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State | THE STATE / BANKING & FINANCIAL SERVICES

Zions May Be Downgraded After Deal

March 27, 1998|Bloomberg News

Zions Bancorp debt ratings may be cut by Moody's Investors Service since the Utah bank agreed this week to buy Sumitomo Bank of California for $546 million in cash, below market value. A downgrade would affect $300 million in debt, the rating agency said. Zions' senior debt is currently rated A3, and its subordinated debt BAA1. Lower ratings increase the cost of selling bonds because investors demand higher rates to purchase riskier debt. The rating agency's review will focus on "the challenges Zions faces in building incremental value from the current limited market reach of Sumitomo, as well as the financial fundamentals of the combined organization," Moody's said. In a related move, ratings of Sumitomo California, a unit of Japan's Sumitomo Bank Ltd., were put on review. Sumitomo Bank shares fell 24% on Thursday. The deal was announced late Wednesday. Sumitomo shares plunged $12.25 to close at $38.25, after falling as low as $37 on Nasdaq. Salt Lake City-based Zions said it will pay $38.25 for each of the company's publicly traded shares. With the acquisition, Zions, which now has assets of more than $10 billion spread across a seven-state region in the West, will become the fifth-largest bank in California. Zions stock rose $6.19 to close at $55.69 on Nasdaq.

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