Many of the banks at risk do business in places with high concentrations of auto workers, writes Eileen Rooney and John Barber, analysts at investment bank Keefe Bruyette & Woods, in a note to clients. Layoffs or pay cuts could make it more difficult for many of their customers to pay back loans. But car makers' woes could hurt a handful of bigger financial institutions as well, according to the analysts.
"Given that these entities make up a sizable portion of the domestic labor force, we believe it will be challenging for the banks to escape without a few auto-related dents due to secondary impacts" like bankruptcies and layoffs, they wrote.
Comerica (CMA) may be particularly exposed, they found. Based it Dallas, it boasts $67.9 billion in assets, making it the 23rd-biggest bank in the country, according to the Federal Reserve. But thanks to its deep roots in Michigan -- its headquarters was in Detroit until 2007 -- its fate may be more intertwined with that of the big automakers than any other bank in the country.
Few banks have lent as much directly to car makers and parts suppliers. With about $3 billion in loans to such businesses, some six percent of the loans on Comerica's books have gone to companies in the auto industry.
What's more, Comerica also lends a lot of money to auto dealers. Its loan portfolio includes $2.2 billion in financing to help dealers buy cars from automakers and $2.3 billion in commercial real estate loans to dealerships. With falling car sales and tightening credit forcing a record-high 881 car dealers to close their doors last year, according to Detroit-based consulting firm Urban Science, those loans could prove risky.
All told, some 15 percent of Comerica's loans are to manufacturers in the auto industry or to car dealers, according to Rooney and Barber's analysis.
Comerica also draws a relatively large proportion of its $42 billion in deposits from counties with a high concentration of General Motors (GM) and Chrysler workers. Macomb County, Mich., where those automakers employ six percent of the workforce, and Oakland County, Mich., where they employ two percent of workers, account for 18 percent of Comerica's deposits.
To be sure, other banks could suffer much more, including a number of small local banks that largely serve communities reliant on car manufacturing for employment. And even Wall Street giants could be affected if their investment banking relationships with the automakers disappear or shrink.
The risks aren't lost on Comerica, which acknowledges in its most recent annual report that the concentration of loans to automotive industry players on its books could pose problems if the economy keeps getting worse. But it also points out that it is "well capitalized" in regulators' eyes and has a big enough cushion to ride out the storm.
Still, the auto industry's pain could easily spread to the banks most intertwined with it. That could be bad news for Comerica. It turns out that even if you take the bank out of Detroit, you might not be able to take Detroit out of the bank.
