For Comerica, HQ Shift Is a Growth Statement

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Even after years of expansion outside the Midwest, Comerica Inc. has remained best known as a Michigan company.

It employs thousands in the state, and its name is emblazoned on the Detroit Tigers' stadium in downtown Detroit, a city where it holds nearly one-quarter of the deposit base.

So while Comerica described its decision to shift its headquarters to Dallas as a natural stage in its evolution, analysts saw other motivations: a desire to change marketplace perceptions and perhaps to be greeted as a local buyer in its newly chosen home.

Chairman and chief executive Ralph W. Babb Jr. said Tuesday that the move reflected a demographic reality. The Midwest, he said, offers fewer growth opportunities than Comerica's other markets.

"When you look at our fourth quarter as an example, we had good double-digit growth in lending in both California, or the western market, and Texas and Florida," Mr. Babb said. "The market in the Midwest was basically flat," he added.

After years of expansion in Texas, Florida, Arizona, and California — where the company bought Imperial Bancorp in Inglewood in 2001 — he said, 46% of its annual revenue now comes from outside Michigan. It has continued to build branches in Texas, California, Arizona, and Florida while forgoing expansion in Michigan, all of which makes shifting to the new headquarters an operational plus. "Texas gives us a central location from which we can get to all our markets quickly," he said.

Though changing a headquarters location will not change Comerica's numbers, the possibility that it will be a prelude to an intensified emphasis on growth in the Southwest and West, could lead investors to take a second look, said Jeff K. Davis of First Horizon National Corp.'s FTN Midwest Research Corp.

"Over time I think the Street is going to have to look at the franchise from a different perspective just because the asset base, the capital base, and the earnings base continues to shift to the West," Mr. Davis said, "and this will help the Street think about that process with a little bit more focus."

Analysts say that despite Comerica's pursuit of faster-growing markets it may have been suffering a slow-growth penalty in the stock market.

Gary B. Townsend, an analyst at Friedman, Billings, Ramsey & Co. Inc., said that being based in Michigan "has been a problem for several years" in terms of Comerica's stock price. "Perception is a large part" of the announcement, he said.

Industry performance numbers demonstrate Texas' relative attractiveness. Last year, the average return on assets for banks operating in Michigan was 0.95% but 1.13% in Texas, and return on equity was 9.42% in Michigan versus 12.70% for Texas, according to Mr. Townsend. (Comerica's results run counter to this trend — its return on average assets in the Michigan market was 1.4% in the fourth quarter, compared with 1.03% in its smaller Texas business. Its return on average equity in the Midwest was 17.0% in the quarter, versus 12.2% in Texas.)

Texas banking companies also tend to get higher valuations. The median publicly traded bank in Texas was valued at 16.3 times earnings when markets closed Monday, according to data from SNL Financial LC — well above the market-weighted ratio for all banks of 12.9 times earnings. The median for Michigan banks was 14.5 times earnings.

By book value, the discrepancy is starker: The median bank in Texas traded at 247% of tangible book value; the median Michigan bank at 147% of tangible book value.

Of course, the $58 billion-asset company is not leaving Michigan. Its name will remain on the stadium, and even after the relocation of senior managers and a total of 200 jobs to its Dallas headquarters, more than 7,000 Michigan employees will remain.

The Midwest contributed 53% of the company's $2.8 billion in revenue last year; its western markets of California and Arizona contributed 30%; Texas accounted for 12%; and 5% came from Florida and abroad.

Comerica plans to move its executive team to Dallas by Sept. 30 and to relocate employees within three years. After the move, Comerica would pass the $13.2 billion-asset Cullen/Frost Bankers Inc. in San Antonio as the largest Texas-based banking company, wrote analyst Heather Wolf of Merrill Lynch & Co. Inc. in a note Tuesday.

Its relocation could "increase the probability of a Texas bank accepting Comerica as a buyer," Ms. Wolf wrote. It could also "improve CMA's long-term prospects as a seller in the M&A market," she added.

Comerica declined to comment on whether it would be more likely to buy in Texas, but Mr. Babb did rule out potential acquisitions in Michigan.

"Where we would like to expand today is really in that western market, Texas, and Florida," Mr. Babb said.


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