Tags: US | Bancorp | bank | USB | financial | lender

U.S. Bancorp: Diamond in the Rough

By    |   Thursday, 05 May 2011 01:50 PM

The financial crisis obliterated many banks, but none came out in better shape than U.S. Bancorp (USB), the nation’s fifth-largest lender by deposits. The bank’s conservative operating style has served it well in all economic environments.

U.S. Bancorp gathers more than 60 percent of its revenue from simple, traditional deposit-and-loan services for consumers and companies. Its strict credit evaluations prevented it from getting into risky assets during the go-go years of the last decade. As a result, U.S. Bancorp now has fewer bad assets to write off than its competitors.

The financial crisis also enabled the company to pick up four small banks on the cheap, with FDIC assistance.

U.S. Bancorp has two fee-based units that distinguish it from other conservative banks. First is payment processing, which includes debit and credit cards in addition to merchant processing. This area accounted for 28 percent of U.S. Bancorp revenue last year. Second is wealth management, which produced 8 percent of revenue.

With loan demand stagnant, the bank’s customers have built up deposits instead. When the economy finally enters a sustained recovery, loan demand should bounce back with a vengeance, providing bountiful revenue for U.S. Bancorp.

U.S. Bancorp’s profit jumped 56 percent during the first quarter, to $1.05 billion, the highest total in three years. Declining loan losses helped spark the gain, with a drop of 42 percent to $755 million. The company raised its dividend by 150 percent in March to 12.5 cents per share.

Positioned for the economy

“The economy is slowly recovering,” U.S. Bancorp CEO Richard Davis said in a statement. “We can see it in our customers’ actions — from growth in small-business lending to higher payment-processing transaction volumes to improving credit metrics — and, importantly, in our customers’ outlook.”

The company’s per-share growth rate has accelerated in each of the last five years, note analysts at Ned Davis Research.

After the first-quarter earnings report, Brian Foran, an analyst at Nomura Securities, raised his rating on U.S. Bancorp to buy from neutral.

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The financial crisis obliterated many banks, but none came out in better shape than U.S. Bancorp (USB), the nation s fifth-largest lender by deposits. The bank s conservative operating style has served it well in all economic environments. U.S. Bancorp gathers more than 60...
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2011-50-05
Thursday, 05 May 2011 01:50 PM
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