Bank avoided toxic loans, not pain

SALT LAKE CITY -- What happens on Wall Street doesn't stay on Wall Street. Just ask Harris Simmons, CEO of Zions Bancorp.

During the past 12 months, the implosion of the mortgage-backed securities market has blasted holes in the balance sheets of the world's biggest commercial banks, forcing them to write off more than $300 billion in assets. Investors, in turn, have fled from the stocks of these banks.

But that doesn't mean it has escaped fallout from the credit crisis. Zions is an example of how many regional banks that avoided the lure of big profits from subprime mortgages saw their stocks dragged down anyway after the subprime blowup — the stock market's version of throwing the baby out with the bathwater.

Knee-jerk reaction

On July 3, the bank raised $45 million in capital by selling preferred stock through its own brokerage arm, an innovative way to shore up its own balance sheet in an uncertain market, says analyst Richard Bove at Ladenburg Thalmann.

But Zions had said it wanted to raise a total of $150 million, so investors interpreted the sale as a failure. Zions stock fell 14% that day to $27.05, continued falling the following week, staged a strong rebound in early August, then started sliding again to its $25.35 close on Wednesday.

Bove says the volatility is a knee-jerk reaction by an investment community conditioned to panic at even a hint of problems at a bank after so many industry leaders have delivered dire news.

The roller coaster ride doesn't seem to faze Simmons, who controls about 1% of the company's stock. He says the industry was in much worse shape 20 years ago, at the height of the savings-and-loan crisis. Today, the big issue, he says, is investor reaction, not any overarching problem with banking industry fundamentals.