Fifth Third Bancorp agreed to buy Comerica Inc. for about $10.9 billion in stock, the largest U.S. bank deal this year and a sign that the logjam blocking big mergers in the industry may have broken under the Trump administration’s deregulation efforts.
The deal will create the ninth-largest bank in the country, with about $288 billion in assets, the two companies said in a statement Monday. The per-share transaction value represents a 17% premium to Comerica’s closing share price Friday.
Regional lenders across the U.S. are looking to take advantage of the new environment under President Donald Trump, who’s ushered in an era of financial deregulation that’s led many investment bankers to predict his administration will go easier on merger approvals.
Smaller U.S. banks are pursuing scale to cope with the heavy costs of technology upgrades and regulatory compliance.
Fifth Third, based in Cincinnati, has long been known for its reach across the Midwest, but it’s spent years trying to expand in the Southeast, where the deal with Dallas-based Comerica could help.
Explosive growth in the region’s major metropolitan areas — including Atlanta, Nashville, Houston, Dallas and Charlotte, North Carolina — has expanded the Southeast’s population at an annual compound rate of roughly 1% since 2010, easily the fastest growth of any region in the country.
The deal was attractive for Fifth Third because of Comerica’s focus on commercial banking for middle-market companies, with the buyer seeking more businesses in the category to make it a larger contributor of revenue, Fifth Third Chief Executive Officer Tim Spence said in an interview.
Comerica, meanwhile, didn’t have a large retail deposit base, which adds flexibility to funding sources at a time when interest-rate moves are becoming more volatile, he said.
Post-Deal Plans
After the deal is completed, Fifth Third’s total assets will exceed $250 billion, crossing a critical asset threshold that comes with stricter capital, liquidity and compliance requirements.
It will not cause disruptions in its financial results, though, because the bank has been preparing for the new protocols for a few years since it bid to buy the failed First Republic Bank out of government receivership, Spence said in an interview on Bloomberg Television.
“We’re going to be able to leverage Fifth Third’s retail discipline and proven de novo strategy to build out a leading position in the Texas market, where Comerica has a foothold, and be able to leverage Comerica’s incredible expertise and credit culture in the middle-market across the broader Fifth Third platform,” Spence said.
Comerica has been under pressure from an activist investor group to sell to a large bank. In July, HoldCo Asset Management LP publicly pushed the management for a sale, citing underperformance of the lender’s shares. They’ve gained just 20% over the past 25 years through Friday as the KBW Bank Index climbed 67%. The company has been cutting expenses to improve earnings.
Shares of Fifth Third fell 2% at 10:11 a.m. in New York, while Comerica rose 13%.
Comerica was hit a bit harder during the regional-bank crisis, to a large extent because of its concentration on big-ticket commercial deposits that made it more at risk of deposit flight, CEO Curt Farmer said on an conference call with analysts discussing the transaction. It had to pull back from lending to tackle the funding pressure and exited at least one business line, he said.
“The lack of a retail, more granular deposit base made our deposits a bit more flighty, a little easier to move large, chunky commercial deposits, and it took us a bit to recover from that,” Farmer said on the call.
Comerica began conversations well over a year ago with the board to search for options, including both mergers and acquisitions and organic growth, Farmer said. The bank looked for companies to buy but failed to find targets that were particularly attractive, putting it on a path to being sold instead, he said.
The conversations began before summer and became more serious entering the third quarter, with Fifth Third emerging as the top candidate, Farmer said.
“For us, it was really about the timing being right. It is an environment where I think scale makes a difference,” Farmer said, citing increased costs to run a bank.
Among this year’s other large deals, PNC Financial Services Group Inc. announced it would take over FirstBank Holding Co. for about $4.1 billion, giving it $26.8 billion in assets and branches in Colorado and Arizona. Pinnacle Financial Partners Inc. agreed to combine with Synovus Financial Corp. in an all-stock transaction valued at $8.6 billion.
Comerica’s stockholders will receive 1.8663 Fifth Third shares for each Comerica share they hold, or about $82.88 per share based on the Oct. 3 closing price. When the deal is completed, Fifth Third shareholders will own roughly 73% of the combined company.
Goldman Sachs Group Inc. was financial adviser to Fifth Third and Sullivan & Cromwell was legal adviser. JPMorgan Chase & Co. advised Comerica and Wachtell, Lipton, Rosen & Katz was legal adviser. Keefe, Bruyette & Woods also served as financial adviser to Comerica.
(Adobe Stock)
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