An activist investor is pressuring Comerica to sell to a larger bank, accusing the Dallas, Texas-based lender of making “disastrous decisions” and having “objectively poor performance.”
HoldCo Asset Management, a Fort Lauderdale, Florida-based investment firm which owns 1.8% of Comerica stock, released a presentation Monday detailing concerns and requesting that the bank initiate an immediate sale process.
The asset manager focused on a handful of “blunders,” including Comerica not renewing its Direct Express card program, with $3 billion in non-interest-bearing deposits, “at a time when deposits were critical.” It also highlighted that Comerica made “poor decisions” within its swap portfolio, leading to losses and “preventing the bank from realizing the full benefits of higher rates on its floating rate loan portfolio.”
HoldCo wrote that its appeal was spurred by Comerica CEO Curtis Farmer’s response to analyst questions during the bank’s July 18 second-quarter earnings call, which focused on Comerica’s “remarkable historical underperformance” and whether the bank would sell itself.
“I was going through my file this morning, just looking at your quarter. And I found my initiation report about my last firm, it was October 6 of 2000, obviously, a long time ago, stock hit was $61 that day. And today, 25 years later we're at $62,” noted Baird Research analyst David George.
Farmer, who has been CEO since 2019, said he couldn’t “speak as much to the 10-year prior period of time.”
A larger bank could buy Comerica without major capital issues, HoldCo asserted, putting forth PNC, Fifth Third Bank and Huntington Bancshares as options that “make sense” based on, among other things, substantial market overlaps and operations in contiguous markets.
In response to HoldCo’s presentation, Comerica said it was focused on driving value for shareholders and that it “continue[s] to execute [its] strategic plan to achieve that objective,” American Banker reported.
“Our board and management team have a strong track record of making strategic improvements to create long-term value and we are confident in the future of our business,” the bank said, according to American Banker.
Comerica isn’t the only bank that has HoldCo’s attention. The firm owns approximately $793 million in bank stocks, according to its presentation, with most held in eight core banks: Comerica, Capitol Federal Financial, Central Pacific Financial, Citizens, Columbia Banking Systems, Eastern Bankshares, First Interstate BancSystem and KeyBank. Each should be on watch, the presentation indicated.
“HoldCo believes each of these regional banks is dramatically ‘under-earning’ due to below-market fixed rate securities and/or loans and/or swaps and possess exceptional deposit bases,” the presentation said.
“HoldCo intends to be a long-term holder of each of these franchises and hopes and expects that leadership will pursue commonsensical actions consistent with shareholder value maximization – But if not, HoldCo will have no choice but to act,” the firm wrote.
