Comerica Climbs After CEO Says He's Willing to Sell the Bankby and
CEO Babb says Texas lender is `looking at all alternatives'
Bank is under pressure from investors as energy loans soured
Comerica Inc. climbed in New York trading after Chief Executive Officer Ralph Babb pledged to improve returns and said he’d even consider offers to sell the Dallas-based bank after it got stung financing shale drillers.
“We’re looking at all alternatives,” Babb, 67, said Tuesday at the company’s annual meeting in Dallas. Comerica’s business model needs to be examined and refined, he told investors, adding, “we must earn our right to remain independent every day.”
Comerica has faced pressure in recent months as energy loans soured, causing the lender to increase its provisions for credit losses more than 10-fold to $148 million in the first quarter. Investors and analysts are urging the bank to explore a sale after the firm slumped about 11 percent in trading last year amid the drop in oil prices.
The lender gained 3.3 percent to close at $45.13, after reaching $45.68 earlier Tuesday. The shares advanced 13 percent since April 18, the day before Comerica said it hired Boston Consulting Group Inc. to review its expense and revenue base.
Comerica has failed to create value in recent years, according to CLSA Ltd. analyst Mike Mayo. The bank’s return on average common shareholders’ equity fell to 3.1 percent at the end of March, compared with 6 percent as of Dec. 31.
In a press conference after the meeting, Babb said entertaining offers to sell is “one of the elements that’s on the table.”
“We have routinely looked at all the options in the past,” said Babb, adding that low interest rates and energy prices would affect the bank’s value. “You have to look at what’s going on in the industry.”
Responding to questions from shareholders on the lender’s plans and performance, director Richard Lindner said the board has a sense of urgency to improve results. “We’re with you on this,” said Lindner, the former chief financial officer of AT&T Inc.
Babb deflected a reporter’s question about succession and whether he was considering retirement. “I’m not that good of a golfer,” said the CEO. He stood to get $50.8 million in severance and equity awards if terminated after a change in control as of Dec. 31, according to a filing.
Banks that helped finance the U.S. shale boom have been setting aside more money to cover losses as oil prices plummeted over the past year. Standard & Poor’s downgraded Comerica and three other lenders in February due to energy exposures, saying it expected loan losses to rise over the next two years. Babb said last week that the energy market poses a “significant challenge,” but that he believes the firm is adequately reserved.