Yesterday, Comerica Inc.’s (CMA) A-/A-2 ratings have been affirmed by Standard & Poor’s Ratings Services (S&P) and the outlook revised to “stable” from “negative”. This outlook revision comes as the rating agency expects Comerica to report increase profitability in the next several quarters as a result of an improvement in credit trends. 

The rating agency reviewed Comerica’s financial performances, capital levels and liquidity position before revising the outlook. Additionally, the company’s first quarter results were fairly above the expectations of the rating agency. The results were also favorable when compared to its peers. 

Comerica was significantly impacted during the financial crisis and had to resort to the U.S. Treasury’s Troubled Asset Relief Program (TARP). However, the company managed to fully repay the $2.25 billion of bailout money in March this year. The repayment of the TARP money followed Comerica’s completion of an $880 million common stock offering earlier in March 2010. This has freed the regional bank from government involvement in its affairs and pay restrictions.
 
Last month, Comerica reported its first quarter results. The company reported a net loss of $71 million or 46 cents per share attributable to common shareholders. Adjusted loss was 57 cents per share. 

Though results in the reported quarter were significantly impacted by the payment of dividends on the preferred stock issued to the U.S. Treasury, credit metrics improved during the quarter, with significant declines in net charge-offs and provision for loan losses. The company also reported an increase in interest margin in the quarter. 

Excluding preferred dividends, the company reported a profit of $52 million, versus a net loss of $29 million in the prior quarter. 

Comerica’s strategic expansion and its focus on cost containment augur well. Additionally, the repayment of bailout money is encouraging. However, its significant exposure to the riskier areas, commercial real estate markets, lack of loan growth and fee income are still on the downside. As such, we have a Neutral recommendation on its shares.
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