Fitch Ratings cut its ratings on Comerica Inc. one notch, saying it may be difficult for the regional bank to be profitable this year because of higher credit costs and depressed net interest margin.
Net interest margin, the difference between what banks 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 tied to the housing market and are more dependent on an improvement in the economy, as the companies derive significant loan revenue from small businesses and local construction. Weak jobs reports have been particularly damaging for Dallas-based Comerica, which has banking units in Michigan, Arizona, Florida and California. Those four states are among the hardest hit in the recession in the wake of the housing bubble.
Fitch lowered its issuer default ratings on Comerica one notch to A. It said it also downgraded the ratings of Comerica's subsidiary to reflect the likelihood of weakened profitability.
The new rating level is supported by the company's capital position, credit deterioration to date, large non-interest-bearing deposit base and liquid investment portfolio.
Fitch said Comerica, similar to other banks in the industry, has faced credit-quality challenges, but its performance has been "relatively good to date" because of the mostly commercial composition of its loan book.
Fitch said it has a negative outlook on the rating because the deteriorating economic environment will likely hurt the company's commercial loan book in the future. Another downgrade could be possible if asset quality deterioration worsens, the ratings agency said.
Comerica's shares were recently up 1.2% at $21.41 amid a broader market rally.