Regional bank Comerica Inc. (CMA) said on Wednesday that it has repaid the entire $2.25 billion of bailout money it received from the government for its participation in the Troubled Asset Relief Program (TARP) at the height of the credit crisis.
In addition to the principal amount of TARP money, Comerica paid a total of $150.9 million in dividends on the preferred stock it issued to the Treasury in Nov 2008.
The repayment of TARP money followed Comerica’s completion of an $880 million common stock offering earlier this month. Comerica funded the repayment with a combination of cash from its corporate fund and sale of common stock. We think the immediate outflow of about $1.37 billion from Comerica’s corporate fund to repay TARP will significantly stretch its liquidity in the near term.
However, according to the company, the TARP repayment will directly eliminate a negative impact of $134 million related to the preferred stock dividend on its annual earnings.
The move will free the regional bank from government involvement in its affairs and pay restrictions, even though the Treasury will still hold Comerica’s warrants.
Earlier this week, Hartford Financial Services Group Inc. (HIG) said that it will raise $3.05 billion from new securities to repay the entire $3.4 billion of TARP money it received from the government. Hartford has already sold $1.45 billion of common stock in the form of about 52.25 million shares at $27.75 each.
On a separate note, Discover Financial Services (DFS) said on the same day that it has got regulatory approval to repay $1.2 billion of TARP money it received from the government.
Although Comerica’s loan growth has clearly moderated over the past year, most lines have held in relatively nicely. Also, cost containment remains a pursuit for Comerica, with management guiding to a low-single digit decrease in non-interest expenses in 2010.
We think the cost reduction story has lost its punch, with growth now coming from branch expansion, technology and product development, all of which involves increased expenses.
Moreover, while Comerica is trying to diversify its geographical footprint, it still derives almost half of its total revenues from the Midwest, especially Michigan, where the economic environment has continued to be difficult for the past few years.
Although most of the negatives are already factored into the current price, upside potential may prove to be relatively limited against the current backdrop in the economy in the near term.
Most of the major institutions in the financial market like JPMorgan Chase and Co. (JPM), Bank of America Corp. (BAC), Wells Fargo & Co. (WFC) and Goldman Sachs Group Inc. (GS) have repaid the TARP loan. Also, the Treasury has started auctioning stock warrants it had acquired from the banks that received a significant portion of taxpayers’ money and have fully repaid the same.
We think that the repayment of government money and auction of warrants can be viewed as a sign of recovery of the institutions as well as the economy. According to the Treasury, losses on TARP investments are likely to be significantly trimmed with the improvement in the overall financial condition.

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