Comerica: Financial Winner

NEW YORK ( TheStreet) -- Comerica ( CMA) was the winner among the largest U.S. banks on Monday, with shares rising 2% to close at $29.79.

The broad indexes ended mixed, as investors continued to worry over the "Fiscal Cliff" negotiations at home, while eurozone leaders continued to negotiate over an additional 44 billion euro in bailout money for Greece.

The KBW Bank Index ( I:BKX) was down slightly, to close at 48.96.

The Securities and Exchange Commission announced that Mary Schapiro, the agency's Chairman, would step down on Dec. 14. President Obama praised Schapiro for her record of accomplishment, saying "When Mary agreed to serve nearly four years ago, she was fully aware of the difficulties facing the SEC and our economy as a whole. But she accepted the challenge, and today, the SEC is stronger and our financial system is safer and better able to serve the American people - thanks in large part to Mary's hard work."

The president designated current SEC member Elisse Walter to be the next SEC Chairman. When asked if Walter's management style would differ from Schapiro's, Frank A. Mayer, III -- a partner in the Financial Services Practice Group of Pepper Hamilton LLP, in the firm's Philadelphia office -- said that "Elise Walter has been in securities regulation for a long time and I would not expect there to be any change in focus or intensity at the SEC under her watch."

Lawrence D. Kaplan -- a banking attorney who advises on regulatory issues for Paul Hastings in the firm's Washington office -- says he expected "that the President would appoint someone who is already a commissioner," which should ease Walter's confirmation in the Senate, since "she has already been confirmed by the Senate as a commissioner."

Schapiro's tenure has certainly been a busy one. The SEC said that "in each of the past two years, the agency has brought more enforcement actions than ever before, including 735 enforcement actions in fiscal year 2011 and 734 actions in FY 2012."

While even the high profile enforcement actions of the SEC during Schapiro's would be too many to list, the actions have included criminal charges against Galleon Group and its founder Raj Rajaratnam for insider trading. Rajaratnam was convicted in May 2011 of all 14 insider trading charges against him, and sentenced to 11 years in prison.

In one of the most notable actions related to the financial crisis, former Countrywide Financial CEO Angelo Mozilo agreed in October 2010 to pay $22.5 million to "settle SEC charges that he and two other former Countrywide executives misled investors as the subprime mortgage crisis emerged." Mozilo also agreed to "$45 million in disgorgement of ill-gotten gains to settle the SEC's disclosure violation and insider trading charges against him."

Kaplan said that "Schapiro has had a lot of accomplishments, primarily in implementing Dodd-Frank and overseeing the markets in one of the most challenging periods for the economy."

House of Representatives Democratic leader Nancy Pelosi said in a statement that "Chairman Mary Schapiro served the American people in exemplary fashion throughout her tenure at the Securities and Exchange Commission. Assuming her post in the aftermath of the worst financial crisis since the Great Depression, she acted swiftly and effectively to restore confidence in our financial markets, strengthen oversight of our financial system, and protect investors from the recklessness of some on Wall Street."

Bank of America ( BAC) purchased Countrywide in 2008, and that wasn't the only acquisition that brought BAC under SEC scrutiny. In February 2010, Judge Jed S. Rakoff of the Southern District of New York approved the SEC's $150 million settlement with Bank of America over charges that the bank had mislead investors leading up to its acquisition of Merrill Lynch in January 2010. Rakoff had rejected an earlier, smaller settlement.

A short-term Fiscal Cliff trade.


With his firm's Washington Research Bureau saying that there is "a 65% probability that the U.S. economy is pushed over several of the initial Fiscal Cliffs," because of all the moving parts being discussed by President Obama and leaders in Congress, Guggenheim Securities analyst Marty Mosby on Monday made a " tactical trading sell" call on Bank of America, saying that the company's shares "could trade below $8 over the next three months if it becomes apparent that the U.S. economy is about to be pushed over several of the upcoming Fiscal Cliffs."

For long-term investors, Mosby has a 12-month rating of "Buy" for Bank of America, with a "$12 price target. Bank of America's shares pulled back by a nickel to close at $9.85 Friday. The shares have now returned 78% year-to-date, following a 58% drop in 2011. The shares trade for 0.7 times their reported Sept. 30 tangible book value of $13.48, and for 10 times the consensus 2013 EPS estimate of 97 cents a share, among analysts polled by Thomson Reuters. The consensus 2014 EPS estimate is $1.27.

Looking for a high payout ratio following stress tests.


Comerica's shares have now returned 17% year-to-date, following a 38% decline during 2011.

The shares trade for 0.9 times book value, according to Thomson Reuters Financial Insight, and for 11 times the consensus 2013 EPS estimate of $2.63. The consensus 2014 EPS estimate is $2.77.

Based on a quarterly payout of 15 cents Comerica's shares have a dividend yield of 2.01%. Following the last round of Federal Reserve stress tests in March, the company was approved to repurchase up to $375 million worth of common shares, through the first quarter of 2013. Including shares repurchased as part of deferred compensation plans, Comerica bought back $215.5 million worth of shares during the first three quarters of 2012.

Bank of America Merrill Lynch analyst Erika Penala on Monday estimated that following the next round of stress tests, Comerica will be approved to raise the quarterly dividend by a penny and buy back another $321 million worth of shares, which would give the company a combined payout ratio of 101% during 2013.

While being approved to pay out more of its earnings would certainly signal regulators' comfort with the company's capital strength, Bank of America Merrill Lynch still has a "Neutral" rating on Comerica. Penala said that "while buying back stock in a tangible book value, or TBV accretive manner is a positive (TBV was $33.63 in 3Q12), a challenged return outlook (we forecast average ROTE of 7% over the next two years) is likely to temper valuations and stock performance as CMA struggles to earn its cost of equity in a low rate environment."

CMA Chart CMA data by YCharts

Interested in more on Comerica? See TheStreet Ratings' report card for this stock.

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-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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