Ralph Babb, chief financial officer at Comerica Inc., is doing his best to keep a cool head as the Detroit banking company's stock takes a beating.

"We focus on what we can control," said Mr. Babb. "The key is to do what we do best - and that is to provide good returns and consistent returns. If you look at the returns for this year you would see we generally are near the top."

The problem is market perception. Despite solid numbers in 1999, investors see credit risk in the Detroit company's concentration of commercial loans, and interest rate exposure due to a high ratio of loans to deposits. As a result, its shares have fared worse than many of its peers'.

This is despite more than respectable performance. The bank ranked 12th in return on equity, at 21.86%, and its net interest margin of 4.55% was 10th best among the top 50 banks tracked by Keefe, Bruyette & Woods Inc. In the fourth quarter, the bank's earnings per share grew 11%, to $1.08, over the year-earlier period.

The $38 billion-asset bank, has seen its stock tumble 33% since November, the end of the last big rally for bank stocks. That compares with a 24% drop in the Standard and Poor's index of bank stocks.

Making things worse was a strong downdraft for Midwest bank stocks in the past few months. Regional banks KeyCorp, National City Corp., U.S Bancorp, and Bank One Corp. all had to tell Wall Street to rein in earnings expectations, sending their stocks - and those of their neighbors - plummeting.

Comerica shares were up 6.25 cents Friday, to $40.375.

"The market has had a concern with rising interest rates, related credit quality issues that come along with that," Mr. Babb said. "In addition, there have been a number of earnings surprises have put a bit of a blanket on the industry.

"Over time," he said, "the values will ebb and flow in the market. The key is to continue on what you can control, which is performance. Our consistency over time will lead to a premium valuation."

For now, however, Comerica's stock is trading at a low projected earnings multiple of 8.9, versus the bank average of 11.5.

Investors, spooked by incidents of large commercial loans going belly-up, fear the worst at the end of an economic cycle, and are wary of Comerica, which has 93% of its loans in that category.

They find it worrisome that chargeoffs rose to 0.39% of loans in the fourth quarter, up from 0.30% in the same quarter of 1998.

Mr. Babb noted Comerica's consistent credit quality performance. In the last 10 years, its annual net chargeoffs as a percentage of average loans have never been higher than 60 basis points, while its commercial chargeoffs never surpassed 44. That includes the last economic downturn of 1990-91.

"The key to our success is credit quality," Mr. Babb said. "We believe that one of our biggest strengths is our ability to underwrite credit. When you look at where the indicators are today, they are very much in line with a historical performance that is very good."

That bank is depending on savvy management, stocking up on group managers with at least 15 years in the business, and heads of departments such as middle-market and U.S. banking with 20 years' experience, Mr. Babb said.

"Commercial lending is very much a skills business," he said.

Many analysts echo Mr. Babb's argument that the bank has proved it can weather an economic decline. They note the geographic diversity of Comerica's commercial portfolio and say they are puzzled that the stock has fallen so much.

"I would say that flies in the face of their performance historically," said Bradley S. Vanderploeg, an analyst with First Union Securities Inc. "There is no reason for it when you look at the quality of earnings," said Diana P. Yates, an analyst with A.G. Edwards & Sons Inc. in St. Louis.

Some investors may be concerned about Comerica's exposure to a single line of business, but analysts see the emphasis as a strength, when many mid-capitalization banks need to find a niche to survive.

"They haven't become a financial company that wants to be all things to all people," Ms. Yates said. "They're focused and conservative with the middle market, which is where they can add value and grow."

Emphasizing organic growth of commercial loans, Comerica opened offices recently in Atlanta, Los Angeles, and Stamford, Conn., and plans to use those locations as a way to offer its full range of financial products - including private banking, trust management, and brokerage services , Mr. Babb said.

Comerica is also shedding business lines where it cannot generate decent growth. The bank sold $500 million of credit card loans to MBNA Corp., Wilmington, Del., last month for undisclosed terms. It will continue to offer its retail customers credit cards, but it will outsource the loans to MBNA.

Comerica has avoided costly acquisitions that its Midwest neighbors have undertaken, which analysts say should help the stock. U.S. Bancorp, Bank One, and KeyCorp all have made acquisitions in the past few years that have not met their original expectations.

Yet another Achilles' heel in the eyes of investors is the bank's balance sheet. Its loan-to-deposit ratio is tops among regional banks at 140%, leading some to believe its margins will be squeezed in a rising rate environment.

But many investors have failed to do their homework, instead relying on a few numbers such as the loan-to-deposit ratio, said Michael Plodwick, an analyst at Lehman Brothers in New York.

"They look at one ratio and that becomes the be-all and end-all," he said. "People don't bother checking in with the companies."

Indeed, Comerica was one of few banks whose interest rate margin actually increased in the fourth quarter - the result of solid growth in high-margin commercial loans being added to the portfolio.

Much of its assets and wholesale borrowings are tied to the floating London interbank offered rate. As rates fluctuate, both sides of the balance move in tandem. Meanwhile, the bank uses swaps and futures to cover other exposure.

That means that despite likely interest rate increases, analysts expect Comerica's interest rate margins to contract only a few basis points each quarter this year. While other banks have been getting their interest rate margins squeezed enough to cause them to warn Wall Street, Comerica has avoided betting on the direction of interest rates.

"They don't play the prime or Libor curves," Mr. Plodwick said. "You would expect their margins to be in a tight band, and they have been."

Dan Goldfarb, a sector manager for David L. Babson Co. in Cambridge, Mass., owns Comerica stock. He said he had pared back his position last fall when the stock traded in the $50-to-$60 range, and that now might be the time to load up once again on the stock.

"It is cheap at eight times earnings," Mr. Goldfarb said. "It is one of the cheapest better-run banks in the country."

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