US Bancorp: The Other Big Bank with Big Problems

Not too long ago, Minneapolis-based US Bancorp (USB) was held up as an example of a ‘good bank’ with a strong loan portfolio. As recently as September, the stock was trading as high as 42 and the bank was widely hailed as one of the few national banks that was gaining ground on weaker competitors. On January 21, however, the bank announced a 65% drop in earnings as a result of a deteriorating loan portfolio and securities losses, and the story began to unravel.

In reviewing the performance of bank stocks over the course of the past week, I was surprised to see that among large banks, US Bancorp has been the worst performer of all. The chart below shows the earnings-related 52-week low from January 21 was taken out decisively yesterday, following a week of heavy volume in which the stock lost a third of its value.

While investors are watching Citigroup (C) and Bank of America (BAC) closely for signs of weakness, perhaps US Bancorp and the regional banks are better indicators of what is going on in the banking landscape than their quasi-governmental big brothers.

[source: StockCharts]

Comments

[Mozatta:]

So USB is in trouble because of the stock price? Yes, USB has some commerical exposure that will continue to weaken, but it's a pretty solid bank. I think part of the stock decline is the market taking into consideration that USB will likely cut their dividend. This article was worthless.

Feb 18 10:28 AM

[SickSkilz:]

Funny to see someone who claims to be informed judge the value of a company based on the stock price. Wow. Institutional holders and the market in general is doing a blanket avoidance of bank stocks. Anything short of a disastrous Q1 earnings report will send the stock higher.

(I personally bought in half my current stake in Jan and the other half in Feb.)

Feb 18 10:30 AM

[Sudhakar2k:]

This is a terrible article which basically tells you nothing about US Bank other than the fact that its stock price has gone down 75%. And we all know that a companies stock price justifies whether it is a good or bad institution right. I did my own analysis of US Bank, and found that its much better capitalized than other institutions, and has fared much better so far than its competitors in terms of loan and investment losses. If you are going to call US Bank "the other bank with big problems", then at least show us what the problems are. A one quarter or one year drop in earnings (while still reaming profitable) is not that big of a problem in the current environment, if the company is still sound and well capitalized. Here is my biggest concern, will US Bank cut its dividend in time to save its capital? It paid out $1.70 in dividends in 2008, and I expect EPS for 2009 to be $0.50 to $0.80. So if i were the board I would cut the dividend to 10 cents per quarter. Better to be safe than sorry.

Some Ratios
Tangible Equity / Tangible Assets 5.85%
Texas Ratio: 16.01%
Ten Year Trailing EPS (1999-2008): $1.70 per year
PE Ratio based on 10-year EPS: 6.4 x

Feb 18 10:35 AM

[User 342869:]

Where does seeking alpha get these clowns that purport to analyze stocks with so little real analysis?

Feb 18 10:41 AM

[Benign Brod...:]

The most cursory examination of U.S. Bank's financials relative to its peers shows how well run it is. This is not one of the banks that will be nationalized, unless the oligarchs in New York decide to retaliate for Richard's speaking the truth. This is not a zombie bank. It's a bank that has aggressively reserved against future losses, taking the hit to net income, and still coming out profitable.

Feb 18 10:47 AM

[MN Dabbler:]

A better explanation for the decline in USB (vs the "analysis" in this article) is the re-balancing of every mutual fund in the country (ie, reducing their weighting in the financial sector).

Feb 18 11:13 AM

[SickSkilz:]

Exactly, MN! So, several are oversold, esp USB. The market has come to expect horrible news. It is even oversold vs analyst estimates

finance.yahoo.com/q/ae...

At $11 and analyst estimates for 2009, its running just over 9 P/E ratio and analysts expectations for 2010 are even 40% better than that.

Oversold, under-appreciated. Will be $18-$22 after Q2 earnings report.

Feb 18 12:03 PM

[Sudhakar2k:]

SickSkilz, to be fair I think analysts estimates are way to optimistic. I expect 2009 and 2010 to be as bad as Q$ 2008 for the economy, and unemployment rate in double digits in 2010. So I think USB will earn considerably less that analyst estimates. My own estimate is $0.50 to $0.80 per share in 2009 and 2010 under these assumptions. And I could be underestimating how worse the economy could get. The bottom line is don't take analyst estimates for bank stocks with any faith.

Feb 18 12:37 PM

[RazorKnowsT...:]

And the US Bancorp cheerleaders continue to blather on..... "our great bank; our great CEO; our great sacred dividend - blah, blah, blah".

USB is finally feeling the effects of the legacy of the Grundhofer banker-bandits. Thanks Jack ! Thanks Jerry !

Maybe someday soon you'll find out who the Brothers let in the backdoor of this bank - and who has been sucking the life-blood out of the company ever since.

A cut in the sacred dividend is just the beginning. There are a whole lot more skeletons hiding in the USB closet, just waiting to jump out at ya..... Boo !

Single digit stock prices for USB are on the immediate horizon - doesn't matter what propaganda Sir Richard chooses to hand out.

Feb 18 09:18 PM

[greedcanbgood:]

Razor don't know diddly. I wonder what ax he has to grind with USB. Former employee dismissed when Jack first came to the company (it was needed) or perhaps someone who worked there who just didn't like how "cheap" the company was (also needed).

Look at how USB compares to its peers, do some SERIOUS due diligence and THEN you can try to justify yourself.

Feb 19 11:47 AM

[RazorKnowsT...:]

Greedcanbegood -

You obviously are a 1980s dinosaur.

Unchecked, obscene GREED is what got this country into its current economic mess.

Greed is what brought Jack Grundhofer's side of USB to near collapse
(1998 - 2000).

Greed is what motivated Jerry Grundhofer and Dave Moffatt to play the smoke and mirrors game with their side of the company for so many years. With enough props, and sleight of hand, you can even make dog poop look good.

The reality behind USB is now coming to light... and there ain't enough smoke in the world to keep the truth hidden any more.. Worse is yet to be seen.

Jack is in a casino, and Jerry's on a golf course, and both are laughing hysterically at how easy it was to "rob" this bank of so much money. They win - everyone else loses.


On Feb 19 11:47 AM greedcanbgood wrote:

> Razor don't know diddly. I wonder what ax he has to grind with USB.
> Former employee dismissed when Jack first came to the company (it
> was needed) or perhaps someone who worked there who just didn't like
> how "cheap" the company was (also needed).
>
> Look at how USB compares to its peers, do some SERIOUS due diligence
> and THEN you can try to justify yourself.

Feb 19 01:25 PM

[greedcanbgood:]

Razor...with all due respect. USB, even after Jack, Jerry and David are all gone continues to outperform most of its peers in nearly every measureable category. A smoke-and-mirrors scenario that you suggest wouldn't be able to survive for too long without its major architects at the helm. US Bank, even today has loss rates that are a fraction of its peers and, while rising, are doing so at a rate FAR slower. It’s also one of the few banks that was able to turn a profit in Q4. I agree with an earlier poster that Q1 will be very telling for USB.

I concur that greed got us into this mess which is why I say that greed CAN be good. Too much greed however is ultimately destructive to everyone.

You paint a pretty nasty picture with a lot of superlatives but not any facts. Tell us the why's and perhaps we'll believe.

Feb 19 01:40 PM

[cubanstockp...:]

The problem with USB is not a problem at all. They are trying to take the few mortgages they do have off the balance books. Billy, I dont see one location where you are pointing to level 1 through 3 assets.

BTW, US Bank was told, not asked, to participate in the program, which is a Darwinian attempt to “synthesize” weaker banks into stronger banks through ... As of now, I pi cked USB to outperform, (Disclosure)

Feb 19 03:59 PM

[Ed, Sidney,...:]

As a customer of USB, their customer service has picked up as a result of this recession. They've made personal contact with their customers on the homefront to entice customers with the offer of "platinum services" to preferred customers, home equity loans, as well as friendly reminders on how to alleviate PMI insurance on devalued properties below initial mortgage rates, with step by step instructions in plain english on how to request in writing cancellation of PMI. So I am impressed with their efforts. Completely professional and cordial from our downtown home office, population approx 20,000. "Customer Service is the key." Believe it or not, not the usual strong arm tactics involved in sales pitches, this was quite refreshing.

Feb 20 08:34 AM

[Midas1:]

Moron author, as usual. USB didn't give loans to anything that breathed unlike BAC, Citi and others. USB will do just fine thank you very much because they had integrity when everyone else had greed. TARP is being crammed down their throat. The stock price will recover unless USB is forced to mollycoddle those that bought above their means and are now whining.

Feb 20 03:16 PM

[USBANK BANKER:]

That is correct we were forced to take the package and buy the banks that were going under. Fdic came to usbank and asked up to take another look at indy mac.


On Feb 19 03:59 PM cubanstockpicker wrote:

> The problem with USB is not a problem at all. They are trying to
> take the few mortgages they do have off the balance books. Billy,
> I dont see one location where you are pointing to level 1 through
> 3 assets.
>
> BTW, US Bank was told, not asked, to participate in the program,
> which is a Darwinian attempt to “synthesize” weaker banks into stronger
> banks through ... As of now, I pi cked USB to outperform, (Disclosure)

Feb 20 07:31 PM

[USBANK BANKER:]

I can say we are not in any trouble, we are currently taking measures to ensure that we will not be going under. The one thing nobody is not focusing on is the pure fact that its not all the banks fault.. People who live outside their means are the ones who got us into this mess. Common sense says EVERY bank will take a toll in charge offs as more and more people lose their jobs. Its the people who didnt buy a 400k plus houses and 50k plus cars simply because they were making 6 figures will be the ones who stay above the water. I think instead of letting these morans walk away from their debt they created and enjoyed until times got tough, they should have to consolidate their debt no matter what kind it is into 1 low rate loan and pay it back. Nobody gives a crap about their fico score anymore, which is unabling the banks to lend. Like i tell all my customers that get turned down, USBANK will NOT loan to a person with a bad credit score or a bankrupcy.... Whoever made this article needs to be fired.....

Feb 20 07:48 PM

[B&C, MI.:]

In my searches, I have found USB funding the future of America. USB is partnering with HE and other electrical companies to add wind and solar energy to the grid. This kind of investing only strengthens my opinion of USB. Many CEO's are trying to look like they are doing what is best for all parties, but very few are doing it. If you want to worry about a bank that has something to hide, consider that JPM hasn't a blemish on it's books!!! Hang on tight, when JPM has to report this in Q?, the fear will multiply. Don't nationalize, don't even pull the (toxic) debt, let the system work. Pulling the toxic debt from the books will only help the banks that are being protected (guess who). USB will be hurt by this, because they aren't in trouble. They will end up being the FORD of banking. I closed my accounts with BAC and moved them to a credit union, because I was tired of being pressured into opening accounts that only took my money. My home loan is through USB and I have been very pleased with there service. Reading this article, is like listening to Cramer. Take for what it is worth!!!

Feb 21 09:18 AM

[Murali Thoota:]

Operating margins are at squeeze at all the bank. Since the last quarter, the FDIC increased its guarantees on the bank deposits from $100,000 to $250,000. This is coming from no where, other than the bank profits. Also the mandatory infusion of TARP money in these banks is making them to payback @ 5% - another squeeze on the profits. The total disbursements have gone down, allocations for charge-offs gone up; all these are putting even good banks at the run.

Feb 23 11:53 AM

[malibuju:]

One of the worst banks out there with customer service , they have been by far the leading foreclosing bank on homes in my area . They bought many of the toxic bonds from Countrywide loans.

How do i know , well they did it to me & many others , refused to produce the note and have a very bad hack lawyers who will do not follow the law but just want to throw you out of your home . I hope they all fail and get what they deserve , they are all crooks.

Mar 03 01:34 PM