Fitch Affirms Comerica's L-T IDR at 'A' Following Large Regional Bank Review; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed Comerica Incorporated's (CMA) ratings at 'A/F1'. The Rating Outlook remains Stable. The affirmation reflects its prudent capital management, conservative risk appetite, and consistency in financial performance.

The rating action follows a periodic review of the large regional banking group, which includes BB&T Corporation (BBT), Capital One Financial Corporation (COF), Comerica Incorporated (CMA), Fifth Third Bancorp (FITB), Huntington Bancshares Inc. (HBAN), Keycorp (KEY), M&T Bank Corporation (MTB), MUFG Americas Holdings Corporation (MUFG), PNC Financial Services Group, Inc. (PNC), Regions Financial Corporation (RF), SunTrust Banks Inc. (STI), US Bancorp (USB), Wells Fargo & Company (WFC), and Zions Bancorporation (ZION).

Company-specific rating rationales for the other banks are published separately, and for further discussion of the large regional bank sector in general, refer to the special report titled 'Large Regional Bank Periodic Review,' to be published shortly.

KEY RATING DRIVERS - IDRS, VRs AND SENIOR DEBT

Fitch has affirmed current ratings and the Outlook remains Stable supported by the company's above-peer tangible capital base, solid asset quality performance and consistent performance. Capitalization levels are considered a rating strength as well as consistent credit performance through various economic cycles. Further, Fitch considers CMA's capital management to be conservative given that the company has historically managed with higher capital levels than peers. CMA's 10yr average TCE/TA ratio is 8.99% versus the peer group average of 6.84%.

Similar to 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. Fitch notes the credit downturn was tied more to real-estate assets. Nonetheless, the company's large C&I book, which are typically more susceptible to economic downturns, has performed very well despite exposure to Michigan's local economy and the auto industry. C&I loans are roughly 57% of total loans. It is the highest share by a wide margin relative to large regional peers, among which, on average, C&I accounted for 28% of total loans.

Incorporated in Fitch's ratings is the view that CMA will continue to operate with a higher level of capital versus its peers. As of June 30, 2014, CMA's capital position is one of the highest of the peer group. Fitch believes CMA's capital level is prudent given the relatively higher risk earning-asset base. Fitch notes that prior to the credit downturn and historically, CMA tangible common equity measures have much higher than other regional banks. CMA's 10-year average TCE/TA ratio is 8.99% versus the peer group average of 6.84%.

CMA's earnings continue to lag regional peers given the prolonged low rate environment and slow recovery in the economy. Although CMA's earnings performance is consistent and reflects a slight improved year-over-year, its earnings profile remains in the lower end compared to most peers.

In Fitch's opinion, given the prolonged rate environment, CMA's future results will likely remain in-line with current performance reflecting CMA's asset sensitive balance sheet. Offsetting, when rates do rise, CMA earnings should benefit more than other peers boosting its current ROA and NIM.

RATING SENSITIVITIES - IDRS, VRs AND SENIOR DEBT

CMA's ratings are at the high-end of its rating potential given that financial performance is marginally in-line with similarly rated financial institutions.

Although not anticipated, the ratings could 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. Additionally, a change to a more aggressive business strategy would also be viewed negatively.

KEY RATING DRIVERS - HOLDING COMPANY

CMA's IDR and VR are equalized with those of its operating companies and banks, reflecting its role as the bank holding company, which is mandated in the U.S. to act as a source of strength for its bank subsidiaries. The ratings are also equalized reflecting the very close correlation between holding company and subsidiary default probabilities.

RATING SENSITIVITIES - HOLDING COMPANY

Should CMA's holding company begin to exhibit signs of weakness, demonstrate trouble accessing the capital markets, or have inadequate cash flow coverage to meet near-term obligations, there is the potential that Fitch could notch the holding company IDR and VR from the ratings of the operating companies. This is viewed as unlikely though for CMA given the strength of the holding company liquidity profile.

Fitch is now considering introducing a rating differential between the holding company and bank in the U.S. due to structural changes in the sector and the evolving regulatory landscape, as described in the special report 'U.S. Bank HoldCos & OpCos: Evolving Risk Profiles', dated March 27, 2014. Given Fitch's views that CMA may not receive a long-term debt requirement, its ratings may not be impacted as a result of Fitch's evolving review regarding notching.

KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR

CMA has a Support Rating of '5' and Support Rating Floor of 'NF'. In Fitch's view, CMA is not systemically important and therefore, the probability of support is unlikely. IDRs and VRs do not incorporate any support.

RATING SENSITVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR

CMA's Support Rating and Support Rating Floor are sensitive to Fitch's assumption around capacity to procure extraordinary support in case of need.

KEY RATING DRIVERS - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

Subordinated debt and other hybrid capital issued by CMA and by various issuing vehicles are all notched down from CMA or its bank subsidiaries' VRs in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss severity risk profiles.

RATING SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

The ratings of subordinated debt and other hybrid capital issued by CMA and its subsidiaries are primarily sensitive to any change in CMA' VR.

KEY RATING DRIVERS - SUBSIDIARY AND AFFILIATED COMPANY

The IDRs and VRs of CMA's bank subsidiaries benefit from the cross-guarantee mechanism in the U.S. under FIRREA, and therefore the IDRs and VRs of Comerica Bank are equalized the holding company.

RATING SENSITIVITIES - SUBSIDIARY AND AFFILIATED COMPANY

As the IDRs and VRs of the subsidiaries are equalized with those of CMA to reflect support from their ultimate parent, they are sensitive to changes in the parent's propensity to provide support, which Fitch currently does not expect, or from changes in CMA's IDRs.

To the extent that CMA's subsidiary is not considered to be a core business, Fitch could also notch the subsidiary's rating from CMA's IDR.

KEY RATING DRIVERS - LONG- AND SHORT-TERM DEPOSIT RATINGS

CMA's uninsured deposit ratings are rated one notch higher than the company's IDR and senior unsecured debt because U.S. uninsured deposits benefit from depositor preference. U.S. depositor preference gives deposit liabilities superior recovery prospects in the event of default.

KEY RATING SENSITIVITIES - LONG- AND SHORT-TERM DEPOSIT RATINGS

The ratings of long- and short-term deposits issued by CMA and its subsidiaries are primarily sensitive to any change in CMA's long- and short-term IDRs.

Fitch has affirmed the following ratings:

Comerica Incorporated

--Long-term IDR at 'A'; Outlook Stable;

--Senior debt at 'A';

--Subordinated debt at 'A-';

--Viability at 'a';

--Short-term IDR at 'F1';

--Short-term debt at 'F1';

--Support at '5';

--Support floor at 'NF'.

Comerica Bank

--Long-term IDR at 'A'; Outlook Stable;

--Subordinated debt at 'A-';

--Long-term Deposits at 'A+';

--Viability at 'a';

--Short-term IDR at 'F1';

--Short-term Deposits at 'F1';

--Support at '5';

--Support floor at 'NF'.

Additional information is available on www.fitchratings.com.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Jan. 31, 2014);

--'Rating FI Subsidiaries and Holding Companies' (Aug. 10, 2012);

--'Assessing and Rating Bank Subordinated and Hybrid Securities Criteria' (Jan. 31, 2014);

--'U.S. Bank HoldCos & OpCos: Evolving Risk Profiles' (March 27, 2014);

--'U.S. Banking Quarterly Comment: 2Q14' (July 23, 2014);

--'Index Trend Analysis - 2Q14 (Fitch Fundamentals Index Falls to Neutral)' (July 15, 2014);

--'Risk Radar Global 1Q14' (April 1, 2014).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397

Rating FI Subsidiaries and Holding Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209

Assessing and Rating Bank Subordinated and Hybrid Securities Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732137

U.S. Bank HoldCos & OpCos: Evolving Risk Profiles

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=742096

U.S. Banking Quarterly Comment: 2Q14 (Environment Constraining Earnings)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=753107

Index Trend Analysis ¬タモ 2Q14 (Fitch Fundamentals Index Falls To Neutral)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=752428

Risk Radar Global 1Q14

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=742560

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=891939

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Contacts

Fitch Ratings
Media Relations
Brian Bertsch, New York
Tel: +1 212-908-0549
Email: brian.bertsch@fitchratings.com
or
Primary Analyst
Doriana Gamboa
Director
+1-212-908-0865
or
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Julie Solar
Senior Director
+1-312-368-5472
or
Committee Chairperson
Joo-Yung Lee
Managing Director
+1-212-908-0560

Contacts

Fitch Ratings
Media Relations
Brian Bertsch, New York
Tel: +1 212-908-0549
Email: brian.bertsch@fitchratings.com
or
Primary Analyst
Doriana Gamboa
Director
+1-212-908-0865
or
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Julie Solar
Senior Director
+1-312-368-5472
or
Committee Chairperson
Joo-Yung Lee
Managing Director
+1-212-908-0560