- Key insight: Comerica says the banking crisis of 2023 drove its decision to sell, but the bank was also dealing with other challenges related to its funding.
- What’s at stake: The M&A deal comes more than two years after the failures of three regional banks turned the meaning of “stable deposits” on its head.
- Forward look: Comerica and the bank that’s buying it, Fifth Third, are both subject to a $500 million termination fee under certain circumstances.
Fifth Third Bancorp’s nearly $11 billion proposed acquisition of Comerica — the largest bank deal announced in 2025 — may be the latest example of the ripple effects from the stunning collapse of Silicon Valley Bank more than two years ago.
But analysts and investors say the sale of Dallas-based Comerica, and its timing, is due to factors that go beyond unpredictable macro circumstances.
Most see the deal — which is slated to create the ninth-largest bank by assets in the country, excluding foreign, trust and traditional investment banks — as strategically complementary and financially attractive for both companies.
The Midwestern bank will gain a beach head in high-growth markets where it had been targeting expansion, like Texas. At the same time, Comerica will be relieved of its search for low-cost funding. The deal will also allow Fifth Third to rehab the Dallas seller’s balance sheet, which is loaded with low-yielding swaps and securities.
The transaction carries a termination fee of $500 million, which both Fifth Third and Comerica could be subject to under some circumstances, according to a public document filed Wednesday evening.
While full details around the deal’s timeline haven’t been released, Comerica CEO Curt Farmer said in a Monday interview that discussions started no more than four weeks earlier. He said he called Fifth Third CEO Tim Spence in early September, after the Cincinnati bank announced it would take over from Comerica as the next financial agent for a U.S. government prepaid debit card program.
“I had actually called [Spence] to congratulate him, and literally did not know that I’d be talking to him, you know, in the week or so after that, about the possibility of an acquisition,” Farmer said. “We certainly were thinking about a potential acquisition partner or merger partner, but had not reached that conclusion.”
The 2023 crisis
Farmer said that the bank failures of 2023, which started with the sudden demise of SVB, kicked off the evaluations that led Comerica to sell. His bank has been around since before the Civil War. But it was “hit pretty hard in the regional bank crisis,” in part due to its weaker retail deposit position, Farmer said.
After the spate of bank failures in the spring of 2023, regional banks across the country grappled with deposits flight as businesses sought secure homes for their cash.
Comerica, then a $91 billion-asset institution, lost $3.7 billion of deposits in just weeks at the peak of the mini-banking crisis. The company’s stock price fell more than 50% in under two months — worse than the 33% drop in the KBW Regional Banking Index during the same time frame.
Since then, the bank has been in a period of “rebuilding,” Farmer said on Comerica’s earnings call in July.
He added in the interview with American Banker that the bank has been assessing its need for scale over the last two years, and that sale evaluations accelerated six months ago.
It’s hard to say whether Comerica would have had to sell if the 2023 crisis hadn’t happened, said Peter Winter, an analyst at D.A. Davidson. But “funding is the lifeblood of a bank,” he said, and the amount of deposits Comerica lost in that period would have put pressure on the company. Still, that wasn’t the lone thorn in the bank’s side.
“Certainly that played into it, but I think it’s more than that,” Winter said. “It’s not like Comerica has underperformed in the last couple of years. It’s underperformed for the past decade.”
Scott Siefers, an analyst at Piper Sandler, said the 2023 regional banking crisis made what had looked like loyal, sturdy deposits become “much more of a question mark.”
“Even though that crisis only lasted for a couple months, the aftermath just has continued to reverberate,” he said.
Comerica has spent the last few years trying to remix its deposit base, but those efforts take time, and some aspects of the portfolio actually look less attractive this year than they did back in 2022. The company had $78 billion of average deposits in the second quarter of 2022, more than half of which were non-interest-bearing. As of June 30, the company had $61 billion of average deposits, with just 38% non-interest bearing.
“It takes a long, long time to reorient the complexion of your deposits,” Siefers said. “At a point, investors start to get a little anxious for that transition to be over. And I think in this case, it looks like enough investors seem to run out of patience. … It put the company in a more awkward spot than might be the case under normal circumstances.”
HoldCo Asset Management, an activist investor with a stake in Comerica, called for the bank’s sale six weeks ago in a scathing, sweeping report. The firm claimed that Comerica management’s actions “disastrously exposed the company to potential ruin during the regional banking crisis of 2023.”
But another funding-related timer had also picked up the pace.
One-two punch
Comerica had known for more than a year that its time as the fiscal agent for Direct Express would end, following allegations that the bank shared sensitive consumer data with vendors and failed to reimburse government beneficiaries who claimed their benefits had been stolen due to fraud.
With some 3.4 million participants who receive more than $43 billion in annual federal benefits, the program had been a boon to Comerica, providing a source of low-cost funding.
Following Treasury’s decision not to renew its contract with Comerica, the bank estimated that it would have a lot of time before the eventual conversion of participants to the Bank of New York Mellon. BNY announced last November that it would take over the contract.
Farmer said at an industry conference on Sept. 9 that Comerica had seen no migration of accounts, and was continuing to enroll participants in the program. He added he didn’t think the transition would hit Comerica’s earnings in the near future.
“We’re not expecting any in ’25 and really don’t believe that it will have a meaningful impact in ’26, but stay tuned on that,” Farmer said.
But later the same day, the situation shifted. Fifth Third announced in the evening that it would become the next financial agent of the Direct Express program, instead of BNY.
On Sept. 10, Spence said at an industry conference that his bank expected to start enrolling new Direct Express participants in January, and to begin conversions on existing program participants in mid-2026, with more details to come.
“The program is the equivalent of the second largest neobank in the U.S. with similar average revenue per customer, but significantly better profitability,” he said at the time.
Investors likely saw the news as a problem for Comerica, Siefers said.
“Anyone who knows Fifth Third knows that there is going to be a sense of urgency to get things done, get them right in a timely fashion, and to do it appropriately,” Siefers said. “So I don’t know if the prospect of Fifth Third transitioning over the deposits more quickly would be the impetus for a sale, but it probably didn’t help the argument to do nothing.”
Farmer said in the Monday interview that Fifth Third’s pickup of the Direct Express contract and the M&A deal are “totally unrelated, but they turn out to be a nice benefit to both of us.”
Fifth Third will still move Direct Express onto its own platform, but the purchase of Comerica accelerates and de-risks a major strategic initiative, Spence said in an interview.
Participants in Direct Express would have experienced a conversion next year, Spence added. But, subject to the acquisition’s approval timeline, Fifth Third will now avoid that friction.
Fifth Third didn’t include the impact of Direct Express in its profitability and financial projections for the combined entity following its integration of Comerica, D.A. Davidson’s Winter noted.
“They’re still assessing the financial impact, and how to leverage the deposits,” Winter said. “So it’s still early, and they’re still doing their due diligence on what the earnings impact will be.”
Fifth Third landed on its estimates using consensus estimates of Comerica’s earnings. But the Dallas bank’s net interest income was expected to suffer a $110 million cut in 2027 from the loss of Direct Express.
Winter said he thinks Fifth Third could reel in as much net interest income as Comerica had been expected to lose, which would help the buyer beat its projected accretion of 9%.
