What happened
Shares of Comerica Incorporated (CMA -0.15%) traded nearly 5% higher as of 2:54 p.m. ET today after the bank updated its financial guidance at an industry conference this morning and said it would be exiting one of its lending businesses.
So what
At an industry conference this morning, Comerica's CEO Curtis Farmer announced that the bank plans to exit its mortgage finance business.
"The cyclicality and seasonality inherent in this business line create volatility in capital management," adding that the bank plans to focus more on its target customer base. "Further, as the industry is navigating funding pressures, we want to prioritize businesses that can enhance our liquidity profile. We believe this strategic action enables better support of our core businesses while also improving the stability of our liquidity."
Farmer also provided an update on net interest income (NII), the money banks make on loans and securities after funding those assets with liabilities such as deposits. Farmer said second-quarter NII is expected to fall toward the lower end of its previous guidance of down 11% to 13%.
Through June 7, Farmer also said Comerica experienced $3.5 billion of noninterest-bearing deposit outflows in the second quarter as customers shift into higher-yielding deposit products. He also noted that the bank has seen more deposit stabilization in recent weeks.
Now what
While Comerica's NII and margins are likely to face pressure, NII is expected to come in within management's guided range, albeit to the lower end, which I still think reflects well on management. There will definitely be banks in Q2 that outright miss their own NII guidance.
Furthermore, the exit from the mortgage financing business will help the bank maintain good liquidity throughout the rest of the year and have additional capital flexibility. Trading just around its tangible book value, or net worth, I think Comerica can navigate the near-term challenges and rebound longer term, presenting an attractive entry point.
