Comerica to Cut Workforce, Close Locations -- Update
July 19 2016 - 1:24PM
Dow Jones News
By Rachel Louise Ensign and Austen Hufford
Comerica Inc. became the latest bank to announce major cost cuts
in a move the lender says will help it cope with profit-sapping low
interest rates that have no end in sight.
The Dallas-based lender said Tuesday in its second-quarter
earnings release that it would cut about 9% of its workforce and
shut down around 40 locations. The bank is also under pressure from
investors to bolster performance and consider potentially selling
itself.
Chief Executive Ralph W. Babb Jr. told investors the new
cost-cutting and revenue-enhancement plans are "fundamentally
changing the way we operate."
The regional bank reported a quarterly profit of $104 million,
down from $135 million a year prior. On a per-share basis, earnings
fell to 58 cents from 73 cents. The bottom line includes 19 cents a
share of charges related to the new plans.
Revenue, a combination of net interest income and noninterest
income, rose 5.2% to $714 million. Analysts polled by Thomson
Reuters had anticipated 69 cents in per-share profit on $715
million in revenue.
The lender's plan is expected lead to $70 million more revenue
through initiatives such as cross-selling and $160 million of cost
reductions by the end of 2018. The company will take restructuring
charges of between $140 million and $160 million over that
time.
The bank's results reflected two key macroeconomic developments
in the second quarter: falling interest rates and rising oil
prices. The former squeezed the bank's lending profits, while the
latter lifted the bank's earnings, which had been stung in recent
quarters by higher provisions for potential loan losses in the
sector.
The efficiency announcement comes after some Comerica
shareholders mounted an effort to pressure the bank to bolster
returns. At the bank's annual meeting in April, several
shareholders publicly voiced their dissatisfaction with the
lender's recent performance in an unusual show of dissent at such
an event. Large shareholders told the bank it has failed to earn
acceptable returns for too long and may be better off as part of a
larger bank that can cut costs. The bank didn't give new specifics
on potential deal talks on Tuesday.
Analysts were divided on whether the new effort would be enough
to placate concerns. Evercore ISI analyst John Pancari wrote the
announcement was "likely enough to appease" investors. The bank's
shares rose 1.5% after the earnings announcement in Tuesday
afternoon trading.
CLSA analyst Mike Mayo, who has spearheaded an effort by several
large shareholders to persuade the bank to explore a sale, was
skeptical about the plan. "Why does management have 2 1/2 more
years when they've underperformed for so long?," he said, adding
that Comerica didn't take the question he tried to ask on the
earnings call. A Comerica spokesman declined to comment.
Comerica said the branch closures would represent about 8% of
its total 473-branch network. The initial job cuts in the third
quarter would be managers, and the rest of the cuts would be made
by the end of 2017, Mr. Babb said in an interview.
Lower rates, which after the Brexit vote seem likely to stick
around for longer than anticipated, also weighed on the bank. Net
interest margin, an important measure of lending profitability
largely tied to interest rates, came in at 2.74% in the June
quarter, down from 2.81% in the quarter before and up from 2.65% a
year prior. Net interest income increased 5.7% from the same
quarter a year earlier on higher yields from loans and Federal
Reserve deposits and asset growth.
The energy lending situation improved somewhat in the second
quarter as oil prices rose from their first-quarter lows. The bank
set aside less money for potential loans going bad than in the
prior quarter and reduced its total loans in the sector. Still, 57%
of its energy loans were criticized.
Fee-based income increased in the quarter. Noninterest income
grew 4.3% to $269 million in the second quarter on increased card
fees from merchant payment processing services and government card
programs.
Higher software expenses and FDIC insurance premiums drove
noninterest expenses up 19.9% to $519 million. The double-digit
percent increase also includes the restructuring charge of $53
million for the quarter.
Write to Rachel Louise Ensign at rachel.ensign@wsj.com and
Austen Hufford at austen.hufford@wsj.com
(END) Dow Jones Newswires
July 19, 2016 14:09 ET (18:09 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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