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U.S. Bancorp (NYSE:USB)

June 11, 2013 8:35 am ET

Executives

Andrew Cecere - Vice Chairman and Chief Financial Officer

P. W. Parker - Chief Credit Officer and Executive Vice President

Analysts

Betsy Graseck - Morgan Stanley, Research Division

Betsy Graseck - Morgan Stanley, Research Division

Okay. Thanks, everybody, for joining us for U.S. Bancorp. As with the other presentations, we will kick off with a polling question. So would appreciate if you would take the opportunity to cast your votes. So the question here is what would drive you to add to your U.S. Bancorp position? And there's 3 potential answers: A, capital return at the higher end of USB 60% to 80% payout ratio range; B is sustained positive operating leverage; and, C, stronger revenue contribution from USB's Payments business, so A for capital return, B for operating leverage and C for growing Payments business. And the answer is, B, positive operating leverage. All right. Pretty evenly matched, though a little bit less SKU than some of the other answers but definitely a positive operating leverage is what people are looking for.

Okay. And with that, I wanted to highlight that we're delighted to be joined today by Andrew Cecere. Andy, thank you very much for coming, Vice Chairman and CFO of U.S. Bancorp; as well as Bill Parker, Executive Vice President and Chief Credit Officer. Andy has been CFO since February 2007 and so has been in this role during the entire downturn and upswing here. Prior to which he was Vice Chairman of Wealth Management and the Securities Services divisions. Bill has served as Chief Credit Officer since 2007. Prior to which, he was EVP of USB's credit portfolio management.

And USB is the sixth largest bank by assets in the U.S. and has demonstrated profitability with lower earnings volatility, higher sustained profitability with lower earnings volatility than its peers. Key to base we see is capital deployment, loan growth and the Payment Services.

We will use the fireside chat format, but first, Andy will kick off with a few slides highlighting a couple of key points on U.S. Bancorp

Andrew Cecere

Thanks, Betsy. And by the way, Betsy had that answer right on the poll, so I think I owe you $1, right.

So I thought it would be helpful just to talk about maybe 5 slides to give you a framework as we talked about the Q&A. I know the investors typically like Q&A more. But I think these 5 slides, for those who don't know the company, I know many of you do, would set a good ground framework for that discussion. I may be discussing some forward-looking statements.

So first, diversification. We are a very diversified company, both in terms of the business lines that we derive revenue from, as well as the sources of revenue. So you see on the left were 4 pretty simple businesses: Payments, Consumer, Wholesale and Wealth Management. The size of that pie has grown but the components of that pie have been fairly stable over the past 5 years. And each of them have different sources of revenue, which is, to the right slide, you can see that we derive about half of our revenue from the balance sheet and about half from fees. At any point in time, they'll be 45%-55% one way or the other. That's great source of revenue. Because at any point in time and where you are in the economic cycle, one or the other will have strength versus weakness and that diversification certainly helped us during this most recent downturn. So number one, diversification.

Number two is returns. We have the #1 returns in terms of return on equity, return on assets and efficiency ratio across our peer group. We compare ourselves to the top 10 banks of the country, excluding Citi. And you can see in the first quarter of 2003, an ROE above 16% and ROA above 1.6% and efficiency ratio about 50s. And that result has been the case for the last 5 years. If we go back to the beginning of the downturn, the first quarter of '08, you can see that we continue to enjoy that #1 position. So diversification, strong returns.

Number three, from a capital standpoint, we are where we want to be. And what I mean by that, we're not in the mode of trying to build capital to get some capital ratio, nor are we in a situation where we are over capitalized or have any trapped capital. We believe we need to be at about 8% Tier 1 Common under the Basel III standardized rule, and we're at 8.2% in the first quarter. So we're in a mode that we're able to return right in the middle of our range of 60%, 80% of our earnings to shareholders in the form of dividends and buybacks. You can see here in the first quarter we were at 69%, which allows us to reinvest in the company about 30%. Our cash that were returned -- reinvestment is about 20%, which allows for 5% to 6% earning asset growth, which is what we have achieved. So we're in a good place. And to the extent that the growth accelerates, we will dial back on the buybacks and reinvest more on the company to accommodate that risk-weighted asset growth.

And finally, from a debt rating standpoint, we're at the top of the heap across all 4 rating agencies. You can see Fitch, DBRS, S&P and Moody's #1 and stable across. Now this gives us benefits in 3 ways. Number one, the obvious benefit is a lower cost of issuance, and we enjoy a significant advantage versus our peer group in terms of our debt issuance. Secondly, as you would expect, people put deposits in safe entities. And through this downturn, we were a flight to quality for the deposit side of the equation. But interestingly, the other component of this benefit is the asset side of the equation. Because we, through the downturn, because of our stability, we're able to continue to fulfill our commitment levels and, in fact, grow them, and we were able to get into new businesses and new deals because of that.

So across our long-term goals -- it's pretty simple set of 4 goals. Optimal business mix, we are there. There are no businesses that we seek to get into and none of the businesses we have that we want to get out of. So we have the 4 businesses that we want. We've invested in those businesses throughout this downturn, which has allowed us to gain market share. We went from the 21st position in mortgage to fifth. We gained capabilities in our Corporate Banking group. We have a much more significant international Payments platform. So I will tell you that we came out of this downturn much stronger in terms of capabilities, our products and services and our people and how we entered the downturn. Profitability, I talked about, our goal is 16% to 19% in ROE, 1.6% to 1.9% in ROA, low efficiency ratio at low 50s in efficiency. And you can see across all those categories, we are within the range. And then finally, I talked about capital distribution, 60% to 90%. We're at 69% and in a good place.

So with that, Betsy, I'll let you ask some questions.

Question-and-Answer Session

Betsy Graseck - Morgan Stanley, Research Division

Super. Thanks, Andy. So I'll kick it up with a few questions and see if anybody in the audience has some follow up. Just on the operating leverage. So I think part of the reason why people are very interested in this is because you do have loan growth, which is great. You do have some revenue growth, but you've also indicated an interest in reinvesting the business clearly. And there's been some commentary that you really are not seeking to bring the expense ratio below 50%. So it's that kind of an expectation. You're not going drive your expense ratio lower. You have to get that loan growth, that revenue growth to improve the operating leverage. So could you just kind of talk through how you're thinking about getting that growing EPS with keeping the expense ratio flat in an environment were loan growth seems to be falling back a little bit?

Andrew Cecere

Sure. So in the way we manage expense is, is business line by business line. We don't have an overall initiative or some bank-wide consultant-driven concept. Richard and I meet with our business lines, about 60 of them, each and every month. And the way we would do it is just like you would do and run your own business, which is what are the revenue opportunities for your business, what are the growth opportunities and we're managing expense, recognizing what the revenue is and try to really achieve positive operating leverage business line by business line. We plan for a slow growth environment in 2013. We talked about the fact that we expected first quarter to be a little lower. So it wasn't surprising to us what we saw. And you saw in the first quarter, our typical model, Betsy, would be revenue growth of sort of 5% to 7% and expense growth sort of 4% to 6%, so always positive. In the first quarter, our revenue was down 1%, but our expense was down more. So we still achieved positive operating leverage. So our goal and our objective and the way we managed the company is get that positive operating leverage, recognizing that in certain quarters or years revenue will be challenged and we'll manage expense accordingly.

Betsy Graseck - Morgan Stanley, Research Division

So can you talk about how you see the next couple of quarters here through the rest of this year pan out, given the fact that you've got some slowdown in parts of the business in terms of loan growth, at least from an industry perspective? And you could shed some light on what you're doing.

Andrew Cecere

Sure. So as we compare the second quarter to the first quarter, a couple of points. First, on loan growth. In the first quarter, we were at 1% linked quarter loan growth. It was at the low end of our 1% to 1.5% range. If you look at last year, we were closer to averaging 1.4% to 1.5% linked quarter. What we said in our call is that we expect the second quarter to be 1% to 1.5%, perhaps a little bit higher than the first quarter and we still continue to expect that. Strength in commercial small business, auto lending continued flat in this, in credit card, as consumers continue to delever and move down and home equity still sort of in a little bit shrinking mode. But those are the categories we're seeing growth in, and we continue to expect that. Margin. In the first quarter, we were down 7 basis points. We expect the second quarter to be down 4 to 6. That continues to be our expectation, and I expect that to diminish over time because our reinvestment risk, which is one of the reasons margin is going down, continues to compress or get better each and every quarter. Mortgage volume. We expect that our originations and production to be higher in the second quarter than the first quarter, and that still is the case. Although I will tell you, the first half of the second quarter started out strong. And as you know, mid-May, second week of May rates increased and -- where they are today versus then, they're up 40 to 45 basis points, and that did slow refinance activity. So I expect refinancings to be in the 60%, plus or minus, range versus the 70s as it was in the first quarter, but I still expect mortgage revenue to be up linked quarter -- year over -- in a linked quarter basis. So those are the gives and takes. And as we talked about, we expect a little bit of improvement in charge-offs in the second quarter. And maybe, Bill, you can comment on that.

P. W. Parker

Yes. Our initial guidance for the quarter was stable and on a gross charge-off basis, that's still accurate. But we have had some stronger-than-usual wholesale recoveries, and those are difficult to forecast. They do come in and so we'll be -- that will benefit us this quarter. So our net charge-off will be down again this quarter.

Betsy Graseck - Morgan Stanley, Research Division

And with housing prices having improved pretty significantly during the spring selling season, could you give us a sense as to how -- that blended average HPI is, in your region, relative to expectations, and does that the at all impact how you're thinking about the reserve?

P. W. Parker

Yes. I mean, it does but on a slower basis. The resolution on the residential mortgage portfolio, the assets that were acquired prior to 2007, those still have a long tail to them. I don't expect to be fully resolved out of those loans for another couple of years. The increase in HPI were heavy on the West Coast. That's been a strong, strong market. California up to Seattle has really come back strongly. That helps a lot. But it's still -- when the homes are in foreclosure, where you're carrying your heaviest reserves, the increase doesn't help as much. It helps more on the front end. It helps on -- certainly on originations. We have an area that specializes in home financing, homebuilding financing for middle-market companies. They've seen a very strong increase in demand.

Betsy Graseck - Morgan Stanley, Research Division

Okay. While we're on the reserving topic, maybe we could just spend a little bit of time on how you're thinking about the proposal that FASB has out there for reserving?

P. W. Parker

Well, we did comment on it as did the industry. And I think if the original notion was to reduce the forward-looking or the forward sensitivity of it to somewhat stabilize the reserve as you go through a credit cycle, we're supportive of that. We think that's a prudent way to do it. That's the way we would like to reserve. There's a -- but the devil is in the details with them. They get into life of the maturity of the loan. So if you put a new residential mortgage loan on the books, you have to put in the full lifetime loss at the same time. So there's a big mismatch of revenue and the expense you take on the provision. Depending upon how you do that, that's okay. But depending on what their final rules are, it may not be okay. So again, the devil is in the details on that. But the general concept of less volatility and reserves, we're very supportive of that.

Betsy Graseck - Morgan Stanley, Research Division

And would you do anything differently with your reserving today to prepare for that FASB rule?

P. W. Parker

Well, you really can't. I mean, today's rules are today's rules, and those are what we comply with. And then when they -- whenever the new rules are out and effective, say, it's 2015, there'll just be a cutover date and a onetime adjustment, and we'll operate under the new rules.

Betsy Graseck - Morgan Stanley, Research Division

And then just a follow-up question of the mortgage side. Andy, you indicated -- you said in the past, you have been looking to grow your share mortgage originations. Just get a little bit of an update on that as well us understand the rate rise. You have to bring down the refi volume a little bit, but how does that impact how you're thinking about the MSR? Because we've got -- typically, rates rise, MSR duration extends and you mark it up, but at the same time, you've had HPI go up. And so where are we? Are we at a point yet where the MSR would be increased for this rate rise we've seen?

Andrew Cecere

So I'll answer the second question first. Our MSR is hedged. So the increase in rates really doesn't have a significant impact, plus or minus. If you look at our hedge results over the last few quarters, it's been fairly neutral. In any day, we'll be up or down. But typically, over a quarter, we're fairly neutral. So that increased value on the MSR asset will be offset by a decrease on the hedge side of the equation. With regard to our positioning, we did go from 21st and 23rd in terms of origination and servicing to fifth and sixth, and I would expect us to continue to be somewhere between that #4, #6 place. We're in a very good spot. We have significant scale to be successful in a business, and I think we have great management in that business. What I will tell you is we're creating more focus in terms of our own branch origination as part of the sources of the business. But generally speaking, we're in -- we're happy with where we are in mortgage, and we'll continue to be in that fourth to sixth place.

Betsy Graseck - Morgan Stanley, Research Division

Okay. Just the -- questions from the audience? So I would like to turn towards the Payments business. I think Richard recently indicated that he would like to see a step-up in the Payments business in the contribution of revenues from Payments from about 26-ish to 35%. Is that right?

Andrew Cecere

26% to 30% to 35%.

Betsy Graseck - Morgan Stanley, Research Division

Right. Could you give us a sense as to how you are thinking about executing that? That's a big increase.

Andrew Cecere

Right. So I think 2 things as you think about the Payment business. Number one is it is, by its nature, a very economically leveraged business. So to the extent the recovery occurs, there's a lot of components to that business: merchant activity, which is same-store sales; card issuing, which is consumer spend; and corporate, which is corporate spend. So it's highly leveraged to an economic recovery. It's, right now, growing in the single digits, and typically, that grows faster because of that. So that's one component. It's a high-growth business. Secondly, it's the one business that we've expanded internationally. So our merchant processing business, as you know, is very significant in Western Europe. We've recently expanded to Brazil and Mexico, and I would expect us to continue to have growth in terms of international. Two reasons for that. Number one is we have a great Payment platform and the second is the scale and the opportunity for others to link onto that platform. So we're going to have more expansion in that business. And thirdly, we've had more acquisition in that area. If you think about our acquisition pie, most recently, it's been focused in the Wealth Management and Securities Services area as well as Payments. So because it's high growth, because of international expansion, because of M&A, that piece of the pie will likely grow a little faster than the pie overall.

Betsy Graseck - Morgan Stanley, Research Division

Okay. And so what kind of timeframe are we talking about to hit these targets? This is a...

Andrew Cecere

I won't say it's necessarily a target. I think it's just going to be a natural occurrence of those 3 things I talked about.

Betsy Graseck - Morgan Stanley, Research Division

Okay. Over a 5-year period or...

Andrew Cecere

Over a 3- to 5-year period.

Betsy Graseck - Morgan Stanley, Research Division

3 to 5, okay. And then follow-up on that is we have seen some interesting moves domestically. With Payments business, clearly, there are some challengers from Silicon Valley area, right, the hi-tech space, and then we've seen the Visa-MasterCard's lineup. Obviously, given your footprint of businesses, you could do that same kind of offering and, essentially, rent space on a network, can go direct to merchant to negotiate. Is that something that is of interest?

Andrew Cecere

Yes. So as being both a large issuer as well as an acquirer, we have the opportunity to do the same transaction, and in fact, we're working on different test in terms of that. The play there is that you are making an assumption that your increase in volume will offset your decrease in spread or your DIA rate, and that is something we're testing. Secondly, I think in terms of the technology, I will tell you that Payments is the business that we are spending most of our time and energy in terms of R&D activity. There is a lot going on in the payment space. We have our own mobile technology, our own Square-like device. We are partnering with other wallets. And as -- there are a number of activities right now in play, Betsy. What's not clear is what is going to be the winning outcome here. So our strategy is to be involved in many different strategies with the assumption that something will evolve as the winning strategy and we want to be part of it. But we're spending a lot of time in R&D. I think we have a solid platform in terms of our capabilities and a lot of new capabilities. Most recently, you may have read about our device for near field communications. So we're in a good place there, but it's changing rapidly, and we're trying to keep up with it.

Betsy Graseck - Morgan Stanley, Research Division

And then just the final one on the international side. Emerging markets seem to be very interested in extending plastic into the payment system. Clearly, there's plenty of benefits with plastic, including reduction in fraud. And so maybe you could give us a sense as to what extent would you be interested in moving your international focus to not only be on the merchant acquiring side but to also be on the issuing side?

Andrew Cecere

Our focus will continue to be only on the merchant acquiring side. That is our capability. We are not going to be lending money nor taking deposits internationally, and that's not our business model. However, we have a great acquiring platform. Our international payment platform is -- it's highly reliable. It's able to go into different currencies very quickly, and that's what creates a partnership opportunity. So I think what you'll see us do is the expansion, which is what you've seen us do, which partnering with another bank as we did in Brazil and in Mexico, most recently with Santander in Spain. That's the model, I think, you'll see us expanding. We're #6 in Europe right now. I think we have more opportunity in the Eastern Europe, and I think we have more opportunity in South and Central America.

Betsy Graseck - Morgan Stanley, Research Division

Okay. Question here, up in the front of the room?

Unknown Attendee

So given your growth targets that you've got for the Payments business, there's been a couple of -- M&A's got to be important in that, and there's been a couple of assets on the block in the past couple of years. Maybe you could talk about the marketplace and have you participated and kind of where you see that going forward.

Andrew Cecere

Yes. So if you think about Payments M&A, there's probably 3 components. It sorts of lines up with the 3 pieces of the business. From a corporate payments perspective, there's typically capabilities. So we're extending our capabilities that maybe a small technology group that has a unique capability that relates to R&D and capabilities it can offer the corporation or the T&E information processing. In terms of the merchant acquiring space, I think what you'll see us do is what we've done, which is just partnership, where we go into a new country with another bank in terms of a joint venture, where we provide the payment platform, the bank provides the merchant relationships and we split the revenue. So that's the type of M&A, the low-capital M&A activity, but that's the type you'll see. And then in terms of card issuing, I think there a few smaller credit card deals available. But because credit card is a high-yielding asset, those are becoming less frequently available. So I think I would expect less of those but more on the merchant acquiring side.

Betsy Graseck - Morgan Stanley, Research Division

Okay. And then turning it back to NIM for a little bit, you indicated that you're expecting to see 4 to 6 basis points or so of compression this quarter and then decelerating compression beyond that due to the fact that your reinvestment rates are getting closer to what your portfolios generating.

Andrew Cecere

Right.

Betsy Graseck - Morgan Stanley, Research Division

So I guess the basic question is, at what point do you see NIM stable in this rate environment?

Andrew Cecere

So our principle headwind, Betsy, is the reinvestment. I have $2 billion to $2.5 billion that comes off the books on the Securities portfolio, which is $75 billion in total every month. I'm being very conservative, both in terms of duration and type of securities, and putting on. So that which I put on versus that which rolls off is a negative 60 to 70 basis points. Every quarter, because I'm staying fairly short duration, that differential gets smaller and smaller. And that's why it goes from 7 to 4 to 6, and I expect it to be less in the third quarter and the fourth quarter. So it's going to diminish and sort of flatten out a little bit, depends on what happens with rates over the next 6 months and year, but I do expect that compression to continue to shrink quarter-to-quarter.

Betsy Graseck - Morgan Stanley, Research Division

So as that fades and becomes more stable, right?

Andrew Cecere

Yes.

Betsy Graseck - Morgan Stanley, Research Division

Does that give your business lines a little bit more opportunity to be competitive for loan growth?

Andrew Cecere

Well, I will tell you, and I put up a slide in terms -- and Bill can comment on this, too, in terms of our rating, which offers us tremendous funding advantages. So I will tell you, I don't think we rarely, if ever, lose on pricing. We have an advantage on that. We're very disciplined in terms of structure, but pricing is not an issue. And in fact, Wholesale pricing, from a loan standpoint, has been relatively stable for 4 to 6 quarters. So pricing is not the issue. It's more demand. Bill?

P. W. Parker

Yes. I mean, we're clear with all the relationship managers not to lose on price. So that's been true for years because of the pricing or the cost advantage that Andy alluded to. And on the pricing front, there are pockets that have been pretty stable, and then there are pockets in the community middle market that things have been getting more aggressive as those banks -- those smaller banks have rebuilt their capital bases and are coming back in, but we stay competitive.

Betsy Graseck - Morgan Stanley, Research Division

Okay. So don't lose on price but hit your return hurdles. So declining rate environment, it feels like that's a tough needle to thread.

Andrew Cecere

Well, we've been in this -- rates have been low for a while, and we're earning a 16% ROE for a while and a 22% tangible. So we've been able to do it.

Betsy Graseck - Morgan Stanley, Research Division

Okay. Maybe turning to auto. There's been some changes proposed, right, by the CFPB...

P. W. Parker

Sure.

Betsy Graseck - Morgan Stanley, Research Division

As to how banks interact and interface with dealer community. Could you give us an update? Love to remind people what we've done since CFPB rule came out and how it's impacted your business and your [indiscernible].

P. W. Parker

So CFPB has targeted what's called the dealer reserve. And so that's a -- it's a significant source of income to dealers when we quote -- when a bank will quote a rate and the dealer can quote a different rate to the end customer and they'll make -- the dealer will keep the difference. CFPB's concern is one of fair lending. And they've come out and said -- since they can't directly regulate what goes on at the dealership, they're coming through the banks and saying, "Banks, we're going to effectively hold you accountable." And so what we did in response, and a couple other banks have done similar things, is we've narrowed the possible gap in the discretion that the dealer has. So we compressed their ability. They still have some room, but it's less than it used to be. I think the big question is this would all be eliminated if there were just sort of a flat fee arrangement or something like that rather than the spread arrangement. But that's not something that U.S. Bank can control. I mean, the industry would have to gradually migrate to that. But we're -- we were -- when the CFPB came out with its guidance, we were quick to react to try to limit that fair lending issue.

Betsy Graseck - Morgan Stanley, Research Division

And so you would be supportive of moving towards a fee.

P. W. Parker

Well, I don't want to say I'd be supportive. It's an important -- today's structure is a very important source of revenue for the dealers. So I really think it's not just for us to make that determination.

Betsy Graseck - Morgan Stanley, Research Division

Right, okay. And have you seen any change in your business activity with dealers after the rate...

P. W. Parker

No, no. They've been supportive, and we've seen strong volumes this quarter.

Betsy Graseck - Morgan Stanley, Research Division

Okay. Several question on the asset side on rates, rates rising. Rates that we're hearing some, obviously, chatter that -- and we heard this morning in our polls that people are looking for rates to move up sooner rather than later on the year -- relative to where we were at the beginning of this year. So a question as it relates to your borrower base. How able are they to afford a rate hike?

P. W. Parker

So the rate-sensitive areas, so commercial real-estate, investor commercial real estate, transactions, leveraged transactions, areas where we have borrowers that might be more sensitive to rate, all the underwriting we do has varying degrees of rate cushion. They'll attend to our underwriting to ensure that they can absorb. I mean, we've been doing this for years. So even as rates were going down, we would still build that in. So we feel that the underwriting strength is there behind these borrowers to handle these rate increase environment.

Betsy Graseck - Morgan Stanley, Research Division

And you're looking at the forward curve as your guidepost to how much and by when rates would rise?

P. W. Parker

Yes, yes, yes.

Betsy Graseck - Morgan Stanley, Research Division

Okay. And then a question on capital. Andy, this was the question that you thought would drive people to add to their positions in USB. So maybe we can talk a little bit about where you're positioned right now on the return. Could you talk a little bit about the CCAR process and what you pick up in this past year that maybe you could apply to the potential requests for this coming year?

Andrew Cecere

Right. So as I mentioned in one of the initial slides, we're in a really good place from a capital standpoint. We generate tremendous capital with a 22% tangible return. That allows us to return 70% to the shareholders, 69% in the first quarter, and still generate enough capital to allow for the growth in the business. Right now, we're just below 30% in terms of our dividend and about 40% in terms of the buyback. And all things being equal, perhaps we'd like the dividend to be a little higher but we were constrained by the 30% in the CCAR. I'm not sure that constraint will be there next year, but we're not far off from where we'd like to be. So if you think about that range, 30% to 40%, perhaps -- we do like to be in the middle on both sides, in the 70s, 70% to 30% and the 40%, but pretty close to where we are right now. And as I mentioned, the buyback component would be the one that we would lever down to the extent there's more growth opportunity in the marketplace and/or M&A. But right now, it works very well in terms of returns to shareholders, our returns that we're generating and the reinvestment in the business.

Betsy Graseck - Morgan Stanley, Research Division

So as you indicated, there is that 30% -- it's not really a max because there are some companies that are paying more than 30%, right, in the form of dividend payout ratio?

Andrew Cecere

Right.

Betsy Graseck - Morgan Stanley, Research Division

So if we still have that kind of soft ceiling, is that something that you would be willing to consider right...

Andrew Cecere

Yes. I'm not sure what the language will be in 6 months from now when the rules come up, but we'll look at that language. We'll talk to our regulators and we'll assess the situation. Again, we're at just under 30%. We're not trying to get to 50%, anything like that, perhaps 35%. So it's not significantly different from where we are right now.

Betsy Graseck - Morgan Stanley, Research Division

Okay. Last question for me on the capital ratio is relating to the stress test. And right now, we've been doing the stress test under Basel I. We're hearing that in the next month or so, we'll get the final rules on Basel III. Do you think the CCAR in 2014 will be stress test under Basel III?

Andrew Cecere

My response is I don't know. My expectation is because the -- when the rule comes out, the final implementation will likely not be until 2014. So it'd be right on the border in terms of putting the stress test in the new rule that's not yet in place. So -- but I would tell you, from our balance sheet perspective, we'd be able to handle it either way. We have a pretty simple balance sheet. We have an 87% risk-weighted asset to total asset number. So we don't have a lot of unusual assets that drive up the risk-weighted asset from a Basel III perspective. We actually manage the company under Basel III. That's that 8.2%. So that would not be a significant issue for us if that were the case.

Betsy Graseck - Morgan Stanley, Research Division

Okay, super. Well, thank you very much, Andy and Bill, for joining us today. Thank you.

Andrew Cecere

Thank you.

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Source: U.S. Bancorp Presents at Morgan Stanley Financials Conference 2013, Jun-11-2013 08:35 AM

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