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Big banks are still avoiding bank M&A, but the reasons are evolving. Plenty are still looking inward, while others are focusing on buying fee businesses. U.S. Bank CEO Richard Davis says he doesn't want to be burdened with an integration when the economy takes off.
September 9 -
Bankers are mulling new ways to serve consumers with low incomes and poor credit profiles after the crackdown on deposit advances, but the prospect of smaller profits and continuing uncertainty about regulations may dissuade a serious effort.
February 19 -
Leading indicators are still so-so, but normally bearish U.S. Bancorp CEO Richard Davis predicts more loan demand in the second half based on his conversations with customers, who he says want to "get things moving."
January 22
WASHINGTON U.S. Bancorp Chief Executive Officer Richard Davis expressed an unreservedly bullish view of the American economy on Tuesday, comparing current conditions to the period just before the long expansion of the 1990s.
Davis has recently been more upbeat about economic conditions than some of his peers at other banks. But in remarks at the American Banker Regulatory Symposium, he went further than he has in other recent forums, predicting that economic growth will be unleashed next year.
Davis attributed his optimism largely to the Federal Reserve Board's growing commitment to raising interest rates.
"It's getting sooner. It's going to happen. And so that's going to be a catalyst," he said in an interview after the symposium. "I think it will be next year things take off."
Davis, who has served as CEO of the Minneapolis bank since 2006, explained that lots of U.S. businesses have been holding back on borrowing because, with interest rates stuck at rock-bottom levels, there's long been no incentive to act quickly.
But he said that will change soon, predicting that the Fed's action will have a similar effect on U.S. businesses as the recession-era "Cash for Clunkers" program had on consumers. Cash for Clunkers was widely credited with boosting automobile sales temporarily by persuading people to buy cars sooner rather than later.
Davis also delivered a 20-minute speech in which he addressed the evolving regulatory expectations for banks. He said that banks have long taken the view that credit losses need to be very rare, and argued the industry is now entering a period in which compliance with regulations is subject to the same high standards.
"It's not okay to say 'My bad,' or 'I'm sorry," Davis said during the speech, referring to regulatory missteps.
Davis said that regulatory expectations should be higher than they were before the financial crisis. "Let's hope the pendulum doesn't swing back. It's not a good place where we were."
But he also suggested that it would be unfair for regulators to expect banks to overhaul their compliance culture overnight, saying that regulators should measure institutions' intent and progress.
Davis also said that the compliance risk associated with bank acquisitions is proving to be an impediment to the M&A market.
"I can do diligence for credit risk. I can't figure out that if I bought a portfolio from another bank that a city attorney in one of the cities a year from now decides they want to go back to 2007 and hold you accountable," he said in the interview.
He also said that raising the threshold for banks to be designated as systemically significant an idea that has recently gained traction on Capitol Hill likely won't affect U.S. Bank. Some have advocated raising the threshold from $50 billion to $250 billion, but U.S. Bank had $389 billion in assets as of June 30.
"We're just a little bank from Bloomington, Minnesota, don't you know?" Davis joked, using a fake upper Midwestern accent.
One idea that Davis floated would mark a major change in bank regulation, if it were adopted. Rather than just supervising banks and issuing enforcement actions when they make mistakes, regulators should actively endorse banks that do a good job, he said.
"Think about Better Business Bureau. Think Good Housekeeping seal," he said during his speech.
In the follow-up interview, Davis acknowledged that regulators may be resistant to his idea because they'll be blamed if something goes wrong at a bank they've endorsed.
Afterward, Davis was asked whether U.S. Bank has a future in small-dollar consumer lending, and he responded that the bank has been having discussions with regulators about how to reenter that business. Until early this year, U.S. Bank offered a credit product with similar characteristics to a payday loan, but new regulations made it impossible for banks to stay in that business.
"All the regulators are interested in this," Davis said. "I know our bank isn't alone, but we're working with different scenarios with them, and I think eventually they're going to have to agree there really is no scenario out there under the old rules that will work. Let's look at a new set of rules that are still right and figure out a new solution. I'm confident we'll get there as an industry."
