U.S. Bancorp extends buying spree

Earlier this decade, U.S. Bancorp Chief Executive Officer Richard Davis seemed content to sit on the sidelines while his big-bank rivals went on costly acquisition sprees.

But now the tables have turned. Davis is wading into the acquisition arena -- buying troubled assets all over the country -- while many of his counterparts stand idle, too consumed by their own loan problems and past acquisitions to pursue deals of their own.

Late Tuesday, the Minneapolis bank, which has 2,850 branches and $266 billion in assets, announced plans to buy 20 branches and $800 million in deposits in Nevada from Winston-Salem, N.C.-based BB&T Corp. for an undisclosed amount. The branches, primarily in the Las Vegas area and northern Nevada, were castoffs from failed Colonial Bank, an Alabama lender seized by federal regulators earlier this year after huge losses on real estate loans.

Though the acquisition is a small one for U.S. Bancorp, some analysts believe it and a half-dozen other recent acquisitions reflect a newfound willingness by Davis to pursue deals while his rivals muddle through a prolonged credit crunch. Over the past year, U.S. Bancorp has quietly acquired two failed savings and loans in California with assets totaling $16.5 billion, three credit card portfolios from ailing Citigroup, $225 million in deposits in Idaho from a failed bank, and a mutual fund administration business with $8 billion in assets under administration.

Individually, these transactions have not generated much fanfare. But the acquisitions, combined with U.S. Bancorp's relatively strong capital position, have aroused speculation that Davis may be preparing to pull off a large acquisition, particularly if a large bank were to fail in the coming weeks or months. More than 120 banks have failed nationwide over the past two years.

"It wouldn't be a surprise," said Jennifer Thompson, a financial analyst at Portales Partners in New York, of the possibility of a large U.S. Bancorp deal. "As more and more banks fail, stronger banks like U.S. Bancorp are going to be in a position to pick them up at fire-sale prices."

Last month, Davis told analysts at an investors' conference that he didn't expect the bank to do a "transformational deal," but suggested he was looking for buying opportunities across a wide range of businesses.

"If there's something amazingly opportune, then, sure, we will look at anything," Davis said at the conference. "We like payment businesses, we like trust businesses, we like bank deals, particularly end market where they fill in some of the gaps where we can become stronger in the local market."

Industry analysts argue that U.S. Bancorp, the sixth-largest bank in the nation by assets, is in a much stronger position to pursue deals than many of its big-bank peers still trying to digest large-scale acquisitions of problem institutions. Last year, Wells Fargo & Co. acquired Wachovia, which was weighed down by a huge portfolio of troubled mortgage loans in California; J.P. Morgan bought two failed institutions, Washington Mutual and Bear Stearns; and Bank of America has been forced to defend itself against lawsuits surrounding its deal to buy Merrill Lynch.

"The big four banks [J.P. Morgan, Bank of America, Wells Fargo and Citigroup] are too big and too distracted with their own problems to do deals right now," said Jaime Peters, a bank analyst at Morningstar.

It's better capitalized

Another key advantage for U.S. Bancorp: It is better capitalized than most of its peers. U.S. Bancorp had an 8.42 percent leverage ratio as of June 30, according to SNL Research. That means the bank has $8.42 in equity for every $100 in assets. The ratio measures a bank's ability to absorb losses on loans, among other things, and U.S. Bancorp's ratio is the second-highest leverage ratio among the 10 largest banks in the country. Citigroup, by contrast, has a leverage ratio of 6.92 percent.

U.S. Bancorp was among the first banks in the nation to repay the taxpayer support it received under the U.S. Treasury's Troubled Asset Relief Program. It repaid $6.6 billion to the government in June.

"They have adequate capital and very strong earnings," said Jon Arfstrom, a bank analyst with RBC Capital Markets in Minneapolis. "When you combine those two things, they can take advantage of other companies' weaknesses."

The Nevada deal, slated to close early next year, will boost U.S. Bancorp's deposit base in Nevada to about $1.8 billion, from $1 billion currently. U.S. Bancorp has 64 branches in the state. BB&T initially bought the Nevada branches as part of a deal to acquire failed Colonial Bank from the Federal Deposit Insurance Corp.

Terms of the transaction were not disclosed.

Chris Serres • 612-673-4308