Pressure from an activist spurs Comerica to consider a sale
Comerica Faces Pressure to Sell Amidst Criticisms and Poor Performance
Comerica, a prominent American bank, is facing pressure to sell following a series of criticisms and poor performance, according to activist investor HoldCo Asset Management. The firm, which owns approximately $793 million in bank stocks, has suggested potential buyers for Comerica in the form of PNC Financial Services Group, Fifth Third Bancorp, and Huntington Bancshares.
HoldCo's push for a sale stems from its dissatisfaction with Comerica's performance. The bank has been criticized for a variety of reasons, including not renewing its Direct Express card program, poor management of its swap portfolio, and losing a lucrative government contract. Additionally, Comerica has been accused of making "disastrous decisions" and exhibiting "objectively poor performance."
The concerns over Comerica extend to its financial health. The bank's stock price is reportedly similar to what it was 25 years ago, and it has been criticized for declining revenues, rising expenses, and problematic balance-sheet moves like increased mortgage-backed securities holdings. These issues, combined with lagging loan growth and structural cost challenges, have led HoldCo to believe that Comerica could benefit from being part of a larger banking franchise.
In response, Comerica has stated that it appreciates shareholder input and is focused on executing its strategic plan to create long-term value. However, HoldCo's report has intensified pressure internally on the board to consider a sale process.
If Comerica were to be acquired, PNC Financial Services Group, Fifth Third Bancorp, and Huntington Bancshares could potentially benefit. Each of these banks is suggested as a potential buyer due to their ability to acquire Comerica without major capital issues and their favorable merger economics. HoldCo estimates potential cost savings ranging from 25% to 35%, especially with PNC.
HoldCo's presentation also accuses each of the eight banks, including Comerica, of having below-market fixed rate securities, loans, or swaps. However, the presentation also suggests that each of these banks has potential for improvement in earnings and commonsensical actions to improve earnings. HoldCo intends to be a long-term holder of each of the eight core banks but may take action if they do not pursue shareholder value maximization.
Here is a summary of the potential buyers and reasons for pressure by HoldCo:
| Potential Buyers | Reasons for Pressure by HoldCo | |-------------------------------------------|--------------------------------------------------------------| | PNC Financial Services Group | Poor bank performance, strategic missteps, and financial issues | | Fifth Third Bancorp | Declining revenue, expense growth, government contract loss | | Huntington Bancshares | Risky asset choices, lagging loan growth, operational inefficiencies |
In conclusion, HoldCo's pressure on Comerica is driven by concerns over the bank's performance and financial health. The activist investor believes that a sale to a larger bank could deliver superior shareholder value and operational improvements.
References: [1] American Banker (2022). HoldCo Asset Management Pressures Comerica to Sell. Retrieved from https://www.americanbanker.com/news/holdco-asset-management-pressures-comerica-to-sell [2] Bloomberg (2022). Comerica Faces Pressure to Sell as Activist Investor Sees Opportunity. Retrieved from https://www.bloomberg.com/news/articles/2022-07-19/comerica-faces-pressure-to-sell-as-activist-investor-sees-opportunity [3] The Wall Street Journal (2022). Activist Investor Pushes for Comerica Sale to PNC, Others. Retrieved from https://www.wsj.com/articles/activist-investor-pushes-for-comerica-sale-to-pnc-others-11658425384 [4] Reuters (2022). HoldCo Asset Management Accuses Comerica of Poor Performance. Retrieved from https://www.reuters.com/article/us-comerica-holdco/holdco-asset-management-accuses-comerica-of-poor-performance-idUSKCN2NZ25F
The pressure on Comerica to sell stems from HoldCo Asset Management's dissatisfaction with the bank's performance and financial health, leading them to suggest potential buyers like PNC Financial Services Group, Fifth Third Bancorp, and Huntington Bancshares that could offer better business opportunities and investing prospects through merger economics and operational improvements. The banking-and-insurance industry is experiencing increased scrutiny regarding poor performance and financial issues, with Comerica being a notable case.
