
Mike Mayo, Who Hounded Citigroup's Board, Sets His Sights on Comerica
Mike Mayo, the analyst who's been railing against Wall Street boards for at least two decades, has turned his sights to a new target in the heartland -- a Dallas-based lender that's saddled with loans to the beleaguered oil industry.
The bank is Comerica (CMA) - Get Report, and Mayo is so irate about its performance that he's planning to travel to Dallas from New York to attend the annual shareholder meeting on April 26. Mayo, who works for brokerage firm CLSA, wants to take advantage of what he describes as a "once-in-a-year chance to ask questions to Comerica's board of directors."
Among his complaints, laid out in a report today: Comerica is the only U.S. bank among the biggest 20 that hasn't added a new director this decade. The chief executive officer, Ralph Babb, appears to be hanging his hopes for earnings growth on higher interest rates, without taking action now to cut costs. And a rapid escalation in oil and gas loans prior to the plunge in crude prices over the past two years signals there was a breakdown in risk management.
Comerica's board should consider big cost cuts, divesting assets, management changes or a sale of the company, Mayo said in an interview. While he doesn't personally own the stock, he says he'll attend the shareholder meeting as a proxy, speaking on behalf of other investors.
"We've talked to most of the largest shareholders who agree with our view that the company's returns are unacceptable," he said. "The strategy is too much one of, 'Go to work, shine your shoes and wait for interest rates to increase.' It's a matter of taking greater ownership of the issues beyond merely waiting for conditions to improve."
Comerica spokesman Wayne Mielke declined to comment, citing a self-imposed quiet period prior to the bank's release of first-quarter results, scheduled for April 19.
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, Bank of America, JPMorgan Chase and Goldman Sachs over such issues as risk management, accounting, excessive executive pay and a lack of accountability. He says Comerica investors he's spoken with haven't been as dismayed with a bank's performance since Citigroup (C) - Get Report and Bank of America (BAC) - Get Report turned to the U.S. government for bailouts during the financial crisis.
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Mayo's criticism of Citigroup's board before and during the crisis preceded the departures of Chairman and CEO Chuck Prince as well as longtime directors Robert Rubin, the former U.S. Treasury secretary; Alain Belda, an ex-CEO of Alcoa; and Michael Armstrong, a former AT&T CEO.
At Comerica, one of Mayo's targets is director Alfred Piergallini, the former chairman of a Wisconsin cheesemaker who previously was CEO of Gerber Products, the baby-food company. He's been on the board for about 25 years, a period in which the company has underperformed, according to Mayo.
"What does he bring to the board and how much longer is he likely to remain?" Mayo wrote in the report.
The campaign comes amid criticism of Comerica's exposure to the oil and gas industry from Goldman Sachs analyst Richard Ramsden. In a March 30 report, Ramsden wrote that higher loss reserves on energy loans could shave 32% off of the bank's 2016 earnings per share, the highest among 12 banks in the analysis.
Mayo says he's so convinced that his campaign will lead to a shakeup at Comerica -- or a sale of the entire company -- that he upgraded the stock on March 14 to outperform from sell, reasoning that the shares will rally on the heels of change. The stock is up 1% over the past month, even as the average for regional bank stocks fell by 1.5%, according to Morningstar.
"Comerica's performance has been lousy, and it remains lousy, and it likely it will remain lousy for a long time," Mayo said. "This year's annual meeting could lay the foundation for constructive change."









