Out-of-state banks rule in Michigan

Gov. Jennifer Granholm got a surprise phone call at home from Ralph Babb on a late-winter Sunday night in 2007.

Babb, the CEO of Comerica Bank, stunned Granholm with news that Comerica would announce the next day that it was moving its headquarters from Detroit to Dallas.

The relocation would involve only about 200 jobs, but the symbolism was stark. Comerica, the state’s largest and one of its oldest banks, and whose name was on the Detroit Tigers’ baseball stadium, was leaving for what it saw as a brighter future in Texas.

Granholm already was reeling from Pfizer Inc.’s decision to close its sprawling Ann Arbor drug research complex and Chrysler’s move to slash 13,000 jobs, about half of them in Michigan. She didn’t take Babb’s news well.

“This time I wasn’t just shocked—I was angry. For Comerica to abandon the state, the city and its own history as our financial anchor seemed unthinkable to me,” Granholm recounted in her 2011 book, “A Governor’s Story.”

But Comerica didn’t really abandon the state and Detroit, where it was founded in 1849 as the Detroit Savings Fund Institute.

It is now one of 10 banks headquartered outside the state that are dominating banking in Michigan as the industry continues to consolidate.

And that’s generally good for consumers, who have access to a broader array of services and lending options.

But some experts say dominance by out-of-state banks leaves Michigan’s economy vulnerable to lending and investment decisions made elsewhere, especially during economic downturns.

“We’ve just lost a lot of control as a state,” said Donald Mann, a bank industry consultant who also is the regulatory liaison at the Community Bankers of Michigan.

Comerica still dominant

Six years after relocating its headquarters, Comerica maintains a strong operational presence in Michigan. It has some 5,000 employees, 216 offices and $24.8 billion in deposits.

Comerica still controls 14.7 percent of the state’s $169 billion in bank deposits, second only to JP Morgan Chase with 18.9 percent, according to the Michigan Bankers Association.

“The move of Comerica’s headquarters was a big negative for the state,” said James Wiggins, an associate professor of finance at Michigan State University. “But Comerica’s market share in Michigan is higher now than it was seven years ago” (Comerica operates 14.7 percent of all bank branch offices in Michigan, compared with 14.5 percent in 2006).

But its lending in the state is way down from 2006, the year before Babb announced Comerica was moving its headquarters to Dallas. Comerica had $24 billion in loans in the state 2006, compared with $13.3 billion by the end of the third quarter this year, according to the bank’s financial statements.

Ten of the 12 largest banks operating in Michigan, including Comerica, are headquartered in other states. Collectively they control 72 percent of bank deposits here, according to the MBA.

Mann and other experts say it’s difficult to quantify the big banks’ lending activity because most don’t report loans on a state-by-state basis. But the size of their deposits indicates they are actively seeking business in the state, experts say.

“Every community banker I talk to will tell you that the larger banks are being very aggressive,” said Dennis Koons, MBA president.

Huntington Bank, for example, committed to lend $2 billion in commercial and small business loans in the state as part of a 2011 Michigan Economic Development Corp. program.

Earlier this month, the Columbus, Ohio-based bank pledged another $25 million to a new state micro-lending loan program.

“The big banks just stopped lending during the recession,” Mann said. “Now they’re back, offering lower rates and more lenient terms.”

Not only did those banks restrict lending during the Great Recession, they called in lines of credit and severed long-held banking relationships with businesses and individuals across Michigan.

One of them was former public relations executive John Bailey, who said he had maintained a $500,000 line of credit with Comerica “forever.”

Bailey said he first thought it was a joke when a loan officer called him in 2008 to say the bank was dropping his business as a customer and demanding repayment of the $120,000 outstanding on his line of credit.

“I was really upset,” Bailey said. “I had been with Comerica almost my whole life. It has been my personal bank since I was a paperboy depositing $10 a week in my account.”

At the time, Bailey was negotiating to sell his Troy-based public relations firm. The new owner ultimately agreed to repay Comerica the $120,000 as part of the deal. Bailey has since retired.

Heading south

When Babb announced on March 6, 2007 that Comerica was shifting its headquarters to Dallas, he said the move would put it closer to higher growth markets in Texas, Arizona, California and Florida.

“In addition, the vibrant and diversified economies of Dallas, Houston and Austin will be particularly helpful to Comerica as we seek to continue attracting and retaining talented employees,” Babb said in a news release.

Today, Michigan is Comerica’s second-largest market with $13.7 billion in assets. California is the bank’s largest market with $14.2 billion in assets.

But Comerica has recently been earning more profit in Michigan than in any other region of the country. The company posted net income of $73 million in Michigan during the third quarter of this year, compared with $71 million in California and $35 million in Texas. It collectively earned $51 million in Arizona, Florida and other markets.

Comerica would not make an executive available for this article. Spokeswoman Kathleen Pitton said in an email that “we must respectfully decline an invitation to discuss our company through a lens that is focused on an event that transpired more than six years ago.”

But Koons, the MBA president, said the relocation of Comerica’s headquarters to Dallas has not diminished the bank’s commitment to Michigan. “I think Comerica continues to be a tremendous corporate citizen and player in our economy,” he said.

Mann, the banking consultant, said Comerica was one of the last of the major Michigan-chartered banks to either move their headquarters out of state or be swallowed by larger, out-of-state banks.

Gone are National Bank of Detroit, Michigan National Bank in Farmington Hills, Old Kent Financial Corp. in Grand Rapids, Standard Federal Bank in Troy, First of America Bank in Kalamazoo and Citizens Bank in Flint, among others.

The biggest Michigan-based banks today are a fraction of the size of the largest state-based banks in the middle of the past decade.

In 2005, Comerica was the largest bank based in Michigan with $53.6 billion in assets, mostly loans. Today, Flagstar Bank is the biggest Michigan-based bank with $12.7 billion in assets.

The loss of local banks and the consolidation of the industry are occurring across the country, said James Johannes, director of the Puelicher Center for Banking Education at the University of Wisconsin-Madison.

“There’s been a tremendous wave of consolidation,” he said. “We’ve gone from about 15,000 banks in the country in the 1980s to about 7,000 now.”

Five of the 10 largest banks in Michigan in 2005 have since merged with out-of-state banks and are no longer headquartered here.

Hurdles for small banks

It’s becoming harder for smaller banks to survive, Johannes said, in part because of a more stringent regulatory environment since the banking crisis of 2008. Regulatory costs are higher, and larger banks can spread those costs over a larger base of assets.

“It’s hard to create organic earnings in this environment,” he said. “The only way to increase cash flow to stockholders is to combine institutions.”

Whether customers and communities are well served by this consolidation is a hotly debated question, particularly in business lending.

Larger banks have a greater capacity to lend, Johannes said, but the lack of local decision making can make it harder for small businesses to get needed financing.

“The tone you hear on the street is that this is not good for small businesses,” he said.

Mann, who also is a former state banking regulator, said the larger banks are generally serving their customers well with a broad array of services and competitive rates. But they are among the first to pull back lending in Michigan when the state’s highly cyclical economy dips, he said.

Big, out-of-state banks also are in the driver’s seat as Michigan’s economy improves.

“We haven’t seen any new banks form in Michigan since 2009, and none are on the drawing board,” Mann said, adding that 13 banks failed in Michigan between 2009 and 2012. “That was unprecedented in our history. It’s very difficult now to get a bank application approved without it being pristine.”

One of the more spectacular failures in the state was Lansing-based Capitol Bancorp, which once owned 60 community banks around the country. It filed for bankruptcy last year and is liquidating.

Wiggins, the MSU professor, and other experts say Capitol Bancorp was brought down by the recession and its high exposure in the collapsing commercial real estate market. It also is in litigation with investors who claim the bank holding company misappropriated millions of dollars of their money.

Koons, the MBA president, said bank consolidation was more pronounced in Michigan because of the severe economic downturn in the late 2000s. “The primary driver is what happened to Michigan’s economy,” he said. “We’ve gone through some tough times.”