Zions Bancorporation said Tuesday it sold the remainder of its holdings of collateralized debt obligations.
During the second quarter, the Salt Lake City Bank told a total of $574 million of CDOs for proceeds of$437 million, generating a realized pre-tax loss of$137 million. Zions previously announced that it had sold$81 millionof CDOs throughJune 1; this is included in the$574 milliontotal for the quarter.
While Zion sold the securities at a loss, the price that it realized was an improvement over the value at which it was carrying them on its books; this book value reflected an unrealized loss of $149 million, and it negatively affected the bank’s reported capital level at March 31. By exiting the position and a slightly lower loss, Zion added to its book value.
It also added to Zion’s capital ratios. That’s because, despite the fact that realizing a loss negatively impacted its regulatory capital level, this was more than offset by a reduction in its risk-weighted assets. The securities had a weighted average risk weighting of 178% and accounted for approximately 2% of the company's$46.3 billionof risk-weighted assets atMarch 31.
Zion has struggled to pass stress tests administered by the Federal Reserve to determine how well banks could weather the next financial crisis. On the most recent round in March, it just cleared the central bank’s minimum on certain accounts. And Zion was the only U.S. bank to fail the stress test last year.
In Tuesday’s press release, the bank said that the sale “is expected to substantially reduce modeled risk to capital, particularly under severely adverse economic scenarios.”