Comerica Shares Struggling As The Street Prices In Rate Cuts

The upside and downside of asset-sensitive balance sheets aren’t mirror images of each other, but it is nevertheless safe to say that highly asset-sensitive banks like Comerica (CMA) have a lot to lose as the Fed shifts toward rate cuts. Making matters worse, Comerica’s low-cost deposit base doesn’t give much leeway for further cuts and the high loan/deposit ratio limits flexibility. Oh, and based upon second quarter results, it looks like there are some credit concerns in the energy portfolio.

It’s not so surprising that these shares have been weak – down more than 10% since my last update, and down about 26% over the past year. While the correction in the share price already seems to discount a lot of bad news, Comerica could still see worse than expected net interest margin compression, higher credit losses, and even weaker pre-provision profit performance than is already baked into the share price. Comerica’s hedging strategy should help some, and the share price definitely seems to discount a lot of bad news, but it’s hard for me to see what might inspire the Street to a “c’mon, it’s not THAT bad!” sort of rally in the near term.

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Comerica Shares Struggling As The Street Prices In Rate Cuts