UPDATE 1-RESEARCH ALERT-RBC cuts Zions to sector perform
Mar 19th, 2009Wed Mar 18, 2009 11:56am EDT
More Business & Investing News… March 18 (Reuters) – RBC Capital Markets downgraded Zions Bancorp (ZION.O), a large U.S. regional bank, to “sector perform” from “outperform,” citing continued deterioration of credit across all portfolios and geographies.
“Ongoing weakness in the residential construction portfolio and securities impairments have continued to weigh on its profitability and weakened the capital base,” analyst Joe Morford said in a note.
However, more concerning is that the problems are increasingly spreading beyond just residential construction in the Southwest, Morford added.
Commercial & Industrial loan segment is deteriorating in all markets, and commercial real estate loan is also showing more stress, Morford said.
“Beyond just Nevada, Arizona, and California, Zions is seeing downgrades on the rise in Utah, Colorado, and now even Texas. As such, reserve building this year is likely to be more than the 20-40 basis points originally anticipated,” Morford added.
Morford, who cut his price target on the stock to $12 from $16, also expects Zions to see contraction in loan balances on weaker demand in the near term and sees expenses trending higher partly due to increased workout costs. (Reporting by Archana Shankar in Bangalore; Editing by Himani Sarkar)
