Detroit-based Comerica Inc. said Wednesday it had settled a lawsuit brought by First of Michigan after the banking company backed out of an agreement to buy the brokerage.
Both sides refused to say if the settlement included a financial payout. The agreement comes four months after First of Michigan shareholders filed a $16 million class action charging that Comerica had breached an agreement to go forward with a $45 million stock-swap acquisition announced in March 1993.
While the settlement ends a messy chapter in Comerica's acquisition efforts, it does not mean that the bank has soured on the idea of buying a full-service brokerage.
"We'll continue to aggressively pursue our strategy of expanding our capabilities in the securities and investment businesses," said Wayne Mielke, a spokesman for the bank, which has its own securities subsidiary.
Indeed, analysts say executives recently affirmed their view that such a business could be a strategic fit for Comerica.
"They still have an interest in it," said Fred Cummings, senior banking analyst at McDonald & Co. in Cleveland. He speculates that the bank could seek a similarly sized brokerage in Detroit or Chicago.
For its part, First of Michigan said it was no longer interested in being acquired. "We are determined to grow our business," said president and chief executive Steve Gasper.
Bank acquisitions of whole brokerages are rare, especially on the scale that Comerica proposed in 1993. Analysts say the trend has been toward joint ventures or forays into specialized areas such as money management,
The largest recent purchase of a broker-dealer by a bank was the August 1993 deal by Salt Lake City-based Zions Bancorp. to acquire Discount Corporation of New York, a primary dealer in government securities. That transaction was valued at $65 million.
Earlier this year, a $55 million deal to acquire Rittenhouse Financial Services, a Pennsylvania-based money manager, was called off after the owner found a better estate-planning option than selling to Philadelphia's CoreStates Financial Corp.
But the issues in those deals were different than ones faced by Comerica in its proposed purchase of First of Michigan. The $27 billion-asset bank canceled
the deal after four senior executives in First of Michigan's corporate finance department joined a rival firm. Comerica said the defections materially affected the value of the brokerage. First of Michigan disagreed.
Analysts say the episode illustrates both the cultural difficulties that can arise from such a transaction and the risk of buying a business that depends heavily on a few people. As a result, they say, few banks are willing to risk paying premiums for an investment bank.
"The word is that [brokerages] are a little expensive right now," said Todd Vencil, mergers analyst at SNL Securities in Charlottesville, Va.