DETROIT--A year after helping engineer one of the most promising mergers in banking history, Eugene A. Miller admits to overshooting both his budget and his timetable for consolidations.
But the new chairman and chief executive of Comerica Inc. vows to endure criticism and stay with his deliberate pace, saying a panicky response would cut long-term benefits from the celebrated merger with Manufacturers National Corp.
"There is a long-term franchise value that extends beyond analysts' projections for a given quarter," Mr. Miller contends.
Mr. Miller, who turns 56 this week, played a pivotal role in the big Detroit merger. It was consummated in June 1992, creating a bank company with $27.4 billion of assets that today ranks as the nation's 27th largest.
Fulfilling a management succession plan crafted as part of the merger agreement, he recently ascended from president and chief operating officer to the top posts. replacing Manufacturers veteran Gerald V. MacDonald, who retired.
Merger Has Lost Luster
Mr. Miller's mission: Reviving the applause Wall Street that gave when the Comerica-Manufacturers union was announced in October 1991.
Back then, the proposed "merger of equals" had a golden luster. Both companies had exemplary credit quality and well-regarded managers--a rarity in megamergers. And overlapping operations presented sterling cost-cutting opportunities.
Gold turned to brass this year, however, when it became clear that promised consolidations would not be delivered on time.
Contrary to original estimates, Mr. Miller will be relying on costly dual computer systems well into next year. And restructuring costs originally estimated at $128 million pretax may come in 23% over that amount, or nearly $30 million higher.
Investors Reportedly Soured
Several analysts say the reversals have soured investors, who perceive that the merger has done little more for shareholders than what the companies could have achieved independently.
Adding a, further element of controversy, Mr. Miller continues to raise eyebrows with his interstate acquisitions, at times paying seemingly rich prices for ailing banks.
For example, earlier this month he agreed to pay an effective 190% of book value for the faltering Pacific Western Bancshares in San Jose, Calif. (See related story on page 7.)
Performance the Key
There has been a market penalty. At a time when stocks of leading banks are trading between roughly 175% and 225% of book value, or 12 to 15 times prior 12-months' earnings, Comerica is lagging at 160% of book, or 10.3 times earnings.
Experts say closing that gap hinges on performance. "Wall Street wants to see the benefits of mergers reflected in earnings," said Henry C. Dickson, an analyst with Smith Barney Shearson Inc.
From his office overlooking the Detroit River, Mr. Miller is remarkably candid about some of the setbacks and mistakes plaguing the union with Manufacturers National. Though experienced in acquiring smaller companies, the executive admits he underestimated the cajoling necessary in a merger of equals.
|There Is a Difference'
"I've been on the other side, when we go in and dominate," he says. "You say, |Lookit, you are all going to speak German, and those that aren't going to speak German--goodbye.' There is a difference in how a merger of equals has to be negotiated."
Moreover, Mr. Miller says, "I know we didn't take enough of a restructuring charge." . That set up a vicious cycle in which unexpected merger costs are bleeding into Comerica's earnings and masking efficiency pins, he says.
At the same time, he passionately expresses his belief that the merger is a proper response in an overcrowded industry--and that he must not wander from his long-term plan. Far more important than a timetable, he says, are the priorities of quality, risk management, and laying foundations for growth.
"What we are not doing is jeopardizing the franchise," says Mr. Miller, who made $1.07 million in 1992. "I've got a lot of competitors out there just waiting for me to stub my toe."
To be sure, he faces an enviable challenge. He is astride a very good bank that is having trouble achieving excellence. That is in sharp contrast to some of the gut-wrenching turnaround efforts still under way at Other recently merged banks.
In fact, several analysts insist Comerica's transition difficulties are exaggerated. "Mr. Miller's team will deliver on its promises, and I think all the negative sentiment about Comerica is overdone," said Kenneth Puglisi, a Chicago Corp. analyst.
Comerica churned out $84 million of second-quarter profits, for a hefty 1.25% return on assets. Problem assets accounted for a slim 1.34% of gross loans at June 30, and the company posted a respectable 63.14% ratio of operating expenses to operating income in the second quarter.
Morale Seen as Main Problem
By most accounts, the biggest problem facing Mr. Miller is employee morale, which top Comerica officers characterized as "spotty" and "not great."
Because both Comerica and Manufacturers were strong, and long had provided secure employment, many workers viewed the elimination of 1,800 jobs as unjust punishment.
"There is a tendency for people to assume we will return to an atmosphere of stability," said Richard A. Collister, head of human resources. "But competition no longer allows comfortable. low-key operations."
Saying he's got to make sure people stretch," Mr. Miller combats the old mindset through personal appearances, going so far as to proselytize at breakfasts with randomly chosen rankand-file employees.
Some moves already are paying off. By keeping a full staff of commercial loan officers, for example, Comerica apparently has been able to grab market share. In the 18 months ended June 30, it boosted its share of commercial and industrial loans in the Seventh Federal Reserve District to almost 19% from 15%.
At the same time, Mr. Miller says he must, and will, do more than solidify in Michigan. Given the state's lackluster economic outlook and entrenched rivals such as NBD Bancorp, he says Comerica must access new markets if it is to flourish.
The company for years has been building operations in California, Texas, and Illinois. John Lewis, an executive vice president and head of regional banking, says he envisions an eventual doubling of Comerica's operations in all three states--a $6 billion-asset expansion.
|The Jury Is Still Out'
Here again, Mr. Miller faces questions about his merger prowess. In the Pacific Western deal, for example, he will take nearly $30 million of after-tax restructuring charges and provisions on a deal valued at $133 million.
That should boost the effective purchase price of the company, which has $1 billion of assets, to 190% from 160% of book value. Many analysts contend that's too much for a wounded community bank.
"The jury is still out on the question of whether Comerica's forays outside of Michigan add shareholder value," says Felice Gelman, a bank analyst with Dillon Read & Co.
Comerica chief financial officer Paul H. Martzowka disagrees. He says it reversed a trend of early losses in Texas, sees prospects for improvement in Illinois, and expects its growing northern California operations to prosper when that state's economy turns.
Mr. Miller, for his part, is intent on following his plan. He says he does not want to be distracted from effectively completing the hometown Detroit merger in preparation for further regional growth.
"The day you lose focus, you are going to make some bad decisions." he says. "I will be the first to admit I've learned an awful lot in the past two Years. But it is in our long-term best interest to take our time, to make sure that all of the teams and the system are right."
