Third Avenue Management Comments on Comerica
During the quarter, we added to our existing position in Key Common and initiated a new position in Comerica Common (CMA). At quarter end, the two positions accounted for 3.4% of the Fund's net assets. Comerica Common was identified by Vic Cunningham. Comerica Incorporated is a financial holding company based in Dallas with subsidiaries engaged in retail and business banking and wealth management. The management team, led by Chairman and CEO Ralph Babb, has an impressive longterm track record, having avoided many of the consumer related problem areas in 2007 and 2008. As a result, the company's tangible book value is roughly flat compared to five years ago, a considerable accomplishment in light of the financial crises. The current earnings outlook is subdued owing to depressed net interest margins (3.2%, versus 3.6% to 4.0% historically) and tepid loan growth (2% in the first quarter). Nevertheless, the company appears poised to generate improved returns over the next several years, owing to its low cost deposit base, strong business lending franchise in its core markets (Texas, Michigan, California and Florida) and strong capital position (10.3% Tier 1 Capital ratio). The company recently passed the Fed's Comprehensive Capital Analysis and Review ("CCAR") stress test and was approved to repurchase $375 million in stock (about 6% of the company's outstanding shares) over the next year. The Fund's initial position in Comerica Common was acquired at about 13 times earnings and a slight discount to tangible book value.