Is Comerica Bank In Trouble?
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According to Moody’s:
“Comerica’s unrealized losses represent 40% of its common equity tier 1 capital, which is a bank’s highest-quality capital because it is fully available to cover losses.
This percentage is even higher at U.S. Bancorp: Unrealized losses represent almost 60% of this tier 1 capital. The unrealized losses represent 40% of First Republic Bank’s tier 1 capital but about 80% of the bank’s customers are uninsured.
For comparison, unrealized losses constituted between 30% and 40% of common equity tier 1 capital for Signature Bank and 120% for SVB.”
Many depositors find their thoughts filled with fear today.
Is Comerica Bank in trouble?
Seems to be the question of the hour now. Will one of the great American banks face collapse? Are we in a financial crisis? Will the Federal Deposit Insurance Corporation take over Comerica as they did Silicon Valley.
We find another American banking giant in hot water for purchasing too much debt at the height of the recent bond bubble.
Additionally proper hedging did not become enacted. Any reasonable Chief Risk Officer would hedge that debt with proper risk management. Similar to Silicon Valley Bank. See our piece: What caused the run on Silicon Valley Bank?
Lately all we can read about these days are banks failing everywhere! Now some worry Will Bank of America Collapse? And many others worry whether or not there is a Hawaii Bank Run? And of course, many others worry about the more local establishments. Will First Republic Bank Fail ?
Firstly, let’s take a look at the largest banks in the United States. To Get a sense of the overall health of the industry!
Below we have a chart showing unrealized depreciation on Hold to Maturity Securities (HTM) for top 100 banks versus equity.
These unrealized losses are NOT reflected in profits or a deduct to equity via Other Comprehensive Income (OCI) – only in the footnotes! Moreover, we don’t find these losses reflected in stress tests or measures of capital adequacy.
Furthermore a 25 bp (1/4 of 1 percent) increase in rates for a 10-year security causes approximately 2 points in losses (100 par to 98 to reflect yield discount).
Back when things were going great, Comerica Chairman and CEO Curt Farmer said on a call with analysts:
“We’re in a lot of high-growth markets that we do believe should perform better than the U.S. as a whole as we come out of the COVID situation and hit the second half of the year.”
Hopefully, this means the bank stuck to bread and butter lending. Not sticking half their assets in a pile of long term loans such as Silicon Valley chose.
However, just a few days ago some bad news dropped for Comerica:
“Moody’s Investors Service (“Moody’s”) has today placed all long-term ratings and assessments of Comerica Incorporated (Comerica) and Comerica Bank on review for downgrade.” Research: Rating Action: Moody’s places Comerica Incorporated’s ratings on review for downgrade – Moody’s (moodys.com)
Recently the bank saw deposits drop by over 15 percent! Which is liquidity Comerica badly needs.
What is MOST CONCERNING regards loan losses on the books!
Comerica reported an unrealized loss on securities of around $3 billion on these assets. Moreover, a very substantial amount!! Given a $5.2 billion equity base and the nominal value of these assets.
Comerica Bank is a financial institution based in Dallas, Texas, that provides a range of banking and financial services to individuals, businesses, and communities in the United States. Additionally, the bank has a long history dating back to the 19th century. And it has grown through a series of mergers and acquisitions over the years.
The bank was originally founded in Detroit, Michigan, in 1849 as the Detroit Savings Fund Institute. The bank changed its name several times over the years, eventually becoming known as Comerica Bank in 1982. The name “Comerica” is a combination of the words “commerce” and “America,” reflecting the bank’s focus on providing financial services to businesses and individuals across the United States.
Comerica Bank grew through a series of acquisitions and mergers over the years.
In the 1980s and 1990s, the bank expanded its geographic footprint by acquiring several banks in other parts of the country, including Texas Commerce Bank and Grand Bancorp. These acquisitions helped the bank become one of the largest financial institutions in the United States.
Today, Comerica Bank has over 400 branches and over 500 ATMs in Texas, Michigan, California, Arizona, and Florida. The bank offers a range of financial services, including personal and business banking, wealth management, and investment services.
In addition to its core banking operations, Comerica Bank became known for its community involvement and philanthropy. The bank has a long history of supporting local charities and organizations, particularly in the areas of education, health, and economic development.
In conclusion, Comerica Bank has a long history dating back to the 19th century and has grown through a series of mergers and acquisitions to become one of the largest financial institutions in the United States, offering a range of banking and financial services to individuals, businesses, and communities.
Is Comerica Bank In Trouble?
