Zions falls as analysts lower estimates for year

NEW YORK (AP) ? Shares of Zions Bancorp fell Tuesday after some analysts cut their earnings estimates and price targets on the stock.

THE SPARK: Zions late Monday reported results for the April-to-June quarter. While adjusted earnings of 40 cents per share met analysts' average forecast, according to FactSet, some on Wall Street worried that the bank might not be able to grow earnings from charging interest on its loans in the coming months.

That's because the bank said that its earnings from traditional banking operations like deposits and loans, also called net interest income, shrank during the quarter. It decreased 2.3 percent from the previous quarter to $432 million in the second quarter. The bank's profitability, or margin from charging interest, declined to 3.72 percent from 3.81 percent.

Paul Miller, an analyst at FBR Capital Markets, also said he's concerned by the bank's admission that it's facing increased competition for loans. Miller said in a note to investors that Zions might have to compromise on the interest rates it charges in order to win customers.

In addition, the strength of the bank's balance sheet was a point of concern for some analysts. So far Zions has only returned half of the $1.4 billion in bailout aid that it accepted from the government during the financial crisis.

THE BIG PICTURE: Interest rates have a lot to do with how banks make money.

Banks borrow short-term money from the federal government and loan it out to customers, earning interest on those longer-term loans. Banks also make money by using their customer deposits and investing them in bonds.

However, interest rates are currently at historic lows and the difference between short and long-term rates has come down, shrinking the amount that banks can earn.

For instance, the interest rate on a one-month Treasury bill from the U.S. government is currently at 0.08 percent, while the rate on a 10-year Treasury note is just 1.4 percent. The 10-year note last year was about 3.5 percent and close to 5 percent five years ago.

THE ANALYSIS: The low interest rates are especially bad for banks at a time when they are trying to grow after a deep recession and a real estate bust that led to a lot of losses at banks as customers defaulted.

Banks are increasingly choosing to replace those bad loans with newer ones. But those come with very low interest rates.

Jefferies analyst Ken Usdin said in a research note that Zions' ability to earn interest has gone down, He lowered earnings estimates for this year and next.

Sterne Agee analyst Todd Hagerman cut his 12-month target price for Zions shares to $18 from $21.

SHARE ACTION: Zions Bancorp stock fell 61 cents, or 3.3 percent, to close at $17.95 on Tuesday.

Source: http://news.yahoo.com/zions-falls-analysts-lower-estimates-220322204--finance.html

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