Wednesday, April 24, 2019

The Rate Cycle Weighing More Heavily On Comerica

As one of the most asset-sensitive banks that I follow, Comerica (CMA) has a lot to lose from a flattening yield curve that is seeing deposit costs rise while LIBOR-based loan yield grow looks more restrained. Capital and credit quality are still above-average, but average loan growth in the face of rising spread pressure is a tough combination and pre-provision growth is likely to decelerate into the mid-single digits and exit the year in the low single-digits (and possibly stay there a little while).

I’ve felt similarly about Comerica and Citigroup (C) over the past year, insofar as I don’t really love either business, but at the right price there can be some opportunity. At this point, though, I’m concerned about Comerica’s vulnerability to sooner-than-expected rate cuts and its lackluster loan growth and I think it will be harder to answer the “why should I own Comerica?” question positively as core operating income growth stalls and capital returns moderate.

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The Rate Cycle Weighing More Heavily On Comerica

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