Higher Expenses and Risky Loans to Affect Comerica (CMA)
Escalating expenses due to technological developments remain a concern for Comerica Incorporated’s CMA. Further, its exposure to risky loan portfolios might hamper financials. However, it is focusing on revenue enhancing initiatives, which are likely to drive operational efficiency. Further, the company is expected to benefit from easing margin pressure and loan growth in the near term.
The company’s volatile non-interest expenses pose a concern. Though management expects expenses to decline in 2019, continued investment in technological developments might put some pressure on it.
Furthermore, Comerica’s significant exposure to commercial loans (nearly 89% of the total loans) and to challenging economies of California and Michigan keeps us apprehensive.
However, the company’s interest income continues to benefit from relatively higher rate environment and consistently increasing loans balance. Management expects average loan growth to be 2-4% for 2019. Also, net interest income is anticipated to increase 3-4%.
In mid-2016, Comerica launched Growth in Efficiency and Revenue Initiative or “GEAR Up” initiatives in order to drive revenue growth, reduce expenses and improve efficiency by identifying and analyzing areas with room for improvement. Notably, execution of these initiatives resulted in an efficiency ratio of under 54% in 2018. Further, such efforts are anticipated to deliver annual pre-tax income of $35 million in 2019 and beyond.
Comerica continues to enhance shareholders’ value through steady capital-deployment activities. In January 2019, the board of directors hiked the quarterly dividend by 12% and approved a plan to repurchase an additional 15 million in common shares. These activities seem sustainable, given the company’s strong capital position.
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