Deals

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Comerica's investors may need to curb their enthusiasm. 

The regional bank's shares added nearly 12 percent last week to reach a four-month high, buoyed by reports that large shareholders and at least one analyst are pushing the Dallas-based bank to sell itself. That was on top of the company's decision to hire Boston Consulting Group to help it "meaningfully enhance" profitability by undertaking a comprehensive review of its expense and revenue base. 

But investors might be getting ahead of themselves. The idea of a sale isn't new; rather, it traces back to February, when upstart activist Hudson Executive Capital disclosed its stake. The buyer universe is thin, considering North American banks like Wells Fargo, US Bancorp, BB&T and PNC Financial Services have all but ruled themselves out of contention.

And although foreign banks like Japan's Bank of Tokyo-Mitsubishi have left the door open to U.S. regional bank deals, regulators that are unhappy with those banks' existing governance could choose to step in. Plus, Stephens analyst Terry McEvoy thinks Comerica would have fully explored discussions with prospective buyers before deciding to hire Boston Consulting Group.

Priced Right?
Comerica's shares are trading above the consensus 12-month price target of Wall Street analysts
Source: Bloomberg

So absent a deal, Comerica's outlook is bleak. Analysts already think the bank is fully valued, at $44.02 a share. For the first time since December, Comerica's shares are trading above what Wall Street analysts on average expect them to be worth in 12 months: $42.20. 

Sure, a deal may still come together. Comerica's chairman and CEO Ralph Babb, who has been in his post for more than 13 years, is 67 and may consider a sale as his ticket out. After all, he said during the bank's earnings call last week that strategic alternatives (like a sale) would be considered if they were "realistic." But a follow-up comment about the bank's weakened position after the tumble in energy prices suggested he might quickly spurn any takeover at a price that could be viewed as opportunistic.

Notably, the bank is trading at its book value, making it relatively inexpensive compared with rivals that are trading at an average multiple of 1.3 times book value, according to data compiled by Bloomberg. Recent regional bank deals including Huntington Bancshares' pending acquisition of FirstMerit and KeyCorp's purchase of First Niagra were both struck at premiums to respective book values. 

Bargain Bank
Comerica's price-to-book value makes it cheaper than most of its peers and potential buyers
Source: Bloomberg

While the notion of a sale is logical, without a willing buyer on the horizon, Comerica shareholders have little to cheer. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net