Zions will seek bailout money

Zions Bancorp. intends to seek between $500 million and $1.5 billion of the $250 billion the U.S. Treasury Department is dangling in front of banks to encourage lending and help thaw the credit-market freeze.

"The program, which the Treasury has announced, where they would buy senior preferred stock from banks, is certainly a program we would have interest in," said Clark Hinckley, Zions senior vice president, on Wednesday. "It's relatively inexpensive capital. In an environment like this, getting inexpensive capital is a good thing."

Zions' board is expected to determine whether to apply for the federal "Capital Purchase Program" in the next few days, Hinckley said. The application deadline is Nov. 14.

The program, announced last week, is part of the more than $700 billion financial-industry rescue package Congress approved in recent weeks. Under the plan, the Treasury Department will purchase up to $250 billion of banks' senior preferred shares as a way to make more money available for lending, as credit is considered the lifeblood of the economy. Banks, struggling or not, are eligible — the idea being to not place a stigma on one over the other, but to buoy confidence in the system overall.

The minimum amount Zions would be eligible for is $500 million. The maximum is $1.5 billion under the new guidelines, Hinckley said. Zions has not determined the dollar amount it might seek, he said, and details of the program are new and some specifics are not clear. But the idea is that the federal government would buy preferred stock from banks, with the understanding that banks would buy the stock back in five years.

"It would be a stop-gap measure to get through this economic time," Hinckley said.

Nine large financial institutions already have agreed to participate, and the Federal Reserve is encouraging others.

Zions, a Salt Lake City-based lender with banks in 10 Western states, last week said its third-quarter profit fell 72 percent, mainly due to loan delinquencies. Net income fell to $37.8 million, or 31 cents a share, from $135.7 million, or $1.22, in the same period a year ago.

Still, Hinckley was pleased the bank remained profitable — it has avoided subprime-mortgage pitfalls affecting many financial institutions — and he stressed that Zions was well-capitalized.

So why eye the government money rather than leaving it for institutions that really need it? "I think what the Treasury is trying to do here, and it's said this in several ways, is ... give this capital to the stronger banks and not give it to the weaker ones," Hinckley said. "If a weak bank had a lot of problems and is in danger of failing, I think the government's position is those banks ought to be allowed to fail."

More capital for stronger banks will give them more ability to acquire weaker ones, Hinckley said, and Zions "almost certainly" would look at additional acquisitions.

Zions recently acquired the failed Silver State Bank in Nevada.

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E-mail: jtcook@desnews.com