Comerica Nears Sterling Merger - Analyst Blog

Comerica Inc. (CMA) continues to be on track to close its pending acquisition of Sterling Bancshares Inc. (SBIB). The buyout has been approved by the Board of Governors of the Federal Reserve System. The deal also got the nod from the Texas Department of Banking.

Comerica now expects to close the deal on July 28, 2011. This is, however, subject to terms and conditions in the merger agreement and completion of the expiration of the obligatory 15-day Department of Justice waiting period related to the Federal Reserve Board's approval order.

Sterling Bancshares is a Houston-based bank holding company with total assets of $5.0 billion as of March 31, 2011. It operates banking centers in Houston, San Antonio, Dallas and Fort Worth, Texas. The agreement to acquire Sterling was announced by Comerica in January 2011.

Upon completion of the merger, Sterling's shareholders will be allotted 0.2365 of Comerica common stock for each share of Sterling common stock. Further, fractional shares will be paid in cash. Earlier in May 2011, Sterling Bancshares also announced that its common shareholders have voted to approve the merger agreement.

Impact on Comerica

On a pro forma basis, Comerica will continue to have a solid capital position, including a Tier 1 capital ratio of about 10.0%. The transaction is expected to be at break-even to Comerica's earnings in the first full fiscal year, excluding merger and integration costs of approximately $80.0 million after tax, and be accretive thereafter. Estimated synergies include expense savings of $56.0 million to be fully realized on a run-rate basis by year-end 2012.

Comerica grows from having 95 banking centers in Texas to 152 banking centers in the state including 65 in Houston, 63 in Dallas/Fort Worth, 13 in San Antonio and 11 in Austin. Additionally, the acquisition adds about $3.0 billion in loans and $4.0 billion in deposits.

Our Take

Comerica's strategic expansion efforts and focus on cost containment augur well. The acquisition of Sterling Bancshares Inc. would augment its growth in Texas. It can leverage Sterling's solid network in that region and benefit from its strong deposit base. Capital deployment efforts also inspire investors' confidence in the stock.

Yet, its significant exposure to riskier areas, such as commercial real estate markets, lack of meaningful loan growth and regulatory headwinds are the downsides.

Comerica currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold' rating. Considering the fundamentals, we are maintaining a long-term “Neutral” recommendation on the stock.