Comerica's return on common equity is about 7 percent while Zions is around 5 percent. That is also lower than other peers, potentially opening up Zions to criticism that it isn't working its balance sheet aggressively enough.
As lenders with more than $50 billion in assets, both banks are labeled systemically important financial institutions (SIFIs), meaning they are subjected to enhanced Federal Reserve supervision and the central bank's annual stress tests. The SIFI label comes with heavier compliance cost burdens that bank executives say hit mid-sized banks harder than the largest institutions, which have the scale to better absorb the cost.
"For U.S. depositories, if you're trying to drive growth, how much cost can you continue to cut?," said Daniel Kerstein, a Barclays investment banker who advises companies about activism and activist campaigns. "Ultimately, you need scale to spread out your costs."
Loss of fun
PL Capital, an activist hedge fund focused on the bank sector, is raising a $200 million hedge fund that will target banks with up to $50 billion in assets.
The firm believes that any bank earning a 12 percent or less return on tangible common equity needs to consider whether it can prosper as an independent institution, PL Capital co-founder Richard Lashley, said in an interview.
A bank's exposure to falling energy prices makes it even more vulnerable, he noted. But another key factor is a bank's ability to maneuver through a climate where low rates are compressing net interest margins, and stricter regulations are increasing costs.
"Management teams and boards are just exhausted," said Lashley, who is based in New Jersey. "It's not fun to run a bank anymore."