SMF REPORT says that the methodology ZION applies to value its bank trust preferred securities is significantly dependent upon the stock prices of publicly traded banks. As the value declines, ZION applies a higher probability of default on the interest payments on the TruPS. Therefore, the 48% decline YTD in small-/mid-cap bank stocks should have a substantially negative effect on the TruPS portfolio.
By the end of 2010, they estimate a TCE/share of nearly $22, down from more than $27 at the end of FY08; and, if the TARP 1 is converted into common, they estimate the PF TCE/share would be approximately $18.80.
They estimate that the converted PF TCE/asset ratio would be 6.8%, a ratio that should allow strong asset growth coming out of the cycle.
Finally, the firm believes PF earnings power would exceed $3.50 under a more normalized credit environment. As shares trade at less than $7 today, they believe long-term, deep-value shareholders should continue to hold the shares.