FBR analyst James Abbott thinks Zion’s delinquency figures are beginning to look healthier. This is in keeping with Tom Brown’s thesis that the worst of the credit crisis is over and that the rate at which credit is deteriorating is slowing.
Abbott thinks Zion’s will need to raise an addtional $200-$300 million. After that, it should emerge from the credit crunch ready to grow:
We maintain our Market Perform rating on ZION shares, but we are reducing our price target from $37 to $31 to reflect the near-term overhang caused by a potential capital raise combined with impairment risk in its securities portfolio.
Recently, we analysed each of ZION’s subsidiary data; as a result, we continue to believe that while defaults and losses will likely remain elevated over the next several quarters, the company should emerge from the current credit crunch with existing tangible equity intact, and if it were to raise $200M-$300M (or more) in capital, it would be able to grow at its natural rate during the cycle (as opposed to limiting growth, as is the current mandate) and should emerge in a position of strength.
Abbott is optimistic that deterioration in the credit environment, at least vis-a-vis Zion’s position, is beginning to decelerate. Abbott cites a marked improvement in Zion’s construction portfolio:
Based on our analysis of the different subsidiary data, we are slightly more positive on the potential future credit performance of the construction loan portfolios. Consistent with management discussions, construction loan delinquencies improved almost across the board; however, the magnitude of the improvement surprised us with one sub improving 280 bps (Arizona), and the average improvement was nearly 100 bps. We believe this could signal that while defaults and losses likely get worse, the rate of change should slow with peak losses likely in 1H09.
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