The recent turmoil for Zions Bancorp came after the bank announced it would write off $50 million due to fraudulent loans taken out by borrowers. This news led to a significant drop in the bank’s shares, which plummeted by 13% on Thursday alone. The incident has raised concerns about the bank’s lending practices, especially amid growing fears that Wall Street’s lending standards may have become too lax.
In a note released on Friday, George described the $1 billion market capitalization loss as “excessive.” He emphasized that the fraudulent nature of the loans indicates a unique situation rather than a systemic issue within the bank. “The ~$1B+ decline in ZION’s market cap likely reflects fears surrounding contagion risk and liquidity concerns,” he stated. While acknowledging the sell-off, he argued that the magnitude of the decline was overdone.
“To be clear, a $50M fraud loss is a clear negative, and we would expect the stock to be weak on it,” George noted. “However, a $1B cap reduction seems more than excessive to us, and we feel like the panic selling provides a great opportunity to buy ZION shares here.”
Furthermore, George praised Zions Bancorp’s “solid” fundamental trends. He pointed out that the bank’s strong track record in underwriting quality should help mitigate further losses. “Good underwriting relationships and disciplined loan growth over the past few years suggest lower credit risk from our perspective, creating a buying opportunity following today’s market reaction,” he added.
As of now, Zions shares remained flat in premarket trading. Most analysts covering the regional bank are taking a cautious approach, with LSEG data indicating that 17 out of 24 analysts rate it as a hold.
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