Aug. 12--Shares of Zions Bancorp, the Utah-based lender that operates in 10 Western states, fell 8 percent Tuesday after the bank said its income probably will not cover interest and dividend payments for 2009, and will have to dip into cash reserves to do so.

Zions fell the most of any company in the KBW Bank Index on a day financial stocks were lower on pessimistic outlooks for financial institutions from some analysts. Zions helped lead a 4.4 percent drop in the 24-member KBW index, though it has substantially outperformed the index in recent months.

Zions spokesman James Abbott said the company has plenty of cash on hand, $675 million, to meet its annual debt obligations of about $200 million, which include interest on its debt and dividends for preferred shares.

"We've got a lot of cash in the checking account," Abbott said. "We have more than adequate cash."

He characterized the decline in share price as profit-taking after Zions had far outperformed the KBW index in the past month, up 63 percent versus 33 percent.

Ken Zerbe, a Morgan Stanley analyst, told clients Tuesday, "it seems increasingly likely that Zions may need to raise debt or additional equity to bolster holding-company cash needs, which would put downward pressure on earnings."

But Zions did disclose in its quarterly earnings report filed with the Securities and Exchange Commission that its subsidiary bank companies are not providing cash to meet the holding

company's obligations.

"Cash earnings from subsidiaries and investments do not cover the parent's interest and dividend payments, and the company does not expect cash receipts from its subsidiaries and investments to cover those payments for the remainder of 2009. In addition, the parent has had to increase its investment in several of its bank subsidiaries in order to maintain their 'well capitalized' status," Zions said.

Abbott said the bank began disclosing that type of information at the urging of the SEC, but other banks have not followed suit.

"There's no more problem with our company than any other bank out there, but we just happened to have talked about it," he said.

For the quarter ending June 30, Zions reported a net loss of $68.8 million, or 35 cents a share, compared with a profit of $66.4 million, or 65 cents a share, for the same period last year. For the first six months of the year, the loss was $895.4 million, compared with net income of $171.6 million in the first half of 2008, or a loss of $7.77 a share versus a gain of $1.62 a year ago.

Zions shares Tuesday fell $1.50, or 8.4 percent, to $16.43 on the Nasdaq index after slumping as much as $1.93.

Led by Zions, regional banks fell 4.2 percent as a group, after the Congressional Oversight Panel said in a monthly report that smaller banks may need $12 billion to $14 billion in additional capital for troubled loans still on their books. The panel said the biggest U.S. banks appear prepared to handle more loan losses.

Downbeat comments from analysts about financial institutions also weighed on the wider market. Analyst Richard Bove of Rochdale Securities predicted that bank earnings won't improve for the second half of the year and that many companies will post losses.

Doyle Arnold, Zion's vice chair and CFO, said in a recent conference call with analysts that the bank didn't see "sustained profitability" this year but might in 2010.

Bloomberg News and The Associated Press contributed to this report.

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