Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Zions Bancorporation: The Devil Made Me Do It


For banks, when times are good, the whole balance sheet is permanent. And when the mood changes, it's a different story.

Yesterday, Zions Bancorporation (NASDAQ:ZION) reported that it will take a "pro forma" $629 pre-tax charge as a result of the Volcker Rule.

Under the rule, CDOs that it holds have become disallowed investments. The charge reflects the difference between held-to-maturity and fair-value accounting -- which had already been charged through to capital through Other Comprehensive Income, but not run through the P&L. As the company notes, the upcoming P&L charge will be effectively reversed through Other Comprehensive Income, leaving GAAP capital essentially unchanged. Even more, due to strong fixed income markets in Q4, the actual charge is likely to be far less than the pro forma September figures management provided.

Over the past five years I have watched as bank after bank has moved assets back and forth between held-to-maturity and fair-value accounting, in all cases stating that things have changed. While the accounting industry and the regulators have at least made the reclassifications largely capital-neutral, I still struggle with held-to-maturity accounting for investments of a highly leveraged, highly economically cyclical, highly regulated, and highly trust-correlated industry like banking.

For banks, when times are good, the whole balance sheet is permanent. When mood falls, the balance sheet becomes a garage sale -- anything that can be sold, particularly at a gain, will be.

Today, Other Comprehensive Income has become the morgue for bodies yet to be buried by the light of day in quarterly earnings.

Yesterday, Zions offered yet another example.

Why analysts and investors continue to forgive these repeated "one-time non-cash" charges is beyond me.

From my perspective, Zions made two clear mistakes: It bought securities at a price that was too high (and rates rose and/or spreads widened), and it woefully misread the regulatory environment.

Interest rate and regulatory risks are two bread-and-butter risks of banking, and yet in yesterday's news about Zions, the banks' management asks, "Who would ever have imagined this?!"

Blaming the Volcker Rule for yesterday's outcome feels pretty wimpy to me. Then again, accountability in the banking industry seems to be in very short supply.

Never have I seen a group claim "brilliance" when times are good and "victim" when times are bad like the current leaders of America's banks.

Peter Atwater's groundbreaking book "Moods and Markets" is now available on Amazon and Barnes & Noble.

"Peter Atwater brilliantly provides a framework for understanding both the socioeconomic hubris that led to the great credit bubble of the past decade and the dark social-psychological hangover that has resulted from its collapse. In so doing, he offers an invaluable guide to what promises to be a very difficult and turbulent period ahead as we experience what he calls the 'me, here, and now' behavioral tendencies of the post-crash world." -Sherle R. Schwenninger, Director, Economic Growth Program, New America Foundation

Twitter: @Peter_Atwater
< Previous
  • 1
Next >
Position in SH and JPM
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos