U.S. Bancorp execs see slower growth ahead, but no recession in the U.S.

U.S. Bancorp executives, at a once-every-three-year meeting with top investors and analysts, said Thursday they can't take the company's strong performance for granted and are making big changes amid slowing growth.

The Minneapolis-based operator of the nation's fifth-largest bank for a decade has produced some of the best results in the banking industry.

But near the end of the company's Investor Day event in New York, analysts pressed executives on the speed of change. One noted that several solidly performing banks disappeared in the last recession and some consumer brands that were giants in the 1990s are gone today.

"We talk about this a lot," Andy Cecere, U.S. Bank's chief executive, said in reply. "One of my objectives is to not be Sears Roebuck. We're performing very well and we've performed well for a long time. But I believe strongly, as does this team, that we need to pivot. We're not going to lose what got us here, but we recognize that we have to change."

He and other executives set forth growth expectations for the next three years that were lower than they projected at the firm's last Investor Day event in September 2016. They said they don't believe the U.S. will slip into recession, but they do expect slow growth and that the Federal Reserve will cut its main interest rate to 1.5% by early next year from 2.25% now.

"We don't see a recession occurring, but if it does we're ready for it," said Terry Dolan, the company's chief financial officer.

"Business is relatively robust. Consumer confidence is strong. Unemployment is relatively low," Dolan said. "When we look at the economy, we feel pretty good about it. The thing that is creating uncertainty are the geopolitical issues, trade or tariff wars, things like that, that are happening."

Two months ago, when the firm reported second-quarter results, it forecast a decline in net interest margin, which was 3.13% in that period, of 8 to 9 basis points during the third quarter that ends Sept. 30. Dolan said executives now think that decline is more likely to be 10 to 11 basis points. The Federal Reserve in late July made its first cut to interest rates in a decade.

"Global rates are very low," Dolan said. "When you end up thinking about economic growth in Europe and China starting to slow, you end up having a lot of global investors coming to the United States and buying Treasuries because, on a relative basis, they can find yield. Those two things are causing short-term [bond] rates and the Fed [borrowing] rates to move downward."

As a result of the lower rates and slower growth of the broader economy, U.S. Bank executives said they expect revenue and net income to grow in the range of 5% to 7% annually over the next three years.

In 2016, they projected annual revenue and profit growth of 6% to 8% during 2017, 2018 and 2019.

They also projected lower expense growth, in the range of 2% to 4% in the coming three years. That is compared with the projection in 2016 of 3% to 5% annual expense growth in the three years that were then ahead.

He also noted the sale of several businesses, including its ATM processing unit last fall, as evidence that the firm is shaping itself for the way that customers will use banks in the future.

"We did all of those things, really, for the purpose of taking the capital that you would have to dedicate to those activities and reinvesting it in digital activities," Dolan said.

Evan Ramstad • 612-673-4241