Think a Comerica sale is off the table? Don't be so sure

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Don't rule out a sale of Comerica just yet.

Investors seem to be betting that a long-rumored sale of the Dallas company is on hold now that it has named a new CEO, but analysts said Wednesday that the $71 billion-asset Comerica remains an attractive takeover target for a larger regional bank looking to add scale to better compete with the industry’s megabanks.

"Comerica is a unique bank in terms of its size, markets and its pure focus on the commercial client," said Terry McEvoy, an analyst at Stephens. Its “high concentration in commercial banking would complement a larger financial institution and provide a longer term consistency to earnings."

Comerica’s shares fell 2.2% Wednesday, in part because some investors believe that the bank will remain independent, at least for the time being, under new CEO Curtis Farmer, according to analysts. Farmer, who had been president of the bank and its holding company, was named CEO on Tuesday, replacing longtime CEO Ralph Babb.

"I think they're maybe reading too much into this," Brian Klock, managing director at Keefe, Bruyette & Woods, said of investors’ reaction to the news. "It's maybe overthinking it too much that a sale is off the table."

The company did its best to sound confident about its present course, while also making it clear that it remains open-minded.

"We believe our strategy and key strengths are driving enhanced long-term value for our shareholders," a Comerica spokeswoman wrote in an email Wednesday after the markets closed.

"If other strategic alternatives present themselves that are realistic, achievable and will maximize shareholder value, they will be considered," she added. "We will review opportunities as they arise, but they need to make strategic and financial sense."

Comerica has been a rumored takeover target since activist investors began pushing for a sale in 2016. The bank has since curbed its escalating expenses, weathered the decline in the oil market and rode rising interest rates to improved profitability. But it has struggled to achieve meaningful loan growth as it has scaled back its exposure to the energy sector.

Babb, who had been CEO since 2002, has said in the past that Comerica would consider a sale if it’s in the best interests of shareholders. He remains executive chairman of the company and, as such, will play an important role in determining whether Comerica stays independent or merges with a larger bank.

In a research note Tuesday, analysts at Evercore ISI pointed out that Babb stands to receive a $58 million payout if the bank is sold, eclipsing what he would get if he retires.

McEvoy, the Stephens analyst, said he expects sale rumors to persist because of a growing emphasis on scale. Indeed, when BB&T and SunTrust Banks announced their megamerger earlier this year, BB&T Chairman and CEO Kelly King said that the banks needed to become one “to compete and win in the rapidly evolving world of financial services.”

"Comerica still brings to the table the same value today as it did yesterday," McEvoy said.

In a research note last month, analysts at Morningstar named PNC Financial Services Group in Pittsburgh; Huntington Bancshares of Columbus, Ohio; and U.S. Bancorp in Minneapolis as potential suitors for Comerica.

The $392 billion-asset PNC recently established a new office in the Dallas area to compete with Comerica and other banks migrating there, though the bank's chairman and CEO, William Demchak, said earlier this month that the bank remains focused on expanding in select markets and building out its new digital bank.

An acquisition “would take our eye off the ball, and it just doesn't make sense and doesn't change our outcome strategically,” Demchak said during an April 12 earnings call with analysts.

Analysts said that Huntington, with $109 billion of assets, could look to add more commercial banking to its foothold in the Midwest, particularly in Michigan, where Comerica has a significant presence. And the $475 billion-asset U.S. Bancorp, they said, could use a deal with Comerica to expand in Texas. Comerica is the largest bank headquartered in the Lone Star State.

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