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January 22, 2014

Regulatory Tweak Allows Zions to Keep Most Trups CDOs

Zions Bancorp said Tuesday it will take a smaller charge than previously expected following a move by regulators last week to tweak a portion of the Volcker rule that affected a specific type of security held by the bank.”

“The Salt Lake City-based regional bank said it would be able to retain a “substantial majority” of the investments, thanks to the regulators’ change, and now expects to take a pretax charge of $135 million to $145 million for the fourth quarter.”

“Zions said on Dec. 16 that it expected to take a $629 million pretax charge to earnings as a result of marking down the value of certain debt securities that the Volcker rule would have forced it to sell, sparking a wave of opposition against the provision. The American Bankers Association sued banking regulators to halt the provision, arguing it would cause serious financial harm to hundreds of small banks that own the investments.”

“The securities in question are collateralized debt obligations backed by so-called trust-preferred securities, or Trups. Under the Volcker rule, which was completed by regulators on Dec. 10, Trups CDOs were considered covered funds, meaning banks that owned them would have had to sell them by a July 2015 deadline.”

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Read full Wall Street Journal Article here.

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