Copyright Salt Lake Tribune
Executives with Utah-based Zions Bancorp. sought Monday to reassure investors after the bank saw a one-day stock decline worth about $1 billion in market value last week. The bank disclosed Wednesday to the U.S. Securities and Exchange Commission that it would write off nearly $50 million of some $60 million in loans made by one of its subsidiaries, California Bank & Trust, based on apparent misrepresentations and contractual defaults by two commercial borrowers. Zions shares dropped by more than 11% in reaction to the report. Its disclosure also combined with similar notices from two other regional banks to trigger a wider selloff in the financial sector and jitters on Wall Street that ultimately shaved nearly 300 points from the daily Dow Jones Industrial average. In a lawsuit filed in Los Angeles County, officials with California Bank & Trust have accused two fund managers behind the loans made in 2016 and 2017 of a “sweeping betrayal of trust” in which they allegedly manipulated the commercial and industrial loans for their own enrichment and wiped out collateral protections meant to secure them. Zions’ share prices had climbed again in early Monday trading, in advance of the release of its latest earnings in an upbeat call with top bank executives after trading closed. “We view this as an isolated situation resulting from a particular couple of borrowers,” Zions Chairman and Chief Executive Officer Harris Simmons said Monday. “We have no further exposure related to these borrowers or guarantors.” Along with legal efforts to recover money to replace the announced charge-off of $50 million it had reported to the SEC, Simmons said, the bank has established a reserve fund against the remaining $10 million. Confidence in overall real-estate portfolio Momentum behind Zions’ earnings for the latest quarter of 2025 continued despite the recent reports, executives said Monday, with earnings per share coming in at $1.48, beating many expectations and exceeding its $1.37 per share for the same quarter a year ago. The bank’s chief credit officer, Derek Steward, added Monday that a full internal review of Zions’ loan portfolio had buttressed the idea the troubled loans have been an isolated incident. Ryan Richards, the bank’s chief financial officer, added that the company’s $13.5 billion commercial real estate portfolio overall continued to show low delinquencies by industry standards — and that its credit losses as a percentage of total loans remained “stable” at 1.2%. Zions’ commercial real estate loan portfolio, Richards said, “is granular and well-diversified by property type and location, with its growth carefully managed for over a decade through discipline and concentration limits.” An independent review of the loans that appear to have gone south, executives said Monday, would focus as well on internal policies and procedures. “We actually do credit really well,” Simmons added later. “It’s one of the strengths of this place. ... This was not the kind of thing you’d expect from us, and I hope that we’ll always have that kind of reputation. It’s something we take really seriously.” Independent review promised Zions told the SEC that its subsequent demands and notices of default to the borrowers in question, who are affiliated with investment funds operating out of California under the umbrella name Cantor Group, had gone unanswered — leading it to pursue legal remedies and an independent investigation. Though the bank believes it an isolated situation, according to its disclosure to the SEC, it plans to engage legal counsel to coordinate that independent review. The suit by its subsidiary says Zions was contractually guaranteed a priority interest in recouping collateral for its loans in case of default, but that properties backing the loans had either been transferred to other entities or were in foreclosure, leaving the collateral “irretrievably lost.” The SEC disclosure by Zions unit California Bank & Trust was followed the next day by an SEC filing from Phoenix-based Western Alliance, saying that it had sued another Cantor Group-related fund in August with fraud claims, alleging the borrowers had failed to provide collateral pledged for real estate loans, among other claims. Wider sector turbulence The global investment bank Jefferies reported to its investors around the same time last week that it could experience millions in losses from unrelated business dealings with bankrupt auto parts company First Brands. Last week’s broader sell-off of shares in mid-sized and regional banks also pulled down the Dow Jones banking index, which tracks multiple banking stocks, putting it off by nearly 4% in a matter of days. A similar sector dip in early 2023 — which included a sell-off of shares for Zions Bank and other mid-sized and regional banking institutions — was touched off in part by worries over their exposure to commercial real-estate loans. That market swoon more than two years ago led California-based Silicon Valley Bank and then Signature Bank of New York to go out of business, while forcing the sale of San Francisco-based First Republic Bank to JP Morgan Chase.
