Comerica profit falls 85 percent

Net income for the Dallas-based company fell to $28 million, or 18 cents per share, from $181 million, or $1.18, a year earlier. Profit from continuing operations also dropped 85 percent to $27 million, or 18 cents per share.

Comerica took an after-tax charge of $61 million, or 40 cents per share, to cover its repurchase of $1.46 billion of auction-rate debt, as part of a settlement with regulators.

Results also included a gain of 11 cents per share from the sale of shares in Visa Inc , and charges of 4 cents per share for other items.

Analysts, on average, expected a profit of 18 cents per share, according to Reuters Estimates. It wasn't immediately clear on what basis the estimate was computed. Comerica has operations in Arizona, California, Florida, Michigan and Texas.

Comerica set aside $174 million for credit losses, up from $45 million a year earlier, hurt by a weak economy as well as residential real estate losses in the western United States.

The net interest margin fell to 3.11 percent from 3.66 percent a year earlier, but rose from 2.91 percent in the second quarter.

"Maintaining a solid capital position is prudent and provides us the flexibility to navigate these swift economic currents and continue to invest in our growth markets," Chief Executive Ralph Babb said in a statement.

Comerica has cut its dividend and begun a program to improve loan quality, which it said is producing the desired results. Its Tier-1 capital ratio is 7.35 percent, above the 6 percent regulatory minimum.

The lender expects fourth-quarter net interest margin to be about 3 percent, and cut its forecast for the full-year margin. It also expects full-year net charge-offs to total about $450 million, with a higher amount set aside for credit losses.

Shares of Comerica closed at $29.22 Thursday on the New York Stock Exchange. They have fallen 33 percent this year, the same decline as in the KBW Bank Index .

Regulators say institutions misled investors into believing auction-rate debt, which has rates that reset in periodic auctions, but banks stopped supporting the auctions in January as investor demand dried up and many were stuck holding the debt.

Many financial institutions have entered similar settlements.

(Reporting by Jonathan Stempel; editing by Jeffrey Benkoe)