The Fifth Third Bancorp, headquartered in Cincinnati, has made waves in the regional banking sector with its recent announcement of a $10.9 billion acquisition of Comerica, a bank based in Dallas. This all-stock deal not only signifies a strategic move by Fifth Third but also reflects the burgeoning trend of mergers and acquisitions in the banking industry, bolstered by favorable conditions under the Trump administration.
This acquisition positions Fifth Third as the ninth-largest bank in the United States, boasting $288 billion in assets post-merger. It will enhance Fifth Third’s footprint, particularly in Michigan where it will now hold the top retail-deposit franchise, while also facilitating its expansion into rapidly growing markets like Texas.
Once the acquisition is finalized, the combined entity is expected to have a loan portfolio dominated by commercial real estate and commercial and industrial loans. Fifth Third is also set to strengthen its presence in lucrative areas such as commercial payments and asset and wealth management.
Interestingly, Comerica’s recent loss of a contract with the U.S. Department of Treasury, which involved managing the agency’s Direct Express program, gave Fifth Third a unique opportunity. This contract, which previously provided Comerica with about $3 billion in non-interest-bearing deposits, has now shifted to Fifth Third, further solidifying their position in the financial landscape.
For investors, large mergers can often raise concerns due to integration challenges and the potential for immediate equity loss. However, Fifth Third has assuaged these fears by indicating that the acquisition will not dilute its tangible book value or overall net worth. The bank plans significant cost reductions, targeting to cut approximately 35% of Comerica’s expenses. Amidst these changes, projections suggest this acquisition could yield a 9% boost to earnings by 2027 and deliver a remarkable 22% internal rate of return, given the absence of revenue synergies.
Furthermore, management forecasts an improvement in Fifth Third’s overall return profile, with predictions that its return on assets could rise to between 1.3% and 1.4%, and return on tangible common equity could exceed an attractive 19%. As Fifth Third Bancorp moves forward with this ambitious acquisition, it may not only strengthen its competitive stance but also set a precedent for future banking M&A activity.