Comerica is facing pressure to sell itself to a larger bank, with an activist investor accusing the Dallas-based company of making poor financial decisions and failing to address its lagging stock price performance.
HoldCo Asset Management, which owns approximately 1.8% of Comerica's common shares, issued a detailed and blistering report on Monday, outlining its rationale for a sale. The asset manager specifically called out Comerica's stock price since CEO Curtis Farmer took the helm in 2019 and accused the bank of not taking responsibility for what it called "disastrous decisions" related to interest-rate risk and other blunders by the company's management.
The investment firm also noted that the bank's revenues have declined while its expenses have increased, and criticized it for losing a lucrative government contract that brought in low-cost deposits.
Referring to certain balance-sheet changes, including "load[ing] up on mortgage-backed securities," HoldCo said in the 52-page report that "Comerica would have us believe that it is an innocent victim of the 2023 financial crisis and that its experience was similar to other banks when it seems to have been brought to its knees due to the disastrous decisions of its CEO."
HoldCo urged the $77.6 billion-asset Comerica to hire an investment banker and begin the process of marketing and selling itself. It identified three large regional banks — PNC Financial Services Group in Pittsburgh, Fifth Third Bancorp in Cincinnati and Huntington Bancshares in Columbus, Ohio — saying that sales to those banks could result in "significant premiums" to Comerica shareholders as well as three-year earn-back targets and strong capital levels.
"Because … we are in a unique regulatory window where large banks capable of buying Comerica have an opportunity to pursue this acquisition, it is incumbent on Comerica not to squander this opportunity," HoldCo said in the report.
In addition, "the merger math appears so obviously favorable for several potential buyers of Comerica [that] negotiating leverage will not be lost if Comerica publicly expresses its intention to sell. To the contrary, such a declaration should lead to a process that will maximize value."
In response to the report, Comerica said Monday that it is "focused on driving value" for shareholders and that it "continue[s] to execute [its] strategic plan to achieve that objective."
"Our board and management team have a strong track record of making strategic improvements to create long-term value and we are confident in the future of our business," the bank added.
HoldCo said it plans to publish "a more detailed presentation at a later date." It did not immediately respond Monday to a request about when that report will be available.
PNC, Fifth Third and Huntington, which just announced a $1.9 billion all-stock deal to acquire Veritex Holdings in Dallas, all declined to comment.
HoldCo's analysis comes a week and a half after Farmer faced questions from two analysts about how the management team and the board plan to improve the bank's performance.
Comerica's stock price has risen 2% over the past 25 years, while the KBW Nasdaq Bank Index, which tracks the performance of the 24 largest U.S. banks, has increased 57%.
Meanwhile, Comerica's efficiency ratio is higher than those of other, similarly sized banks.
Last year, Comerica announced that it would not be able to renew its longtime Direct Express contract with the Treasury Department that provides debit cards for Social Security recipients and veterans. The bank had faced allegations that it mismanaged the program, including that it allegedly violated contractual obligations by outsourcing fraud complaints from Direct Express beneficiaries to a vendor in Pakistan and shared sensitive consumer data with vendors.
Read more about Comerica here: https://www.americanbanker.com/organization/comerica-bank
The Bank of New York Mellon has since been chosen to take over the program, though Comerica agreed to a three-year extension of its services to allow for the orderly transfer to BNY.
During the bank's second-quarter earnings call, David George, an analyst at Robert Baird who's covered Comerica for 25 years, wondered how the bank is "thinking about longer-term improvement of performance and enhancing shareholder value." He also pointed out that the company's loans have been flat for a decade.
A few minutes later, Mike Mayo, an analyst at Wells Fargo Securities, asked Farmer to explain why he continues to think that Comerica has earned the right to remain an independent bank. Mayo has been openly critical of the bank in the past, saying it could be a takeover target.
Since Farmer became CEO, "the stock is down 21% and [the KBW Nasdaq Bank Index] is up 43%. The S&P is up a lot more," Mayo noted on the call. "So maybe the market is really missing a story here. Maybe you're about to have a hockey-stick improvement."
In response, Farmer said the bank is "always going to do the right thing by [its] shareholders."
"We understand … our fiduciary responsibility related to that, and so does our management team, and so does our board. And we take the return to our shareholders very, very seriously."
In an interview Monday, George said he is not interested in debating whether Comerica should sell itself. He said HoldCo's report, which specifically breaks down his and Mayo's exchanges with Farmer earlier this month, "is all pretty much fact-based in terms of numbers."
"I think the deck was very well-done … and all of the math they did and the potential [merger-and-acquisitions] combinations appear like it's on point," George told American Banker. "It's refreshing to see institutional shareholders that are willing to be public with their concerns."
Whether or not Comerica sells, George said he's forecasting a meaningful uptick in M&A among banks of all sizes. That's despite the fact that the market reacted negatively last week to the proposed merger of equals between Pinnacle Financial Partners and Synovus Financial.
The Pinnacle-Synovus deal "is an exception," George said. "It shouldn't be viewed as an impediment to M&A, which we think will accelerate in the next 12 to 18 months."
HoldCo, for its part, is no stranger to trying to drive change within banks. The firm, which was founded by Vik Ghei and Misha Zaitzeff, has invested in banks since the financial crisis and today owns about approximately $793 million of bank stocks, most of which is in eight banks, including Comerica, KeyCorp in Cleveland and Citizens Financial Group in Rhode Island.
In 2021, HoldCo criticized what it saw as a low sales price for Boston Private Financial Holdings, which was sold to SVB Financial Group, the California-based parent company of the since-failed Silicon Valley Bank. The same year, the asset manager battled with Berkshire Hills Bancorp when the Boston-based company said it would hire Nitin Mhatre as CEO rather than seek a sale.
In 2023, HoldCo took issue with U.S. Bancorp's capital levels, saying the Minneapolis-based bank wasn't holding enough capital for a bank of its size. U.S. Bancorp said in response that its capital levels were appropriate and that it would generate more capital in connection with its acquisition of MUFG Union Bank.
Nathan Place contributed to this article.