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(Bloomberg) — Shares of Comerica Inc. fell the most in more than a year after the business-focused regional lender said it probably lost a contract to help millions of people receive their federal benefits.
The bank will likely no longer issue the Direct Express debit card for the US Treasury after its contract expires in early 2025, Comerica said in a presentation on its website Friday.
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That means it will probably lose access to a big batch of cheap and reliable deposits from a program it has administered since 2008. Average balances for the 4.5 million recipients in the program stood at $3.3 billion in the second quarter, according to the presentation.
“This process remains fluid as contract negotiations are not yet final, but at this time, we do not expect that Comerica Bank will retain the business long-term,” Comerica Chief Financial officer James Herzog said in a conference call with analysts. “The financial value has been in the non-interest-bearing deposit balances related to monthly benefits funded on the cards, which have grown over time.”
Shares of Dallas-based Comerica slumped as much as 14%, the biggest intraday decline since May 4, 2023. They’re down 10% this year.
The transition shouldn’t affect results this year, Herzog said, adding that the cost of the program also just about equaled the fees it generated.
Still, losing the business will likely weigh on the stock, according to Christopher McGratty, head of US bank research with Keefe, Bruyette & Woods.
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“Over time, we believe this could be a high single-digit/double-digit headwind for EPS, all else equal,” McGratty said in a research note Friday, referring to earnings per share.
Comerica also lowered its guidance for this year’s net interest income, which fell 14% year-over-year to $533 million in the second quarter. The bank now expects full-year NII to be down 14% this year, wider than the 11% drop it had projected in April.
Comerica caters to midsize businesses, collecting deposits and lending to automotive dealers, environmental services, entertainment and energy firms, among other customers. It also operates a retail bank and wealth-management division.
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