What Makes Comerica Incorporated (CMA) an Unusual Super Regional Bank?
Third Avenue Management, an investment management company based in New York City, released its “Third Avenue Value Fund” fourth quarter 2023 investor letter. A copy of the same can be downloaded here. The fund returned 9.26% in the fourth quarter, compared to the MSCI World Index, which returned 11.53%, and the MSCI World Value Index’s 9.48% return. The Fund’s year-to-date return, after accounting for this quarter’s performance, is 20.16%, which is less than the MSCI World Index’s 24.42% performance but more than the MSCI World Value Index’s 12.41% performance. In addition, you can check the top 5 holdings of the fund to know its best picks in 2023.
Third Avenue Value Fund featured stocks like Comerica Incorporated (NYSE:CMA) in the fourth quarter 2023 investor letter. Headquartered in Dallas, Texas, Comerica Incorporated (NYSE:CMA) offers various financial products and services. On March 13, 2024, Comerica Incorporated (NYSE:CMA) stock closed at $51.69 per share. One-month return of Comerica Incorporated (NYSE:CMA) was 3.95%, and its shares gained 17.17% of their value over the last 52 weeks. Comerica Incorporated (NYSE:CMA) has a market capitalization of $6.848 billion.
Third Avenue Value Fund stated the following regarding Comerica Incorporated (NYSE:CMA) in its fourth quarter 2023 investor letter:
"Apparently, Ms. West never ran a bank. For many financial firms, interest rates are a lot like medicine in that the proper dosage can be salubrious, while too much of the same medicine can prove fatal. Similarly, the way interest rates impact the health of industries and companies can shift meaningfully over time. There are few better examples of this principle than the U.S. regional bank sector and Comerica Incorporated (NYSE:CMA), in particular.
Comerica, a long-time Fund holding, is an unusual super-regional bank due to the extent of corporate exposure in its loan book, as compared to many other U.S. regional banks with much larger exposures to residential mortgages. Because much of this corporate lending is done on a floating-rate basis, Comerica’s asset yields respond unusually rapidly to interest rate movements. As interest rates rose over the last few years, Comerica’s asset yields did indeed rise sharply as well, a very positive development. In this way, Comerica, along with many U.S. regional banks, were rightly perceived as beneficiaries of U.S. interest rates rising from historically low levels. Something similar can be said of our European banking investments where Bank of Ireland and Deutsche Bank have also been aided by rising European rates. However, higher rates were helpful for most U.S. regional banks, until they weren’t. By early 2023, rates had risen high enough, and rapidly enough, to expose a lot of duration risk (the risk associated with the value of longer-dated bonds bearing higher sensitivity to interest rate movements than shorter-dated bonds) present within the huge fixed-income portfolios comprising large portions of many regional bank balance sheets. Ultimately, accelerating deposit withdrawals at a few banks caused high-profile manifestations of this risk, leading to a couple of bank insolvencies, heightened fear, more withdrawals, and a spiral which had to be arrested by the U.S. Federal Reserve, Treasury and FDIC. U.S. regional bank stocks were punished severely during the first half of the year..." (Click here to read the full text)
A shot of a financial advisor meeting with a wealthy couple discussing their portfolio.
Comerica Incorporated (NYSE:CMA) is not on our list of 30 Most Popular Stocks Among Hedge Funds. At the end of the fourth quarter, Comerica Incorporated (NYSE:CMA) was held by 55 hedge fund portfolios, compared to 53 in the previous quarter, according to our database.
We discussed Comerica Incorporated (NYSE:CMA) in another article and shared the list of most undervalued bank stocks to buy. In addition, please check out our hedge fund investor letters Q4 2023 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
