Fifth-Third to acquire Comerica in $10.9 billion banking deal

Fifth Third Bancorp (FITB) is on track to acquire regional bank Comerica (CMA) in a deal valued at $10.9 billion that could end up forming the ninth-largest in the US.

Yahoo Finance senior banking reporter David Hollerith joins Julie Hyman to expand upon the details of the merger and what it means for Fifth Third's expansion into other banking arenas dominated by Big Banks.

To watch more expert insights and analysis on the latest market action, check out more Market Catalysts.

Video Transcript

00:00 Speaker A

It's a big M&A Monday with the largest bank deal since 2023. Cincinnati-based Fifth Third will buy Dallas-based Comerica for $10.9 billion. It creates a bank with about 288 billion in assets. Joining us for more are our banking reporter, David Hallerth. Good to see you, David.

00:21 David Hallerth

Hey.

00:22 Speaker A

So what what do both of the bank, each of the banks get out of this deal?

00:28 David Hallerth

Yeah, for Fifth Third, it means that their expansion efforts in the Southeast and Southwest is going to be turbocharged essentially by uh Comerica, which is a Texas-based banks uh commercial division. They have like a very large uh traditional banking commercial business, which is heavily sought after, you know, even by the country's largest banks. Um and so really for both banks, it's a big question around scale. Ever since the 2023, we call it the mini regional banking crisis. Um regional banks have been uh very well, they've seen sort of the disadvantages to their size, not being or being bigger than community banks in a certain way, and then also being much smaller than the mega banks.

01:25 David Hallerth

Um so they both have a need to grow. Comerica in particular, um their their stock and performance, um their earnings performance has has lagged peers for over a decade. And more recently, there's actually been uh activist attention on the bank. Um Holdco Asset Management published this uh 52-page like pretty critical report back in July and their consensus was they'd taken a 1.8% ownership of common shares of Comerica and they were urging Comerica to sell itself. and they were even taking steps to do uh a proxy battle um late early next year or I guess that would kick off in December. But so there's plenty of pressure on Comerica. In general, there is some pressure on regional banks in terms of their stock performance uh relative to the bigger peers.

02:20 David Hallerth

And Fifth Third is a an acquirer bank. They they're uh pretty strong. They have a very strong Midwest presence and they're trying to grow in the hot in the hot markets which have been the South South Southeast and Southwest for a while.

02:35 Speaker A

And and so when you talk about the sort of um in-between place that the regionals are in, bigger than the community banks, smaller than the mega banks, like the cities and Bank of Americas and JP Morgan, what does this increased scale, you know, sort of do for them? How does it help them to better compete?

02:51 David Hallerth

Yeah, um, well, for Comerica, it's a big deal because they didn't really have a retail franchise. and retail retail deposits are known as being uh some of the stickiest in banking. And so it's a lot more stability for them. For Fifth Third, it means that they have more scale, more ability to make loans, uh using their deposit base and to expand into um commercial banking, which is uh they call it like C&I lending.

03:25 Speaker A

That's kind of the hottest

03:26 David Hallerth

Commercial and industrial, right?

03:27 Speaker A

Yes.

03:28 David Hallerth

Yes. It's one of the hottest uh places for bank for traditional banking um in the US. so.

03:36 Speaker A

And we also are at a moment where rates are coming down, right? So does that I I guess for banks it creates both vulnerabilities and opportunities, particularly at that level where they don't have for example, a big trading operation to offset some of that.

03:52 David Hallerth

Sure, yeah. Um, uh interest rates coming down are generally seen to be to be good for regional banks that have, you know, these bigger uh mortgage operations and the commercial commercial real estate and also C&I lending.

04:12 Speaker A

So they can see more demand as rates come down.

04:13 David Hallerth

Exactly. Whereas, um, bigger banks are typically seen to be more asset sensitive, meaning that they benefit from higher interest rates because they get thicker margins. Really to cut it, you it's hard to know between any one bank how interest rates are going to affect them and it all kind of depends on, you know, how things uh fare as interest rates begin to cut. So.

04:42 Speaker A

Yeah. And then finally, I'm also curious about the regulatory environment that allows a deal like this to happen, right? Because we don't see big banking deals that often. Is the regulatory environment more friendly to this kind of stuff right now?

05:00 David Hallerth

Absolutely. I I was speaking to uh this guy who's known as basically the Wall Street uh banking surgeon. Uh he's done a lot of distressed deals in the past. And he had said to me um last week that effectively this is the most favorable environment he's seen in a very long time, um especially compared to the Biden administration in terms of their bank merger policy. Um and you know, you can't help but read through the fact that um since 2023, there's some need for that. Um even no matter what side of uh of um the political aisle you sit on, that banks for a while have have needed to merge um to compete with the mega lenders. Related Videos

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