Mayo Says Comerica Dissed Him on Biggest Conference Call of The Year
Mike Mayo, the Wall Street analyst who's criticized Texas lender Comerica (CMA) - Get Report for lagging profitability and subpar management, can't seem to get his questions answered -- or even asked.
Comerica, which held a one-hour-and-five-minute conference call Tuesday to discuss the results of a major three-month-long business review, cut off the question-and-answer session with Mayo, of the brokerage firm CLSA, still waiting for his turn. Some 11 analysts from firms like JPMorgan Chase, Morgan Stanley, Jefferies and Friedman Billings Ramsey were granted the chance to speak.
While Darlene Persons, Comerica's head of investor relations, said on the conference call that time had run out, Mayo suspects it was a conscious snub.
"That's my reaction," Mayo said in a phone interview afterward. "I believe they intentionally moved me back."
It's a longstanding practice for corporate investor-relations executives to manage the queue of questioners, so Mayo's claim isn't entirely outlandish. In 2003, the U.S. Securities and Exchange Commission started an initiative to prevent companies from retaliating against analysts who issued negative reports. Shutting analysts out of conference calls was cited as one of the key strategies. The idea is that free markets deserve a free-spirited exchange.
A Comerica spokesman declined to comment. To be fair, it should be pointed out that at the end of the conference call, Persons, the investor-relations executive, encouraged "those of you that still have questions" to reach out to her.
The bank has been under fire from Mayo and some of its largest shareholders for failing to achieve a return-on-equity -- a key gauge of profitability -- of at least 10%. The Dallas-based lender, which also has operations in Michigan and California, has been among the hardest hit by souring loans in the beleaguered energy industry and the U.S. Federal Reserve's prolonged period of low interest rates.
Tuesday's conference call with Comerica executives was highly anticipated by Wall Street because of the strategic review.
The lender disclosed plans to slash 9% of its workforce, which numbered 8,792 at the end of June. The moves will reduce expenses at a rate of $160 million a year by the end of 2018, according to a statement. The bank also reported that second-quarter profit slid 23% from a year earlier, amid higher reserves for loan defaults.
Ironically, Mayo's vocal criticism of the company may have helped drive an increase in its stock price. Prior to Tuesday's announcement, the shares had gained 4.5% this year, compared with a 10% decline for bank stocks on average, at least partly on optimism that shareholder pressure would push the company to cut costs, overhaul management or put itself up for sale. Following the announcement, the shares climbed another 1.6%.
In March, Mayo raised his rating on Comerica shares to "buy," predicting that drastic changes would take place to improve earnings or push the bank toward a sale -- giving shareholders a quick exit for a tidy profit.
The next month, Comerica CEO Ralph Babb, who has run the company for 14 years, disclosed that he had hired Boston Consulting Group to conduct a full-blown business review where all options would be discussed, including a sale.
Several of Comerica's largest stockholders, including Fiduciary Management and Invesco, were so disenchanted with Comerica's flagging profitability that they traveled to an annual meeting in Dallas to voice their concerns. Mayo was the only brokerage-firm analyst who made the trip, saying it was the only opportunity of the year to put questions directly to board members.
Comerica's strategic review doesn't call for a sale of the bank, though Babb said on the conference call that it would still be considered, if deemed positive for shareholders in the long term.
"I've had this question a lot," Babb said in a brief telephone phone interview with TheStreet. "We'll look at all alternatives that come up, and look at it from the view of the shareholders' long-term interests."
In the meantime, Babb said he's focusing on how to cut costs while still preserving the company's culture and its relationships with customers.
"These changes are not taken lightly, and we are deeply committed to helping our employees through this transition and will do so with the utmost dignity and respect," Babb said in the interview.
Evercore analyst John Pancari wrote in a report that the cost cuts are "likely enough to appease" restless shareholders. (He got to ask a question on the conference call -- about how the bank could "drive an incremental upside opportunity.")
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Mayo says he still thinks a sale could be a good option, and he says some large shareholders told him after the announcement that they agreed.
"People remain frustrated," Mayo said on Tuesday. "The stock's up today, but there's still frustration. Some of the unsolicited comments I've gotten were, 'Why don't they just do the right thing? Sell or change over management.'"
Mayo said he would have asked on the conference call why the bank waited so long to take the steps that were announced on Tuesday. Also: Why should shareholders give current management until the end of 2018 to execute a business plan, when the bank has consistently underperformed for several years?
Whatever the case, Mayo was so irate following the conference call that he contacted the operator to ask why he was excluded. She told him that while Comerica could have easily extended the call, the decision to end it was the company's own. There were six other callers still waiting in the queue, she told him.
It's a situation Mayo has found himself in before.
While many analysts try to maintain a cordial relationship with management teams in order to preserve their access to insiders, Mayo has long been a vocal critic of Citigroup (C) - Get Report, Bank of America (BAC) - Get Report, JPMorgan (JPM) - Get Reportand Goldman Sachs (GS) - Get Report over such issues as risk management, accounting, excessive executive pay and a lack of accountability.
He even wrote a book in 2012, "Exile on Wall Street," about his frustrations in dealing with bank executives.
During the aftermath of the financial crisis, he complained that he couldn't get meetings with management of Citigroup, which he had criticized for nearly a decade for poor corporate governance and aggressive accounting.
Last year, he complained that Goldman Sachs executives blew him off by promising on a conference call to get back to him with the answer to his question, and then never calling back.
"There have been times in my career where this has been the case," Mayo said. "It's just bad corporate governance."