New York, April 20, 2009 -- Moody's Investors Service downgraded the ratings of Zions Bancorporation
(senior to B2) and its affiliates, including its lead bank,
Zions First National Bank (financial strength to D- from C+,
and long term deposits to Ba2 from A2). Following the rating action,
the outlook is negative. This rating action concludes the review
that began on March 12, 2009.
The magnitude of the downgrade and negative outlook reflects Moody's
view that Zions' capital position will come under significant pressure
in the short-term because of its large commercial real estate (CRE)
lending concentration and CDO portfolio, consisting primarily of
bank trust preferreds. Zions enters this challenging period with
relatively sound capital ratios, at March 31, 2009,
Tier 1 risk-based was 9.33% and Moody's tangible
common equity ratio (TCE) was 5.96%. Nevertheless,
Moody's expects that future credit costs in Zions' residential
construction book and CDO portfolio cause a significant risk of the firm
becoming undercapitalized.
Zions' CRE portfolio represents more than four times TCE,
with approximately 60% comprised of construction and land.
These categories typically have relatively high loss content. Continuing
deterioration in Zions' residential construction and development
portfolio in the Southwest, where residential land values continue
to decline, drove the firm's eighth straight quarter of increased
provisioning. Although Moody's had previously incorporated
this concentration into its ratings, in line with Moody's
Structured Finance Rating Methodology dated February 5, 2009,
which states that commercial property values declined sharply in 2008
and are expected to continue falling over the next 12 to 24 months,
we have considerably increased our loss expectations for CRE. The
increase in expected loss is especially sharp for both construction and
land, which is a large concentration risk for Zions. Moody's
expects further deterioration in this portfolio as the credit cycle continues
to unfold.
Moody's notes that Zions' trust preferred CDO portfolio,
which accounts for approximately three-fourths of TCE, consists
largely of non investment grade securities. Moody's notes
the correlation between CRE and bank trust preferred CDOs, and expects
the further deterioration in the residential construction sector will
result in continued writedowns of its CDO portfolio. Moody's
analysis of the loss content of this portfolio also incorporates Moody's
recent downgrade of these securities. On March 27, 2009,
Moody's Structured Finance Group concluded its review of all bank
and insurance trust preferred CDOs at which time most of the super senior
Aaa notes were downgraded to A/Baa and most of the junior Aaa notes were
downgraded to below investment grade.
The concern that 2009 credit costs will impact Zions' capital ratios
holds increased rating pertinence as Moody's is making some recalibration
to the weights and relative importance attached to certain rating factors
within its current rating methodologies. Capital adequacy,
in particular, is taking on increased importance in determining
financial strength ratings. (Please see Moody's Special Comment
of February 2009 titled, "Calibrating Bank Ratings in the Context
of the Global Financial Crisis.")
Although, historically, Moody's has not ascribed any level
of systemic support to the bank in the event of financial distress,
we now incorporate the view that the probability of systemic support for
U.S. banks has increased. In Moody's judgment,
given Zions dominant share of deposits in its home state of Utah coupled
with its moderate shares in the ten Western and Southwestern states where
it operates, the bank would benefit from a low level of systemic
support in a period of financial distress, which results in a one-notch
lift to the bank's debt and deposit ratings above that implied by
the bank's standalone financial strength rating. Systemic
support is less beneficial for holding company creditors, in Moody's
view, and therefore the holding company's long-term
ratings are now two notches lower than those of the bank subsidiaries.
Moody's last rating action on Zions was on March 12, 2009,
when the ratings were placed on review for possible downgrade.
The principal methodologies used in rating this issuer were "Bank Financial
Strength Ratings: Global Methodology" (February 2007) and "Incorporation
of Joint-Default Analysis into Moody's Bank Ratings: A Refined
Methodology" (March 2007), which can be found at www.moodys.com
in the Credit Policy & Methodologies directory, in the Ratings
Methodologies subdirectory. Other methodologies and factors that
may have been considered in the process of rating this issuer can also
be found in the Credit Policy & Methodologies directory.
Downgrades:
..Issuer: Amegy Bank National Association
....Bank Financial Strength Rating,
Downgraded to D- from C+
....Issuer Rating, Downgraded to Ba3
from A2
....OSO Rating, Downgraded to NP from
P-1
....Deposit Rating, Downgraded to NP
from P-1
....OSO Senior Unsecured OSO Rating,
Downgraded to Ba3 from A2
....Senior Unsecured Deposit Rating,
Downgraded to Ba2 from A2
..Issuer: Amegy Corporation
....Issuer Rating, Downgraded to B2
from A3
..Issuer: California Bank & Trust
....Bank Financial Strength Rating,
Downgraded to D- from C+
....Issuer Rating, Downgraded to Ba3
from A2
....OSO Rating, Downgraded to NP from
P-1
....Deposit Rating, Downgraded to NP
from P-1
....OSO Senior Unsecured OSO Rating,
Downgraded to Ba3 from A2
....Senior Unsecured Deposit Rating,
Downgraded to Ba2 from A2
..Issuer: Nevada State Bank
....Bank Financial Strength Rating,
Downgraded to D- from C+
....Issuer Rating, Downgraded to Ba3
from A2
....OSO Rating, Downgraded to NP from
P-1
....Deposit Rating, Downgraded to NP
from P-1
....OSO Senior Unsecured OSO Rating,
Downgraded to Ba3 from A2
....Senior Unsecured Deposit Rating,
Downgraded to Ba2 from A2
..Issuer: Zions Bancorporation
....Multiple Seniority Shelf, Downgraded
to a range of (P)B3 to (P)B2 from a range of (P)Baa1 to (P)A3
....Preferred Stock Preferred Stock,
Downgraded to Caa3 from Baa2
....Subordinate Regular Bond/Debenture,
Downgraded to B3 from Baa1
....Senior Unsecured Commercial Paper,
Downgraded to NP from P-2
....Senior Unsecured Medium-Term Note
Program, Downgraded to a range of B2 to NP from a range of A3 to
P-2
....Senior Unsecured Regular Bond/Debenture,
Downgraded to B2 from A3
..Issuer: Zions Capital Trust B
....Preferred Stock Preferred Stock,
Downgraded to Caa1 from Baa1
..Issuer: Zions Capital Trust C
....Preferred Stock Shelf, Downgraded
to (P)Caa1 from (P)Baa1
..Issuer: Zions Capital Trust D
....Preferred Stock Shelf, Downgraded
to (P)Caa1 from (P)Baa1
..Issuer: Zions First National Bank
....Bank Financial Strength Rating,
Downgraded to D- from C+
....Issuer Rating, Downgraded to Ba3
from A2
....OSO Rating, Downgraded to NP from
P-1
....Deposit Rating, Downgraded to NP
from P-1
....OSO Senior Unsecured OSO Rating,
Downgraded to Ba3 from A2
....Senior Unsecured Deposit Rating,
Downgraded to Ba2 from A2
Outlook Actions:
..Issuer: Amegy Bank National Association
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: Amegy Corporation
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: California Bank & Trust
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: Nevada State Bank
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: Zions Bancorporation
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: Zions Capital Trust B
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: Zions Capital Trust C
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: Zions Capital Trust D
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: Zions First National Bank
....Outlook, Changed To Negative From
Rating Under Review
New York
Robert Young
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Gregory Frank
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's downgrades Zions (Senior to B2), outlook negative
