In an effort to improve profitability metrics, Zions Bancorporation ZION revealed a corporate restructuring and a number of initiatives to drive revenues and reduce expenses. With its organizational and operational modifications, the Utah-based bank intends to provide better customer experience, simplify the corporate structure and significantly drive positive operating leverage.
In Brief
The organizational restructuring move primarily includes consolidation of seven bank charters into one single charter bank, through maintaining local leadership, local products and services pricing and local brands. The company also intends to form a position of Chief Banking Officer, responsible for retail banking, wealth management, and residential mortgage lending business. Further, the move includes consolidation of risk functions and several back-office operations.
The expenses initiatives primarily focus on revamp in technology, improving overall operating efficiency and consolidation of legal charters.
For full year 2015 and 2016, Zions expects to maintain noninterest expense below $1.60 billion, while it may increase slightly in 2017 (excluding severance and other associated restructuring items). Through its operational expense initiatives, the company aims to achieve gross pre-tax cost savings of $120 million annually by fiscal 2017.
The company also remains focused on reducing financing costs. In this respect, owing to the maturity of subordinated debt in the second half of 2015, the company expects to achieve pre-tax cost savings of around $30 million annually. Further, the company expects to achieve savings of $20 million in its annual dividends on preferred equity for the upcoming several quarters.
Regarding revenues, Zions intends to drive revenues primarily through fee income and loan growth and deploying low-yielding cash into mortgage-backed securities.
Through the expense and revenue initiatives, the company expects to achieve efficiency ratio in the low 60s by fiscal 2017 (assuming interest rates to increase slightly). Also, the company expects increase in returns on tangible common equity to double digit levels in the long run.
Bottom Line
In recent quarters Zions has not been able to exhibit a strong performance. Hence, we remain encouraged by Zion’s announced initiatives that are likely to boost the overall finacials. We believe the company will be able to achieve its financial targets. However, the still low interest rate environment keeps us apprehensive.
Currently, Zions carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the west banks space include Central Valley Community Bancorp CVCY, Central Pacific Financial Corp. CPF and SVB Financial Group SIVB. All these stocks sport a Zacks rank #1 (Strong Buy).
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