Fitch Affirms Zions Bancorporation's L-T IDR at 'BBB-'; Outlook Stable

CHICAGO--(BUSINESS WIRE)--

Fitch Ratings has affirmed the long- and short-term Issuer Default Ratings (IDRs) for Zions Bancorporation (ZION) at 'BBB-/F3'. The Rating Outlook is Stable. A full list of ratings is provided at the end of this release.

Fitch's rating action is supported by the continued improvement in ZION's asset quality metrics. ZION's non-performing assets (NPAs) as a percentage of gross loans plus other real estate owned (OREO) was 4.88% as of Sept. 30, 2011, down from 5.44% at June 30, 2011, and 5.81% at March 31, 2011. Additionally, the absolute dollar amount of NPAs has declined to $1.8 billion at Sept. 30, 2011 from $2.36 billion at year-end (YE) 2010.

Similarly, ZION's net-charge-offs (NCOs) have declined over the course of the year, and as of the quarter ending Sept. 30, 2011 amounted to 1.11% on an annualized basis. Fitch believes ZION's reserve remains adequate at 3.13% of gross loans as of Sept. 30, 2011.

Today's rating action is also supported by ZION's return to profitability in 2011, after the company had reported losses throughout 2009 and 2010. While Fitch notes that the majority of this profitability was due to reserve releases, it would further expects that future profit growth will largely be predicated on ZION's ability to meaningfully and measurably grow loans over time, as future benefit from potential reserve releases should be more modest.

Fitch continues to view ZION's approach to managing capital as somewhat aggressive. The company's tangible common equity (TCE) ratio was 6.89% as of Sept. 30, 2011, down modestly from 6.98% at YE2010. However, Fitch further notes that ZION's capital ratios remain adequate for its present rating level, even though ratios remain slightly lower than those of some similarly rated entities.

Fitch believes that ZION's existing capital ratios combined with the better asset quality performance and improved profitability support a Stable Rating Outlook.

Even with this viewpoint, Fitch notes that unlike some large regional bank peers who have progressed much more quickly in the wake of the credit crisis, ZION still has a number of challenges ahead of it as it continues to work to repair its business. Fitch notes that these challenges have already been incorporated into the company's current ratings.

Fitch believes ZION will look to repay its $1.4 billion of TARP shares to the U.S. Treasury at some point in 2012. Given that ZION is classified as a CapPR bank, and therefore subject to stress tests from the Federal Reserve in early 2012. Fitch does not expect the company to try repay its TARP shares until some point in 2012.

ZION will also continue to deal with its problematic bank and insurance company TRUPs CDO portfolio. On balance, current trends of paydowns and prepayments have been favorable, and performance of these securities is further supported by the maintenance of the company's total return swap with Deutsche Bank.

Fitch would also note that ZION continues to have an outsize exposure to commercial real estate (CRE). In Fitch's view, performance to date of these portfolios has been satisfactory. However, given that historically CRE losses have tended to lag an economic recovery, Fitch continues to view this exposure cautiously, particularly given ZION's exposure to some of the more troubled western state economies.

Given the challenges detailed above, Fitch considers that ZION's ratings are comfortably situated at the current levels.

Longer term, however, ZION's ratings could be positively impacted if it is able to work down its problem assets to sustainable levels, continue to deal with its CDO portfolio, eventually repay TARP, and improve core profitability through meaningful and measured loan growth. Moreover, this would need to occur against the backdrop of enhancing capital ratios to at least its peer group averages.

With $51 billion in assets, ZION operates eight separately branded bank charters doing business in 10 western states.

Fitch has affirmed the following ratings:

Zions Bancorporation

--Long-term Issuer Default Rating (IDR) at 'BBB-';

--Short-term IDR at 'F3';

--Viability at 'bbb-';

--Commercial paper at 'F3';

--Senior unsecured debt at 'BBB-';

--Subordinated debt at 'BB+';

--Preferred stock to 'BB';

--Individual at 'C';

--FDIC guaranteed long-term debt at 'AAA';

--FDIC guaranteed short-term debt at 'F1+';

--Support at '5';

--Support Floor at 'NF'.

Zions First National Bank

Amegy Bank, NA

California Bank & Trust

Nevada State Bank

National Bank of Arizona

Vectra Bank Colorado, NA

The Commerce Bank of Oregon

The Commerce Bank of Washington

--Long-term IDR at 'BBB-';

--Long-term deposits at 'BBB';

--Viability at 'bbb-'

--Short-term IDR at 'F3'.

--Individual at 'C';

--Short-term deposits at 'F2';

--Support at '5';

--Support Floor at 'NF'.

Zions Institutional Capital Trust A

--Preferred stock at 'BB'.

The Rating Outlook is Stable.

Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research

--'Global Financial Institutions Rating Criteria', Aug. 16, 2011;

--'Bank Holding Companies', Aug. 16, 2011;

--'Troubled Debt Restructurings', May 16, 2011;

--'Exposure Draft - Treatment of Hybrids in Bank Capital Analysis', July 11, 2011;

--'Global Financial Institutions Snapshot', Aug. 15, 2011.

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=649171

Bank Holding Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648612

Troubled Debt Restructurings (Accounting Standards Update Set to Increase TDR Recognition)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=628437

Treatment of Hybrids in Bank Capital Analysis

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=641269

Global Financial Institutions Snapshot

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=609947

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