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TARP Dividends Weigh on Comericaby Maclovio Pina | 04-21-09 | 3:55PM | E-mail Article | Print Article
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TARP dividends weighed on Comerica's CMA first-quarter earnings. The $33 million payout pushed net income to the red, and the bank posted a $24 million net loss compared with net income of $3 million in the fourth quarter. The results are within our estimates, and we are leaving Comerica's fair value unchanged.

Net charge-offs were an annualized 1.3% of total loans, higher than last quarter's 1.0% rate. We expect loan losses to continue to rise for some quarters as some of the bank's main markets and loan portfolios have been very hard hit from the economic downturn. One of our biggest concerns is its Midwest region (home to almost 40% of the bank's loans), where unemployment rates are among the highest in the nation. Furthermore, the bank has 9% of its portfolio in construction loans, whose net charge-offs rose to 5.2%, compared to 3.0% in December 2008. Another segment where we expect more pain to come as a result of the recession is commercial real estate, which makes up 22% of the bank's total portfolio.

With regard to Comerica's capital position we have no big worries. We think tangible common equity at 7.3% of tangible assets is enough for the bank to absorb its expected losses. During the call, management expressed its intent to repay the $2.25 billion it received from the TARP when it considered doing so feasible. However, we think there are more loan losses on the way for Comerica that will pressure profitability for some quarters, preventing the company from building up its capital quickly. Hence, to repay the government, the bank would probably have to raise some dilutive equity. On the other hand, it can opt to retain its TARP funds, in which case common shareholders will continue to bear the burden of the preferred dividend.


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More Analyst Research Comerica Incorporated Full Analyst Report


Analyst Notes
10-20-09 | 4:00PM   TARP Dividends Drag Comerica's Profits
08-10-09 | 10:00AM   Lower Uncertainty in Banking
07-22-09 | 5:01PM   Worsening Credit Quality at Comerica

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Maclovio Pina is a stock analyst covering banks. He joined Morningstar in July 2008 after earning an MBA degree from Stanford University. Before business school, Maclovio worked for Citigroup's Latin America Corporate and Investment Banking group. He was also a Mechanical Engineering professor at the Universidad Iberoamericana, the university from which he graduated top of the class from both Electromechanical and Industrial Engineering. Maclovio is a CFA Level II candidate. Analyst Feedback.
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