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Citigroup Inc. and Wells Fargo & Co. have adopted two very different strategies to try to overcome an uncertain economy, increasing regulations and a prolonged slowdown in Wall Street activity — but as their third-quarter results showed on Monday, neither bank has found a foolproof solution.
October 17 -
Banks have been boosting earnings by reducing loan loss reserves. That profit well may be about to run dry.
October 13 -
Leveraged loan issuance slumped in the third quarter, but the amount funded by deposit-rich banks held up and investment grade volume was healthy. Now, dollar shortages at European banks are adding a new dimension to the turmoil.
October 12 -
Richard Davis, the top executive at U.S. Bancorp and chairman of the Financial Services Roundtable, said it's a toss-up as to whether the Federal Reserve presses ahead with a 12-cent proposed cap on debit interchange transactions.
April 19
Richard Davis, the head of U.S. Bancorp, has long been willing to compete on price to bring in loans, but says right now he doesn't have to.
The Minneapolis bank reported
The industry is starting to make more loans, but U.S. Bancorp's performance stands out because quarterly revenue slumped at its large rivals. U.S. Bancorp's success might hinge largely on its resilience and its reputation.
"We are prepared to compete on price. I have always said that, and I will say it again today. We are not having to use it as much," Davis said Wednesday during a conference call with investors and analysts. "We are actually not having to spend as much as I am willing to spend to win a high-quality deal, because they are actually coming to us saying, 'That is a fair price for the quality of our relationship, I will take it.' "
The bank's biggest gains were in mortgages, which increased 22% from a year earlier. The activity was spurred by refinance activity and jumbo mortgages.
Analysts, however, were particularly keen to discuss the company's commercial loan growth. Such loans totaled $52 billion at the end of the third quarter, up nearly 12% from a year earlier and up 4.6% from the second quarter.
"With U.S. Bank, we are almost getting to a point of robust loan growth," Marty Mosby, an analyst at Guggenheim Partners LLC, said in an interview after the investor call. "When you are getting close to a point of 20% annualized growth rates in this soft economy you have to go, 'Wow.'"
U.S. Bancorp has succeeded in commercial lending, particularly at the upper end of corporate lending where other lenders have disappeared and where foreign banks have pulled back, Davis says. That gap has given U.S. Bancorp an opportunity to raise its profile.
"We've been invited into more syndicated deals. And over the last year we are now leading a lot of deals and leading syndications and playing the lead partner for these companies, which is a big step," Davis says. "The international banks are now not typically showing back up at the same level they were when there is a renewed syndicated deal, and so we are not only invited in, but we are invited up."
The growth is also being fueled by the investments the company has made in recruiting talent, Davis says.
"We are growing new customers just the old-fashioned, organic way," he said. "I have added hundreds of new people in the last few years from a lot of really good banks, with really good skills and really good customers who now work here."
Though the recession has taught banking observers to be wary of rapid growth, analysts say they are not worried about overreaching on the part of U.S. Bancorp.
"Anytime you see strong loan growth, as an analyst you take a step back and give it a second look," said Scott Siefers, an analyst at Sandler O'Neill & Partners LP. "But USB has such a strong credit culture and such high credibility that you give them the benefit of the doubt."
Overall, average loans rose 5% from a year earlier. The bank managed to increase loans without eroding its net interest margin too much.
The net interest margin fell 26 basis points from a year earlier but only 2 basis points from the second quarter, to 3.65%. The reduction was tempered by 20% growth in non-interest-bearing deposits. The decline was attributed to lower-yielding investment securities and cash balances at the Federal Reserve.
In an interview, Andrew Cecere, vice chairman and chief financial officer for U.S. Bancorp, said that the margin benefited from the company's decision to comply quickly with the liquidity coverage ratio outlined in Basel III.
"We began early in building our on-balance-sheet liquidity and are almost complete," Cecere said. "Doing it early helped us a bit."
Cecere said during the call that the bank's margin would likely fall 3 to 6 basis points in the fourth quarter, but that interest income would continue to trend up because of loan growth.
U.S. Bancorp reported that its net revenue rose 4.5% from a year earlier. By comparison,
"We had strong top-line revenue growth and no unusual items. We see it as sustainable and repeatable," Cecere said in the interview. "And more importantly, our revenue growth was across many components. It was diversified across many of our businesses and underlines the fact that we've been gaining market share."
On the call, Davis reiterated the company is
"We are not going to make a mistake here, and we don't have to" try to earn back the money this quarter or in the first quarter, he says. We will start working our way toward different ways of charging for services that customers are willing to pay for.
"We've got a great laboratory of watching a number of banks that have been doing the debit fee and we will learn. … We will find out if customers complain and move, or just complain. We will take all that in, and in time we will make our decision."
