DETROIT - Comerica Inc.'s Eugene Miller says he has seen too many banks get burned in recent acquisitions, either by paying too much or by struggling to integrate, and he vows that his company will not meet the same fate.
Mr. Miller, the 63-year-old chairman and chief executive officer of Detroit-based Comerica, says he is intent on expanding the company - just not through overpriced deals.
His view of the unfavorable merger market may be widely shared now, but in recent years Mr. Miller was bucking a major trend. Comerica, which has $39.6 billion of assets, sat out the megamerger game for the last four years while other banking companies went on a spending spree.
"We have worked so hard to get our profitability," Mr. Miller said in a recent interview. "We're not going to screw it up with an uneconomic merger."
That is not to say deals are out of the question. Mr. Miller, whose career at the company spans 45 years, said he wants to expand by adding offices and staff, especially in fledgling growth markets such as California and Texas. The company is also emphasizing middle-market and small-business lending.
Comerica has added offices and staff on the West Coast. Executives say it will continue to do so in order to strengthen the company's niche middle-market commercial banking presence and to generate more loans. "I think acquisitions are just one way" of expanding, Mr. Miller said. "I would rather continue to look at markets that we want to be in and that we're growing in."
Joseph J. Buttigieg, Comerica's vice chairman in charge of business banking, said: "There's a lot of opportunity to establish new offices. We've already established several new loan production offices in Southern California in the past year. Those have worked out well."
A deal in California to shore up market share is "always a possibility," Mr. Buttigieg said. "We're very diligent in our effort to acquire. We're always on the lookout for potential acquisitions, but it has to be at the right price and have the right chemistry."
Comerica's stock - which has fallen 25% from its 52-week high of $61.625 last July - has taken a beating, along with the rest of the sector, but the regional bank is among a select few that analysts have given high marks.
Analysts said Comerica, by focusing on commercial lending and shedding less-profitable retail operations, and by putting a strong emphasis on underwriting standards, has managed to escape many of the margin pressures that its peers in the Midwest and the Southeast are facing.
"They're very focused and they have a nice balance between focus on growth profitability and strong underwriting discipline," said Joseph Duwan, an analyst with Keefe, Bruyette & Woods Inc. in New York. "Their financial performance has been first rate in profitability, growth, and credit quality."
In the first quarter Comerica's profit surged 12%, to $178 million. For all of last year, it rose 11%, to $673 million. The company says it can meet growth goals of 12% to 14% on earnings per share for this year.
The only underlying weakness may be credit quality in the company's commercial loan portfolio. Several banks, including Wachovia Corp. in Winston-Salem, N.C., Unionbancal in San Francisco, and Pacific Century Financial Corp. in Honolulu, have warned in recent weeks of rising non-performing loan levels that could adversely affect second-quarter profits.
Commercial loan-intensive Comerica has not caught on with investors lately because it's lumped in with the rest of the sector, said Diana P. Yates, an analyst at A.G. Edwards & Co. in St. Louis.
Yet one reason why the company has found favor with Wall Street has been its successful shift toward the commercial lending market.
Just four years ago, Comerica was grappling with many of the same revenue growth and expense management problems as many of its competitors. Like those other banks - including Fleet Financial Corp., CoreStates Financial Corp., Firstar Corp., and Michigan National Corp. - Comerica hired an outside management consultant to cut costs.
The restructuring ended up slashing 1,900 jobs, almost one-sixth of Comerica's work force. The company did not choose the path that many other companies took, however. It chose to stick with more traditional lending businesses rather than experiment with buying mutual fund firms or building a full-service investment bank.
And, of course, it shunned megamergers.
Many of its peers in the mid-1990s - CoreStates and Firstar, for example - ran to the nearest suitor when their own restructuring efforts failed to boost revenues. Other banking companies, including First Union Corp. and Bank One Corp., now find themselves struggling after several years of big acquisitions.
Instead, Comerica has continued to evolve, pulling out of some retail businesses and investing to build middle-market and small-business lending capabilities.
This January, Comerica got out of the retail credit card business by selling $500 million in credit card loans to MBNA Corp. Comerica, once the 44th-largest card issuer, said it sold the 300,000 accounts because it no longer had the marketing and operating scale to expand the business profitably.
In early 1998, the company announced plans to exit three other businesses; later that year it sold its non-Michigan credit card portfolio, its indirect recreational vehicle and auto loan business, and its mortgage-servicing unit.
Though it backed off those retail areas, the company has turned its attention to small business and recently opened six Small Business Administration loan offices in different areas of the country, said John D. Lewis, a Comerica vice chairman who oversees the bank's small-business operations.
The bank plans to open eight branches and a call center, all of which will focus on small business, he said.
"Our small-business customers, on average, tend to be four to five times more profitable than our individual customers," Mr. Lewis said in a recent interview. In the last few years Comerica has been increasing the generation of small-business loans by 13% to 14% a year, and it wants that trend to continue.
"It's an excellent source of deposits and fee-based services," he said of the company's small-business lines, which make up about 10% of its net income.
