As part of an aggressive plan to cut costs, Comerica said Tuesday it plans to consolidate a dozen banking centers in Michigan next year and announced in an earnings conference call that it would save $42 million with a significant money-saving change to its pension plan.
The cuts are part of a corporate restructuring effort announced in July called GEAR UP, focused on driving up Comerica's bottom line. The bank said it would reduce its head count throughout the corporation by 9%. Nationwide, Comerica plans to cut about 800 jobs and close 38 branches.
The bank will close eight branches as of April. The closings include the Creyts Road branch in Lansing, a Montague branch in the Muskegon area, the Breton Road branch and Alpine Avenue branch in Grand Rapids, a Beaverton branch, the Circle Branch in Midland, the South Jackson Road branch in Jackson and the Urbandale Branch in Battle Creek.
In May, Comerica plans to close the Ann Arbor-Sheldon Road branch in Plymouth, the Hayes-17 Mile Road branch in Clinton Township, the Pinehurst branch in Bloomfield Hills and an in-store banking center that’s located in the Canton Kroger store on Canton Center. The planned closings are on top of four others already set for November — the Northland office in Southfield, the Michigan-Neckel office in Dearborn, the Plymouth-Winston office in Redford and the Van Dyke-Continental office in Warren.
"We have banking centers located within a few miles of the vast majority of these offices where customers will be able to continue to conduct their banking once these consolidations are complete in April or May," said Kathleen A. Pitton, vice president of corporate communications for Comerica in metro Detroit.
Pitton said it was too early to say how many people would lose jobs in Michigan, as many employees will be able to apply for other openings at Comerica. If they’re unable to find another position at Comerica, they will be eligible for severance packages and outplacement assistance. Comerica will have almost 200 banking centers in Michigan after the consolidations in May.
Comerica's top management also said that it has found other cost savings ahead — the bulk of which will come from changes to its retirement and pension plan.
A new retirement program — which bank executives said will offer "highly competitive benefits" — will replace the current pension plan and retirement account plan for most employees as of Jan. 1.
Active pension plan participants age 60 or older at the end of 2016 and current retirees will not see a change. The change in the pension and retirement plan is expected to save Comerica an estimated $7 million in 2016 and $35 million in 2017, assuming current actuarial assumptions.
Comerica chairman and CEO Ralph W. Babb Jr. said the pension changes plus some extra cost-saving measures would add about $40 million to the bank's initial financial target for the restructuring.
"As a result, we are now expecting to drive at least $270 million in additional pre-tax income for full-year 2018," Babb said in a statement. "These actions, which we have already begun to execute with urgency, take us a long way towards achieving a double-digit return on equity."
The Dallas-based bank has been under pressure from Wall Street and investors, including much public criticism from Mike Mayo, a banking analyst who has made a name by hounding boards at big-name companies. Mayo has called for a change in the CEO leadership or a sale of the bank. Comerica has faced challenges after plunging oil and gas prices hurt its energy loan portfolio.
Wall Street approved of Comerica's third-quarter earnings and latest cuts. The stock closed up Tuesday at $50.05 a share, up $1.99 a share or by 4.14%.
On Tuesday, the bank reported third-quarter net income of $149 million, up about 9.6% from $136 million for the third quarter last year.
Babb said in Tuesday's conference call with banking analysts that the bank "was not relying on a significantly better economic environment or a substantial increase in interest rates."
Bank analyst Mayo boosted the target price for Comercia stock to $56 a share from $53 following the restructuring news and earnings call, and boosted earnings estimates for 2017 and 2018 due to additional expense savings from the new retirement plan. The risks to earnings include worse-than-expected economic conditions in the Midwest, California and Texas, according to Mayo's report that was released Tuesday.
Mayo noted in the bank's conference call that Comerica was clearly taking tough actions. But he questioned whether Comerica was open to a sale of the bank.
Mayo said Comerica appeared to be renovating the house to quite a degree but wondered if the bank had taken further steps in the process for a potential sale.
Babb did not offer a specific response.
"We are always open to alternatives that present themselves," Babb said in answer to the question.