Breakingviews-U.S. Bancorp puts rivals big and small to shame
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
By Antony Currie
NEW YORK, Jan 22 (Reuters Breakingviews) - Don't look to Wells Fargo (WFC.N) for the best earnings among America's top 20 banks. The San Francisco-based lender bested the likes of JPMorgan (JPM.N) and Goldman Sachs (GS.N) and dusted laggards Bank of America (BAC.N) and Citigroup (C.N). But it's U.S. Bancorp (USB.N) that puts both industry behemoths and smaller peers to shame.
With about $350 billion in assets, the Minneapolis-based institution has a good mix of businesses. Its non-interest income accounts for just under half of revenue. That's not as much as the big universal banks, where advisory, asset management and securities services generate healthy fee income. But it's more than the one-third or so of the top line at close rival PNC (PNC.N). That gives U.S. Bancorp a healthier buffer while interest rates remain low.
Fellow regional lender SunTrust (STI.N) is better on that score. Its interest income accounts for just 30 percent of revenue. It has a far more bloated expense base than peers, however. SunTrust set aside three-quarters of its top line to cover costs.
U.S. Bancorp, by contrast, is one of the country's most efficient banks, requiring just half its revenue to pay the bills. The average for U.S. commercial banks is 60 percent, according to the Federal Deposit Insurance Corp. After adjusting for accounting and litigation charges, expenses soak up more than four-fifths of revenue at BofA and Morgan Stanley (MS.N).
What's more, neither Richard Davis, U.S. Bancorp's chief executive since December 2006, nor his predecessors appear to have stretched for earnings. As evidence, the bank bought back just $228 million of home loans last year, with only $131 million of other claims outstanding. Compare that to the $5 billion of charges BofA set aside for mortgage woes in the fourth quarter alone.
As a result, U.S. Bancorp's return on equity last year was an impressive 16.2 percent. That topped Wells Fargo's 13 percent and surpassed single-digit showings at PNC, BofA and Citi. Using another gauge, U.S. Bancorp's return on assets stood at 1.65 percent while JPMorgan's whale-attacked return couldn't breach 1 percent.
U.S Bancorp isn't immune to the industry's travails nor are the reasons for its success any secret. It's just surprising how few of its peers have managed to duplicate the resiliency.
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- U.S. Bancorp on Jan. 16 reported fourth-quarter net income of $1.42 billion, or 72 cents a share. Profit for the year was $5.65 billion while return on equity was 16.5 percent.
- U.S. Bancorp earnings announcement: link.reuters.com/vyb45t
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- For previous columns by the author, Reuters customers can click on [CURRIE/]
(Editing by Jeffrey Goldfarb and Martin Langfield)
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