UPDATE 2-KBW sees $700 mln capital raise at Zions; stock dives

(Recasts; adds details, background, stock activity)

Feb 4 (BestGrowthStock) – Zions Bancorp (ZION.O: ) would need to
raise as much as $700 million in common equity before it repays
the Federal bailout funds, an analyst at Keefe, Bruyette and
Woods said, and downgraded the stock by a notch to
“underperform.”

Shares of the Salt Lake City, Utah-based large lender fell
as much as 6 percent to $17.45. They later recovered some of
their early losses to trade down 4 percent at $17.82.

The western U.S. banking chain could be pressured to repay
the money it received under the Treasury’s Troubled Asset
Relief Programme (TARP), after PNC Financial Services Group
(PNC.N: ) raised funds to repay the same, analyst Brian Klock
said in a note to clients.

PNC sold $3 billion worth of stock on Wednesday at $54 a
share, just below its Tuesday closing price, raising funds to
repay the bank’s $7.6 billion government bailout.
[ID:nN03168801]

Most of the major banks such as Wells Fargo & Co (WFC.N: )
and JPMorgan Chase & Co (JPM.N: ) have already repaid TARP funds,
freeing them from government restrictions on dividend payments,
share buybacks and some compensation restrictions, thereby
putting increased pressure on their mid-cap peers to follow
suit

“We believe Zions’ shares will be under pressure until the
question of its capital adequacy is answered,” analyst Klock
said.

Zions stock has risen 45 percent this year and some profit
taking could be expected with the uncertainty surrounding the
possible near-term capital raise, he added.

During the first half of the session, traders exchanged
about 56,000 put option contracts in Zions, five times their
recent average daily turnover, according to option analytics
firm Trade Alert.

“The options trading activity in Zions reflects some
uncertainty about the outlook for the shares of the regional
bank,” said Frederic Ruffy, options strategist at
WhatsTrading.com.

“That view was expressed by active trading in Zions put
options with more than 54,000 contracts traded in the first two
hours on Thursday.”

One notable trade was the April $17-$13 put spread which
was bought for a $1.40 debit and this spread would yield its
maximum profit if shares fall 26 percent from its current level
of $17.60 to $13 by mid-April, he said.

Investors often turn to equity put options — which convey
the right to sell the company’s shares at a fixed price within
a specified time period — to speculate on potential stock
price weakness or to protect an existing stock position.

Stock Investing

(Reporting by Jochelle Mendonca and Anurag Kotoky in
Bangalore, and Doris Frankel in Chicago; Editing by Anil
D’Silva)

UPDATE 2-KBW sees $700 mln capital raise at Zions; stock dives