SALT LAKE CITY — After a sharp, one-day plunge that wiped out roughly $1 billion in market value, Zions Bancorp. executives are working to calm investors, describing the losses as an “isolated incident” involving fraudulent activity by a pair of commercial borrowers.
The Utah-based financial institution, which operates Zions Bank and other subsidiaries, reported that one of its affiliates, California Bank & Trust, would write off nearly $50 million in loans due to “sweeping misrepresentations and contractual defaults” by two fund managers. The loans, issued in 2016 and 2017, are now the subject of an ongoing lawsuit and independent review.
Zions disclosed the issue to the U.S. Securities and Exchange Commission (SEC) last week, triggering a selloff that dropped the bank’s shares by more than 11% in a single day. That decline contributed to broader turbulence across the regional banking sector, shaving nearly 300 points off the Dow Jones Industrial Average.
CEO Calls It an Isolated Case
“We view this as an isolated situation resulting from a particular couple of borrowers,” said Harris Simmons, Zions’ chairman and CEO, during Monday’s earnings call. “We have no further exposure related to these borrowers or guarantors.”
Simmons said the bank has reserved $10 million to cover potential additional losses while pursuing legal remedies and recovery of misused funds.
Strong Earnings Offset Market Concerns
Despite last week’s volatility, Zions reported strong third-quarter earnings:
- Earnings per share: $1.48, up from $1.37 a year earlier
- Commercial real estate portfolio: $13.5 billion, with low delinquencies and a stable 1.2% credit loss ratio
- Overall credit exposure: Described as “granular and well-diversified” across industries and regions
“Momentum behind our core business remains solid,” said Ryan Richards, the bank’s chief financial officer. “We’ve maintained discipline and diversification in our loan growth for over a decade.”
What Triggered the Fallout
The trouble stems from loans connected to investment funds under the Cantor Group, which Zions alleges transferred collateral assets or allowed them to enter foreclosure, violating lending agreements. When California Bank & Trust demanded repayment, those requests went unanswered.
Zions has filed a lawsuit accusing the borrowers of a “sweeping betrayal of trust” — claiming they enriched themselves by manipulating loan agreements and effectively erasing Zions’ collateral protections.
The SEC filing also noted that other regional banks, including Western Alliance, filed similar complaints against Cantor Group entities, suggesting a pattern of misconduct.
Bank to Conduct Independent Review
While Zions executives maintain that the losses are contained, the company has engaged outside legal counsel to coordinate an independent audit of internal lending procedures and risk controls.
Chief Credit Officer Derek Steward said that after a full internal review, the findings reinforced that “these troubled loans are an outlier.”
Simmons emphasized that the bank’s reputation for conservative, responsible lending remains intact: “We actually do credit really well. It’s one of the strengths of this place. This was not the kind of thing you’d expect from us — and we take that very seriously.”
Market Context: Regional Banks Under Pressure
The decline in Zions’ share price mirrors a broader wave of investor caution toward mid-sized and regional banks. Analysts compare the current jitters to those seen in early 2023, when concerns over commercial real estate exposure led to the failures of Silicon Valley Bank and Signature Bank, and the forced sale of First Republic Bank to JPMorgan Chase.
Despite the comparisons, financial analysts note that Zions’ balance sheet remains strong, with limited exposure to high-risk loans and sufficient liquidity buffers to weather temporary shocks.
