Las Vegas Business Press :: John G. Edwards : Zions Bancorp boss sees light at end of slump

Zions Bancorp boss sees light at end of slump

The nation is not headed into a depression, but the chairman and chief executive officer of $54 billion-asset Zions Bancorporation believes the country is in a recession.

Harris Simmons expects Zions, the Salt Lake City-based holding company for Nevada State Bank, to exit the slump bigger and with fewer competitors.

Nevada will be one of the first to climb out of the downturn, he predicted during an interview before a board meeting at The Venetian last month.

John G. Edwards

JESSICA EBELHAR | REVIEW-JOURNAL FILE PHOTO
Nevada State Bank customers wait in line at a Smith's supermarket branch bank Sept. 15 at Charleston Boulevard and Rancho Drive. Zions turned over 28 Nevada grocery store branches to U.S. Bank because it believes it can better serve customers at free-standing branches.

"It remains an amazing market," he said. "My belief is that Las Vegas is going to come back reasonably quickly. It certainly will be one of the growth markets in America."

Hotel occupancy in Las Vegas was 88 percent in August, still a strong number although down from the 90 percent-plus levels once commonplace, he said.

Simmons said he is encouraged by the recent increase in Southern California home sales, a primary feeder market of new residents in Southern Nevada.

"The in-migration has been, and I think will continue to be, strong," he said.

How quickly will recovery come? Like a mechanical rabbit on a dog track, "recovery always seems to be about two quarters ahead of where you are right now," Simmons said.

Las Vegas, he said, is "taking a breather right now, but it will be back and it will be back very strong, and we want to be part of that."

Zions is positioning itself for the recovery. The company said that the Treasury Department has made a preliminary decision to purchase $1.4 billion in preferred stock from the holding company, boosting Zions' capital and making it easier for the company's banks to make loans.

The company expects to make acquisitions in the 10 Western states where it already operates, and grow internally.

Zions has made acquisitions ranging from banks that have only one location to a Texas institution that had 80 branches and $8 billion in assets.

"We have been a very successful acquirer of banks," he said. "The management remains locally. We remain a very solid community bank with the management remaining here in the community.

"I don't expect us to become another Bank of America," Simmons said. However, "we think we're able to compete very effectively with the larger banks."

Simmons doubts that JPMorgan Chase, which acquired Washington Mutual branches in Nevada and other states -- or Morgan Stanley, which obtained a commercial bank charter, will become competitors "in a material way."

Said Simmons: "It takes a long time to build the kind of institution that serves consumers and medium-size businesses.

Zions has made a couple of changes in Nevada to prepare for the future.

Zions bought deposits at failed Silver State Bank of Henderson from the Federal Deposit Insurance Corp. in September. Earlier the same month, Zions turned over 28 Nevada grocery store branches to U.S. Bank because it believes it can better serve customers at free-standing branches, Simmons said.

"We found ourselves with a lot of overlapping branch locations," he said.

While Southern Nevada is getting crowded with private bank operations geared toward serving the wealthy, Simmons believes Zions has found a strategy for succeeding in that market.

He counted 200,000 business customers and said he expects many of those customers to sell their businesses. Then, the former owners will no longer need so many loans but will need help managing their investments.

Zions hopes to refer these long-term clients to Contango Capital Advisors, a wealth management firm.

"It's a natural fit to what we do with small- to medium-size businesses," Simmons said.

He predicted that the banking environment will gradually improve, thanks partly to the government's Troubled Asset Relief Program, which is pumping $250 billion into the banking system.

"It's a fundamentally important step that needs to be taken to start to unlock frozen pipes in the credit system," he said.

Simmons said Zions's preferred stock sale to Treasury would enable it to make more loans to high-quality borrowers when the opportunity arises.

"We won't be changing our credit standards," he said. "The banking business operates with very small margins. So it doesn't allow us tolerance to make a lot of mistakes."

Zions didn't make subprime residential mortgage loans, which he blames mainly on lightly regulated mortgage bankers and brokers.

"It's fouled the water for everyone," he said. "You're going to see more regulation in particular with respect to nonbank lenders."

The CEO said regulators need to continue weeding out financially unstable banks.

The federal government saw the folly of allowing financially crippled financial institutions to continue operating during the savings and loan association debacle of the 1980s, he said.

"It's not healthy for the good competitors to have wounded competitors out in the market," he said.

Other community banks, which aren't failing, may opt to be acquired, although they cannot expect the big buyout premiums that were prevalent a couple of years ago. The formation of new banks will slow, he predicted.

"Probably, the challenges in getting a new community bank charter today are much greater than they used to be," he said. "There's more competition, more regulation. It's going to be a period of slower growth. That's why we'll see the consolidation of the community banks in Nevada."

While Simmons said Zions has "a much-admired franchise," he said he doesn't expect the company to be acquired.

Contact John G. Edwards at jedwards@reviewjournal.com;383-0420.

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