Fitch Ratings announced that it cut its issuer default rating for Comerica Inc. one notch, to A, saying it may be difficult for the regional banking company to be profitable this year because of higher credit costs and a depressed net interest margin.
Comerica's net interest margin, the difference between what banking companies pay in interest and receive from loans, fell to 2.53% in the first quarter from 3.22% a year earlier as interest rates continued to fall.
Regional banks such as Comerica are linked to the housing market and more dependent on an improvement in the economy because they derive significant loan revenue from small businesses and local construction. Weak jobs reports have been particularly damaging for Comerica.
Comerica, which is based in Dallas, has banking units in Michigan, Arizona, Florida and California. Those four states have been among the hardest hit by the recession after the housing bubble burst.
Fitch also downgraded the ratings of Comerica's subsidiary to reflect the likelihood of weakened profitability.
The new rating is supported, it said, by the company's capital position, credit deterioration to date, large non-interest-bearing deposit base and liquid investment portfolio.
Fitch said Comerica, like other banking companies, has faced credit-quality challenges but that its performance has been "relatively good to date" because of the mostly commercial composition of its loan book.
Fitch said it takes a negative outlook on the rating because the deteriorating economy will probably hurt the company's commercial loan book eventually.
Another downgrading could be possible if asset-quality deterioration worsens, the rating agency said.