Zions Bancorporation (ZION) announced a corporate restructuring in conjunction with several expense and revenue initiatives that are expected to substantially improve the Company's profitability metrics.
It will consolidate seven bank charters into a single legal charter, yet maintain local decision-making CEOs, local pricing of products and services, local credit authority, and local branding. It will create a Chief Banking Officer position, with responsibility for retail banking, wealth management, and residential mortgage lending. It will consolidate risk functions and various non-customer facing operations.
The following are the targeted financial performance outcomes of these organizational changes, and associated operational and technological initiatives: Achieve an efficiency ratio in the low 60s by fiscal year 2017 driven by expense and revenue initiatives; the announced target assumes a slight increase in interest rates.
Increase returns on tangible common equity over the long term to double digit levels.
Maintain noninterest expense below $1.60 billion in 2015 and 2016, and increasing somewhat in 2017; this target excludes severance and other restructuring-related items. Achieve gross pre-tax cost savings of $120 million annually from operational expense initiatives by fiscal year 2017: overhaul technology, consolidate legal charters, and improve operating efficiency across the Company.
The company intends to achieve moderate growth in revenue through loan and fee income growth. Consistent with previous announcements, Zions intends to moderately extend the duration of its balance sheet by deploying low-yielding cash into mortgage-backed securities and interest rate swaps.
As has been previously communicated, the Company expects to achieve pre-tax cost savings of approximately $30 million annually through the maturity of subordinated debt in the second half of 2015. Additionally, as has also been previously communicated, over the next several quarters the Company expects to achieve a reduction of approximately $20 million of annual dividends on preferred equity.
Scott McLean, who has served over the past year as President of Zions Bancorporation, has been additionally given the title of Chief Operating Officer.
Keith Maio, who has served as President and CEO of National Bank of Arizona, assumes the position of EVP and Chief Banking Officer for Zions Bancorporation, with overall responsibility for the Company's Retail Banking, Residential Mortgage and Wealth Management businesses. Maio will continue to hold the title of Chairman of National Bank of Arizona.
LeeAnne Linderman, who has served as EVP and Executive Director of Retail and Omni-channel Banking at Zions Bank, assumes the title of EVP, Retail Banking, for Zions Bancorporation, and has been named a new member of Zions Bancorporation's Executive Management Committee.
Mark Young, who has served as EVP and Executive Director of Real Estate at National Bank of Arizona, becomes President and CEO of National Bank of Arizona, and has been named a new member of Zions Bancorporation's Executive Management Committee.
Zions announced the continued reduction of its portfolio of collateralized debt obligation securities or "CDOs". Quarter-to-date, it has sold $81 million of amortized cost of CDOs, realizing a pre-tax loss of $25 million.
Zions intends to continue to sell the remaining CDOs in an orderly fashion if and as market conditions remain conducive to such sales. If all securities were sold at the estimated fair value at March 31, 2015, Zions would expect to realize a pre-tax loss of approximately $149 million. If realized, the loss would result in a reduction of nominal risk-based capital ratios of approximately 0.2 percentage points, but should improve Zions' financial performance under an adverse economic scenario.
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