A financial services company that has strategically aligned its operations into the following segments: the Business Bank, the Retail Bank, Wealth & Institutional Management and Finance Division.
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Comerica Incorporated is a financial services company headquartered in Detroit, strategically aligned into three major business segments: The Business Bank, The Retail Bank, and Wealth and Institutional Management. With $58 billion in assets the bank has been expanding its presence throughout faster-growing U.S. markets of California, Nevada, Colorado, Arizona, Washington, Texas, and Florida
The bank has a huge concentration of business in Michigan region, currently facing asset quality deterioration, record unemployment levels and housing market slump. Mid West region accounting for 51% of the loan is facing competitive pricing pressure. That is why more focus is on relationship building without aggression and three fourth of the portfolio have balances of less than one million. Moreover the loan portfolio has a significant exposure in the auto industry, which is on the verge of bankruptcy and union issues. Even the banks inorganic growth plans of acquisition in the booming areas of California and Texas is challenged by the huge price valuations.
On the deposit mobilization front, problems aroused in generating core deposits because of its unique retail strategy of targeting small and niche business instead of going mass market. A cheap deposit garnered out of the escrow business is hindered by the drop in home sales.
The positive inflows would be the $ 47 million settlement from Washington Mutual in lieu of employees leaving the Financial Services Division for employment in the former. Moreover the departed employees would not take business and trade secrets out of Comerica and severe competition for another two years. Other gains would be from the Munder capital management sale, which would be used for share buybacks. The new banking centers opened in the recent quarter would be accretive after 18 months with no immediate benefits, leading to a questionable remark on the stock’s performance.
Comerica net income for the year 2006 decreased to $893 million facing the generic problem of unfavorable interest rate movement the banking industry have gone through. Expansion of the retail franchise remains one of the key priorities with plans of having 512 banking centers by 2010. Endorsing the same it opened 25 branches in 2006 with plans of opening another in 2007. The banking operations are skewed towards the commercial side with high dependence on the mid west region. Recently it made an announcement of its intentions to shift its headquarters to the Dallas region. This move though would not help improve valuation in near future but help it gain control over California, Texas and Florida region in the long term. Comerica has the highest exposure in the auto sector primarily with the tier 2 and tier 3 companies that are mainly concentrated around the Southeast Michigan region accounting for more than 50% of the portfolio. Union issues and bankruptcy continue to plague the auto sector and might hurt the company’s results. The net interest margin for the year 2006 was 3.79% and expected to further deteriorate in the coming year. Uncertainties still surround as to how the interest rates would affects its asset sensitive balance sheet. It offers an attractive bouquet of financial services that gathers title and escrow deposits that acts as a source of cheap funding. However with the weak housing market the balances of mortgage escrow deposits are on the decline and might to resort to expensive certificate of deposits to fund its loan growth.Financial health of the bank looks good, adequately capitalized and comfortable asset levels. Comerica has solid fundamentals with a slew of product offerings, loyal customers’ bases and presence in high growth areas. However it proves to be a good bet in the long run and would be prudent to avoid in the near future.
Management at CMA is clearly inept. Loan to Deposits out of control as is debt. Cost of funds will skyrocket if top and middle management not sevely thinned. Only then can the company afford to reduce loan to deposit ratio to earthy levels and become less dependent on borrowing. If only CMA had followed the advice it gives its own borrowers. Improve liquidity and leave more earnings in the company. Texas its only good market but far better off checking into Frost or Prosperity.