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Internal CFO hire suggests Comerica sale unlikely in the near term


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Internal CFO hire suggests Comerica sale unlikely in the near term

Analysts and investors alike took news of a new CFO at in stride as the managementchange appears to suggest a near-term sale of the bank is unlikely.

The bank disclosedMay 3 that CFO Karen Parkhill would leave her position, and medical technology companyMedtronic announcedthe next day that Parkhill would become its CFO. With a market capitalization ofmore than $100 billion, it seems Parkhill left for an opportunity at a larger company,dampening the possibility of a negative reaction from activist investors alreadyagitating for change.

"It wasn't as if Karen got pushed out. It wasn't as if shejust quit," said Peter Winter, an analyst for Sterne Agee CRT. "It wasclear she got an incredible opportunity. … From an activist standpoint, I don'tthink that there is going to be any reaction."

Comerica's stock closed at $42.28 on May 4, down 2.51%, comparedto a decline of 1.79% in the SNL U.S. Bank index. Kyle Tarrance, a vice presidentfor Comerica, said executives were not available for comment.

Some analysts said the appointment of Comerica's general auditorDavid Duprey to replace Parkhill suggested the bank would focus on reducing coststo address shareholder concerns, as opposed to pursuing a sale of the company. Dupreyhas been with Comerica for roughly 10 years, and the bank highlighted his experiencein expense control initiatives in his previous job at Ernst & Young. EvercoreISI analyst John Pancari wrote in a report that the CFO change likely indicatesmanagement's "intention to intently focus" on aggressive cost savings.

Sterne Agee CRT's Winter said that he spoke with Comerica managementregarding the hire and asked why they did not hire an external candidate. "Theirfeeling was that they've got a deep bench on the financial side, and the personthey did bring in has been with the bank for a while and is intimately familiarwith the numbers, so from that standpoint, it should be a smooth transition,"he said.

Winter said he was surprised Comerica did not conduct a moreexpansive search but that he did not think there was any downside to the decisionthe bank made.

Scott Valentin, an analyst with Compass Point Research &Trading, said that if a sale was imminent, the bank likely would have selected aCFO from outside the company, particularly one with prior experience managing asale. "If it had been an outside CFO with a history of selling banks, we'dview it very differently. It seems like his experience is relevant to what Comericaintends to do," Valentin said.

If a sale does occur, Valentin said he expects it would be in18 to 24 months. He said investors will be focused on the recommendations put forthby the Boston Consulting Group, which Comericahired to conduct a strategic review of the company's operations.

"By hiring Boston Consulting Group, we think they boughtthemselves some time [with activist investors]," he said.

Winter and Valentin both said they expect the consulting firm'srecommendations will focus more on expense than revenue. The analysts noted thatComerica's business model is built to benefit from a boost in short-term rates.With the market expecting the Federal Reserve will hike rates just once or twicein 2016, greater revenue appears tough to come by for Comerica.

"They talk about looking at both revenue and expense opportunities,"Winter said, "but I wouldn't be surprised if it was a bit more weighted tothe expense side."