Fifth Third to buy Comerica in $10.9 billion deal to create ninth-largest US bank

By Manya Saini, Saeed Azhar and Nupur Anand (Reuters) -Fifth Third on Monday agreed to buy regional lender Comerica in an all-stock deal valued at $10.9 billion, striking the biggest U.S. bank deal of the year that would create the nation's ninth-largest lender. Dealmaking has gained momentum under a Trump administration that has pledged to streamline the process for approving mergers. Comerica CEO Curtis Farmer said that the administration's pro-business stance was one of the factors behind the deal timing. "The shifting regulatory environment has gotten more conducive to M&A, and we saw windows starting to open where there might be a chance for us to consider partnering with another institution," Farmer told Reuters in an interview. The talks took "just a few weeks," he said. While the deal still requires approval from regulators and some additional due diligence, the parties are confident the transaction will get the green light from officials. "We would not be moving forward if we did not feel like we had regulatory support," he added. Regional lenders are also looking to diversify their revenue, strengthen balance sheets and expand in growing markets as they seek to compete with larger rivals. Comerica warmed to a deal because it saw the need to grow at a time when some competitors had already expanded through acquisitions, Farmer added. "We have always been focused primarily on organic growth," he said. "What changed in the last two years was living through the situation with the regional bank crisis as a $78 billion bank and not having a large retail presence — that was hard for us during the 2023 bank crisis," he said. The regional bank index was up over 1%. "I expect we will see more combinations amongst regional banks because we are in an environment where bank M&A of equals or near equals makes a lot of sense," said Michael Ashley Schulman, partner and CIO at Running Point Capital Advisors. The latest transaction could usher in more combinations, especially for banks with assets of up to $100 billion, two investment banking sources said.  Two large regional lenders that have long been discussed as M&A candidates have done deals in the last two months.  Comerica has long been seen as a target, while PNC announced the purchase of FirstBank last month. Other banks that have been floated as deal candidates include Zions Bancorp, Flagstar, First Horizon, East West, Popular, Western Alliance and Webster Financial, one of the sources said. Shares of First Horizon were up 3.6% and Flagstar was up almost 2%. "That group is going to outperform from a price point of view because there is a bid for them," said a banker who advises financial institutions, who said the companies' shares had been supported by deal speculation. The banker declined to be identified discussing specific companies.  LIGHTER REGULATORY ENVIRONMENT   Analysts have said consolidation is crucial for smaller lenders to compete with the nation's banking giants, with regional banks looking to take advantage of a potentially lighter regulation under the Trump administration. Comerica shareholders will receive 1.8663 Fifth Third shares for each Comerica share, valuing the deal at $82.88 per share based on Fifth Third's closing price on October 3. "Following the acquisition, Fifth Third will rank among the top five banks in every major Midwest MSA (Metropolitan Statistical Area)," TD Cowen analysts said.     The deal, adding to Fifth Third's large presence in the Midwest, will create a bank with $224 billion in deposits and $174 billion in loans. Shares in Comerica jumped nearly 14%, while Fifth Third fell about 1.4%.  "Record bank stock prices have also allowed for a greater currency to do deals," said Stephen Biggar, analyst at Argus Research. The S&P 500 Banks Index has surged nearly 21% this year, outpacing the benchmark S&P 500's roughly 14% rise, through the previous close.  The deal comes months after activist investor HoldCo Asset Management revealed it had built a stake in Comerica and urged the lender to pursue a sale.  Farmer did not comment on the pressure from the activist shareholder, but said that it was not a determining factor behind the deal. CROWN JEWEL FRANCHISE  Mergers and acquisitions are seen as crucial for regional lenders seeking to become more competitive in the U.S., which has more than 4,400 banks. "This is a crown jewel middle market banking franchise," a Fifth Third executive said on a conference call, adding his optimism about building its consumer network. The deal, which would create a lender with $288 billion in combined assets, expands Fifth Third's reach to 17 of the 20 fastest-growing U.S. markets, including Texas, California and parts of the southeast.  By 2030, more than half of the combined company's branches are expected to be located in these regions.  "This combination marks a pivotal moment for Fifth Third as we accelerate our strategy to build density in high-growth markets and deepen our commercial capabilities," Fifth Third CEO Tim Spence said. Many lenders are looking to build more diverse businesses with steadier revenue from fees collected in wealth management, payments or treasury services, to reduce the reliance on revenue from interest payments.  "This deal will accelerate FITB's expansion into high growth markets, and we believe FITB's consumer banking strength has the potential to improve growth in legacy CMA," Baird analysts said in a note.  Farmer will assume the role of vice chair in the combined company, while Peter Sefzik, its chief banking officer, will lead Fifth Third's wealth and asset management business. The deal is expected to close by the end of the first quarter of 2026, after which three board members of Comerica will join Fifth Third's board.  Fifth Third shareholders will own about 73% of the combined company.  Goldman Sachs was the exclusive financial advisor to Fifth Third, while JPMorgan Securities and Keefe, Bruyette & Woods advised Comerica, with JPMorgan acting as lead advisor. (Reporting by Manya Saini in Bengaluru; Additional reporting by Arasu Kannagi Basil and Tatiana Bautzer in New York; Editing by Nick ZieminskiEditing by Arun Koyyur and Lananh Nguyen)

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