A pass. But if the Fed had applied the same loan loss ratio to Zions that it did on average to the other banks, Zions' stress test would have shown that the bank has 30% less capital than it needs, meaning it would have failed.

The 'passing' grade that Zion's was given will allow them to repay the TARP money, but they said that they would have to borrow $600 million to do so. This $300 million offering is probably part of that debt issuance. Since the Zion's TARP borrowings were scheduled to go to a rate of 9% (from 5%) on 11/14/13, the $300 million that they are borrowing at 4.5% - 6.15% (depending on their auction results) will definitely save them money in the long term, and may even save them money in the short term, compared to the TARP costs.

But I certainly wouldn't call Zion's debt a 'CD substitute'. There is significantly more risk than CDs carry because the debt isn't guaranteed.

AJ
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