Zions Bancorp, which moved last month to reinforce its capital strength by offering to swap some of its preferred shares for common stock, said Tuesday the result was satisfactory despite a limited response.
Zions received tender offers from owners of 51.3 percent of 5.6 million shares of series A preferred stock the Salt Lake City-based regional bank had hoped to convert to common stock.
Had the entire amount of preferred stock been swapped, Zions would have received a $140 million bump to the bank's tangible common equity. Instead, the bank netted about $70 million.
"We are actually pretty encouraged by the results. It was a very good participation rate relative to the mix of shareholders. It effectively allows us to issue a lot of stock at a pretty attractive price" of about $25 a share, said James Abbot, Zions' director of investor relations.
Investors have hammered the stock this year. Since January, Zions' shares have lost 47 percent of their value. On Tuesday, the stock closed at $13.22 a share, up a penny. Zions' stock is the fifth-worst performer in the S&P 500 index this year, according to Dow Jones Newswire.
He added that the response was typical of tender offers by institutional shareholders. This swap offer was aimed largely at individual shareholders, whose response rate is usually lower than institutions.
David George, a banking analyst with Robert W. Baird and Co. in St. Louis, said Zions didn't expect a bigger response from shareholders.
"My sense of things was this seemed to be in the ballpark of their expectations," George said. "It could have been a little higher (but) it amounts to additional common equity at what ends up being an attractive price."
Zions will issue 2.8 million shares of common stock in exchange for the tendered preferred stock. Common stock is considered to be the most stable form of capital, which is the difference between a bank's assets and its liabilities.
There is a sense on Wall Street that Zions needs more capital. Like other regional lenders, the bank has been hit hard by losses because of loans tied to commercial real estate values.
George thinks Zions needs $450 million to $650 million in additional capital, which it would probably have to raise through a public stock offering.
Zions hasn't shown much willingness to do that because of the dilutive effect an offering would have on its common stock price. What's more, that estimate assumes an overly pessimistic view of the economy and the bank's exposure to office and retail real estate loans that won't be repaid, Abbott said.
"We feel reasonably comfortable with the amount of capital we've raised. We think there's a possibility that we would have to raise a small amount in the future, $50 million or $100 million. It depends on how the economy performs," Abbott said.
Abbott said Zions is seeing signs that economic conditions in its market territory are finally stabilizing. Residential construction loans, where much of Zions' credit losses have occurred, "are tailing off fairly quickly," he said.
The bank lost $179.5 million, or $1.41 per share, in the third quarter, largely because of a sizeable exposure to commercial loans that are uncollectible.
The preferred-stock swap is the bank's second effort this year to convert its series A preferred issue to common stock. In June, Zions made a cash-back offer than got it $100 million.
Only $70 million of the original $240 million series A issue is still outstanding, which "is why we are satisfied with the results," Abbott said.
