July 26, 2012 / 3:36 PM / 5 years ago

TEXT-Fitch affirms Comerica's IDRs at 'A/F1'

July 26 - Fitch Ratings has affirmed the Issuer Default Ratings (IDRs) of
Comerica, Inc. (CMA) and its subsidiary Comerica Bank at 'A/F1'. A
complete list of ratings is provided at the end of this release.

The Rating Outlook has been revised to Negative from Stable. Fitch believes
CMA's financial performance may continue to lag peers given the prolonged low
rate environment and weak economy. Although CMA's earnings performance improved
year-over-year, profitability measures continue to fall on the lower end when
compared to 'A' rated financial institution and large regional peers. CMA's
PPNR/Avg assets for 1Q'12 was 1.34% versus an average of 1.62% for similarly
rated peers (excluding Citigroup & Bank of America) and an average of 2.00% for
large regional peers. Other financial measures such as NIM and ROA also fall
below peer averages.

Historically, CMA's asset sensitive balance sheet is typically impacted by
changing rates given the sizeable mix of Commercial & Industrial (C&I) loans.
However, in Fitch's view, CMA's financial measures will lag peers for a
longer-time horizon than initially expected given the challenging operating
environment. Over the past few years, earnings have largely benefited from
improved credit performance, which has led to reserve release. As credit
measures return to normalized levels, Fitch believes credit cost improvements
will likely be nominal. Fitch also notes that CMA's earnings measures include
the positive impact from accretable yield related to the Sterling acquisition.
This benefit is also expected to decline as these loans continue to mature. The
overall loan yield has been negatively impacted by the decrease in
higher-yielding Commercial Real Estate (CRE) loan balances offset by new loan
originations at lower pricing. Fitch believes that competition for C&I loans is
intense throughout the industry, which may also be pressuring current yields.
Positively, CMA has a long history of C&I lending and it is expected it will
continue to maintain its pricing and underwriting discipline.

The rating affirmation primarily reflects CMA's above-peer tangible capital
base, improved fundamentals such as asset quality performance and funding
profile. Capitalization levels are considered a rating strength. Fitch believes
CMA's high level of tangible capital is prudent given the relatively higher risk
earning-asset base. The company has always had a large concentration of C&I
loans, which is roughly 56% of total loans. It is the highest by a wide margin
when compared to large regional peers, which on average C&I accounted for 23% of
total loans.

The rating affirmation also incorporates CMA's current capital deployment
strategies. However, Fitch believes CMA's approach will be cautious given
economic uncertainties. Further, the company's capital targets have historically
included above-average capital ratios, which management has indicated will
continue. At 1Q'12, TCE ratio was 10.21% and Fitch Core Capital totaled 9.76%,
which is among the highest for large U.S. banks.

Despite a relatively high payout ratio (including buyback activity and common
dividends) of roughly 80% for 2Q12, CMA reported a strong TCE and Tier 1 Common
ratio of 10.27% and 10.32% at June 30, 2012, respectively. CMA estimates that
under Basel III, Tier 1 Common ratio would be in the range of 9.30% - 9.40%,
roughly a 90-100bps negative impact. Of note, CMA's capital base is comprised of
100% common equity, which positions the company well to comply with Basel III

Fitch considers the loan mix to be higher-risk given the sizeable commercially
oriented loans, which are typically more susceptible to economic downturns.
During the recent credit downturn, the company's core earnings remained stable
and helped absorb higher credit costs as pre-provision net revenue (PPNR) to net
charge-offs (NCOs) averaged 3x over the last six quarters. Similar to others in
the industry, CMA has faced credit quality challenges, but performance has been
relatively good to date, reflecting the predominately commercial composition of
the loan book. Credit trends may be reaching normalized levels as NCOs totaled
0.47% and NPAs totaled 1.85% for 2Q'12. Fitch recognizes that during this credit
cycle, corporate performance (excluding those with ties to real estate related
investments), in general, has fared much better compared to past credit cycles.
Further, Fitch views CMA strong capital base as providing additional support for
unforeseen future losses.

CMA's funding profile is solid as non-interest bearing deposits accounted for
43% of total deposits, which is an improvement from 39% same period a year ago.
Further, the company's franchise is considered strong given its good market
share of #2 in Michigan with about 12% of total deposits. Positively, CMA has
also improved its leverage position by reducing its debt and wholesale
borrowings from historically higher levels.

Rating Sensitivities:
Ratings will likely be downgraded by one notch should earnings continue to lag
both regional and similarly rated peers.

Although not anticipated, ratings could also be negatively affected if CMA were
to reduce capital below peer averages while maintaining similar loan mix within
a relatively short-time frame. Further, a payout ratio (including repurchase
activity) exceeding 100% would also put pressure on current ratings.

Fitch would review the Negative Outlook should CMA's financial measures improve
to peer averages on a sustainable basis.

Headquartered in Dallas, TX, CMA is one of the top 20 largest banking companies
in the U.S with $62.7 billion at June 30, 2012. CMA's primary operations are in
MI, CA, TX, FL and AZ, with select businesses operating in several other states
as well as in Canada and Mexico. CMA's three business segments include: The
Business bank, The Retail bank and Wealth Management.

Fitch has affirmed the following ratings with a Negative Outlook:

Comerica Incorporated
--Long-term IDR at 'A';
--Short-term IDR at 'F1';
--Senior debt at 'A';
--Subordinated debt at 'A-';
--Short-term debt at 'F1';
--Viability at 'a';
--Support at '5';
--Support floor at 'NF'.

Comerica Bank
--Long-term IDR at 'A';
--Short-term IDR at 'F1';
--Subordinated debt at 'A-';
--Long-term Deposits at 'A+';
--Short-term Deposits at 'F1';
--Viability at 'a';
--Support at '5';
--Support floor at 'NF'.

Fitch has withdrawn the following ratings:

Sterling Bank (Texas)
--Long-term Deposits 'A+';
--Short-term Deposits 'F1'.

Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Aug. 16, 2011);
--'Bank Holding Companies' (Aug. 16, 2011).

Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
Bank Holding Companies

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