Zions Reports Exit Of CDO Position - Quick Facts

(RTTNews) - Zions Bancorp. (ZION) Tuesday said it has sold the remainder of its collateralized debt obligation securities or CDOs. The sale of the securities is expected to substantially reduce modeled risk to capital, particularly under severely adverse economic scenarios.

During the second quarter of 2015, the company sold $574 million of CDOs for proceeds of $437 million, generating a realized pre-tax loss of $137 million.

Prior to these sales, the company received paydowns and payoffs of $13 million in the second quarter of 2015. The value achieved through the sales represents a moderate improvement relative to the carrying value as of March 31, which reflected an unrealized loss of $149 million.

Zions had sold $81 million of CDOs through June 1, which is included in the $574 million total for the quarter. As the unrealized loss of $149 million was included in GAAP capital as of March 31, the exit from the CDOs at a somewhat better value is slightly accretive to pro forma GAAP book value and capital ratios.

As a result of this transaction, Zions would expect a slight increase to its pro forma March 31, 2015 regulatory capital ratios. The realized loss on the securities adversely impacts the regulatory capital level.

However, the securities had a weighted average risk weighting of 178 percent and accounted for approximately 2 percent of the company's $46.3 billion of risk-weighted assets at March 31.

Thus, the net reduction of capital is more than offset by the reduction of risk-weighted assets and should have a slightly beneficial effect on the company's regulatory capital ratios.

The annual interest income from these securities was approximately $9 million, which is expected to be replaced in the near term with additional purchases of U.S. agency mortgage-backed securities.