Comerica Inc.'s latest presentation materials filed with regulators Thursday may signal a change in its approach to capital management, according to Steven Alexopoulos, a JPMorgan Securities Inc. analyst wrote.
In a note to clients Thursday, Mr. Alexopoulos seized on the fact that the $66 billion-asset Dallas company omitted the phrase "Expect to maintain dividend" from a Securities and Exchange Commission filing ahead of its Sept. 10 presentation at a Lehman Brothers investor conference.
"Given that management has strongly defended the dividend over the past few quarters, this could imply that management is no longer as comfortable with the $0.66 quarterly dividend as it had been as recent as the second quarter," he wrote.
Its shares shed 8.25% on a bloody day for bank stocks.
In a second-quarter earnings conference call July 17, Ralph Babb Jr., Comerica's chairman, said it was shrinking its loan portfolio and decelerating its branch expansion to conserve capital after losses on residential construction loans.
Its earnings fell 71.4% from a year earlier, to $56 million. The results included a $50 million charge tied to structured lease transactions. As of June 30, Comerica's Tier 1 capital ratio was 7.36%.
Mr. Alexopoulos wrote that even though Comerica's stock may fall in the near term on the news, slashing the dividend would be a positive in the long term.
Such a cut may "reduce the potential for having to raise common equity in the public markets," which "dilutes current shareholders but has acted as an invitation to short players to increase positions," he wrote.
Peter J. Winter, an analyst with Bank of Montreal's BMO Capital Markets Corp., said in an interview Thursday that Mr. Alexopoulos' observation was "interesting."
In his own note, Mr. Winter wrote that there is a "risk" of a dividend cut, "as we're forecasting earnings will not cover it through 2009, especially if credit is worse than forecast."
Comerica also appears poised to strike a positive tone at the upcoming conference, he wrote; its slides show that it expects margin expansion next year and stable net chargeoffs this year. However, it still faces major issues, including "significant commercial loan exposure, which we believe will be the next sector to weaken; significant concentrations in California and Michigan, two extremely weak economies; and reserves are not keeping pace with rising nonperforming assets."
In an e-mail to American Banker Thursday, a Comerica spokesman wrote that its board approved "a third quarter dividend of $0.66 per common share on July 22, payable October 1." He added, "As is our practice, the board of directors will consider future dividends in due course."
