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California Bank & Trust parent to retake stress test it failed

BusinessFederal Deposit Insurance CorporationFederal Reserve

Zions Bancorp, which failed a Federal Reserve test simulating a severe recession, says it has shed some high-risk holdings and will submit a beefed-up capital plan for approval.

Zions said the Fed determined that its holdings of loans and securities were riskier than it had calculated, that losses on commercial mortgages would be problematic, and that its revenue would fall sharply under economic stress.

 "The resubmission will contain additional actions that will further reduce risk and/or increase its common equity capital sufficient to cause Zions' capital ratios to meet or exceed the minimum capital ratios," Zions said in a statement late Thursday.

The Salt Lake City bank, with $55 billion in assets, operates in the Western U.S., largely through subsidiaries with different names. One of them is California Bank & Trust, which with nearly $11 billion in assets and 102 branches is one of the larger banks with headquarters in the Golden State.

Cal Bank & Trust, based in San Diego, had 27 offices in that county as of last week, according to the Federal Deposit Insurance Corp. The FDIC also listed 29 in Los Angeles County, 11 in Orange County, five each in Riverside and San Bernardino counties, and a good sprinkling of branches in the Central Valley and Northern California.

The Fed, releasing the results of annual stress tests on Thursday, said Zions may not be strong enough to withstand a dire scenario in which unemployment would zoom to 11.25%, home prices drop 25% and stocks crash by 50%. It was the only bank to fail among 30 that were tested.

The test evaluated the bank's Tier 1 common capital ratio, a measure of its loss-absorbing capital as a share of risk-weighted assets. Under the high-stress scenario, the Fed said the ratio at Zions would fall to 3.5%, missing the central bank's minimum target of 5%.      

The bank's statement noted that its original submission to the Fed occurred before it sold certain securities known as collateralized debt obligation in January and February, which it said substantially reduced its risk profile.

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