Text extracted via OCR from the original document. May contain errors from the scanning process.
uncertain macro backdrop. That said, following the results of the election, and
assuming the new administration can create fiscal stimulus, management sounded
optimistic around growth prospects in C&! (10% ex-energy YoY), owner-occupied,
etc.
= Energy portfolio performing in-line with expectations. Management reaffirmed
the >8% allowance on its energy portfolio ($2.3mn or 5% of total loans) remains
sufficient to cover future losses. However, continued stress in its oilfield services
portfolio (26% of portfolio) remains the primary reason behind ZION’s cautious
view. This was consistent with the 60% of the audience polled whose ownership in
the stock is modestly influenced by this portfolio. That said, until supply/demand
fundamentals improve or activity picks up, material reserve release is unlikely.
Chart 51: How much does credit quality in ZION’s energy portfolio influence your decision on owning
the stock?
70%
60%
50%
40%
30%
20%
10%
0%
Still a material factor in my A modest factor in my No longer a factor in my
investment decision investment decision investment decision
Source: BofA Merrill Lynch Global Research
= Steepening yield curve a modest benefit, though short-end matters more.
Despite recent actions that have reduced the bank’s asset sensitivity, ZION remains
the most asset sensitive among US banks. For a 25bp rise in the short-end, ZION
estimates a $30mn incremental benefit to spread income. That said, due to the
variable-rate mismatch between assets/liabilities, a steeper yield curve is expected
to have a marginal impact.
= Potential changes to CCAR viewed as positive for ZION. Mr. Burdiss viewed the
potential change to the annual stress test (CCAR), specifically the static RWA
balance, as net positive for the bank/industry. That said, overall these changes are
immaterial as CCAR remains their capital constraint. Although only 14% of the
audience polled think more aggressive capital return is the most important catalyst
for the stock (top response: 29% for stronger revenue growth), investor bias leaned
higher as it relates to total payout.
34 2016 Future of Financials Conference | 17 November 2016 Bankof America 2
Merrill Lynch
HOUSE_OVERSIGHT_014348