U.S. Bancorp eyes expansion in 2009

NEW YORK Mon Dec 29, 2008 4:54pm EST

NEW YORK (Reuters) - In any ordinary year, a 23 percent stock price drop would hardly be something to boast about.

But for Richard Davis, the chief executive of U.S. Bancorp (USB.N), now the sixth largest U.S. bank by assets, the decline in 2008 is much less than the average drop of 56 percent for large U.S. banks, and is sweet vindication.

"It's a bit of a payback for having weathered the criticism," he said in an interview on Monday, referring to the analysts and investors who bemoaned the bank's failure to take more risk at the height of the housing boom.

Few would have expected at the beginning of the year that U.S. Bancorp would end 2008 with a market value that exceeds that of Citigroup Inc (C.N), once the largest U.S. bank, by more than $5 billion. U.S. Bancorp is now worth $41 billion, compared to Citigroup's $38.5 billion.

As many of its rivals lick their wounds over losses related to soured mortgage-related securities, the Minneapolis-based bank is eyeing acquisitions to expand its payments and securities servicing business. And its traditional banking business has seen increased deposits this year, and may benefit from new lending opportunities and increasing deposits in 2009, its CEO told Reuters.

Davis, 50, who has been CEO since 2006, experienced a large takeover first hand, when he joined U.S. Bancorp as part of its acquisition by Firstar Corp in 2001, where he also held a senior role. Although Firstar was the acquiring party, it assumed the U.S. Bancorp name.

He expects to see deposits rise at U.S. Bancorp next year, partly due to investors pulling money out of riskier investments and partly due to fewer competitors offering high rates on deposits.

"Deposit growth is going to be more predictable because the high percentage of irrational competitors has been substantially reduced," he added.

Davis also believes U.S. Bancorp's lending business will benefit from consumers and businesses looking to borrow from banks in which they have confidence.

OPPORTUNITIES SEEN

He acknowledged that profit margins in its banking business are "stressed" at the moment, but he expects that to improve "in the long term."

Another reason for the bank's relative success has been its diversified businesses, Davis said, referring to the less market-sensitive payments and securities servicing arms that supplement U.S. Bancorp's day-to-day banking business.

The businesses run back-office, administrative functions for mutual funds and card companies, among other financial services.

Davis said he expects to acquire companies to expand these areas, and they will likely come before any banking deals.

"I see opportunities now," he said of the payments and securities servicing business.

He noted that bank acquisitions are less immediately likely since smaller banks that received cash through the U.S. government's Troubled Asset Relief Program are waiting to see how the capital helps them next year before renewing or starting takeover talks.

U.S. Bancorp has 2,769 branches in 24 U.S. states, largely in the Western two-thirds of the country, and has $247 billion in assets.

He said he compares the bank with top-performing peers, naming JPMorgan Chase & Co (JPM.N), Wells Fargo & Co (WFC.N) as well as the smaller, North Carolina-based BB&T Corp (BBT.N).

But Davis said U.S. Bancorp is not aiming to overtake any of its larger rivals in asset size and noted that there are no opportunities to do so, even if it wanted to.

The company is more likely to consider smaller deals, such as those it completed last month, when it acquired the banking operations of two failed California lenders, Downey Financial Corp DWNFQ.PK and PFF Bancorp Inc PFFBQ.OB, Davis said.

"You're going to see us being a bigger version of ourselves a few years ago, not a different version," he said.

U.S. Bancorp shares ended Monday down 11 cents to $23.71 on the New York Stock Exchange.

(Reporting by Elinor Comlay; editing by Jeffrey Benkoe)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.