U.S. Bank jumps into gaps left by megabanks

The post-2008 regulatory squeeze on the world's largest banks has a silver lining for U.S. Bancorp: It's boosting the company's national ambitions.

Regional when it comes to retail banking and unlikely to change that soon, the Minneapolis-based company has been pushing hard into national commercial lending and investment banking.

As several of the world's megabanks cut back on lending to satisfy regulators, U.S. Bank is ­starting to pry away large corporate ­customers.

"They're in a pretty good spot, because the bigger banks have higher capital requirements, also the investment banks do," said Jon Arfstrom, a senior analyst at RBC Capital Markets. "And then the European banks have capital issues that they have to sort out."

All the major American banks — U.S. Bank is the nation's fifth largest, but well behind the top four — have emphasized commercial over consumer lending in the past five years. Commercial lending makes up about half the loan portfolio at Wells Fargo, Bank of America and U.S. Bancorp, big jumps from four years ago.

For U.S. Bank, the shift started in the depths of the recession, when the company was in better shape than most of its peers and decided to focus on lending to big companies and selling them related services.

Between 2007 and 2010, the company expanded its corporate lending footprint from 25 to 50 states, added offices in New York and Charlotte, N.C., and started more aggressively pushing investment banking services — helping firms with foreign exchange, helping them issue bonds and helping governments issue municipal bonds. The firm is advertising more nationally, said Arfstrom. Today, the company loans to 88 percent of Fortune 1000 companies, compared to 79 percent in 2010.

Just last week, the firm started going national with its middle-market commercial lending business, opening an office in Orlando. The company has grown its wholesale banking portfolio by an average of 9 percent each year since 2011, faster than each of the big four. The firm held $131 billion in commercial loans in 2015.

While its large corporate business is still a fraction of that of larger competitors like JPMorgan Chase and Wells Fargo, the company has gained a foothold in the market and believes it will continue to grow, thanks to its regulatory advantage over larger banks and size advantage over smaller banks.

The bank is building stronger relationships with top executives at big companies, a strategy it calls "uptiering," said Jim Kelligrew, the other head of the Wholesale Banking division, at an investor presentation on Thursday in New York. Some 100 clients, many of them chief financial officers and chief executives, gathered for a U.S. Bank event at the jackets-only, no jeans 21 Club on Thursday night in Midtown Manhattan.

Lending to big companies is competitive and relatively low-margin, said Arfstrom, the analyst, but the relationships are valuable as a platform for selling other services that make more money.

For instance, from 2010 to 2013, U.S. Bank had a "muddling" foreign exchange business helping companies handle international transactions or hedge currency risk, Kelligrew said.

Kelligrew hired Jonathan Shiff away from Bank of America in 2013 to run the foreign exchange business. Shiff then hired a bunch of other new people, and the business is growing by about 10 percent per year, Kelligrew said. "A great example of hiring someone in from the outside who was really attracted to our culture," he said.

Kelligrew said U.S. Bank's well-known conservatism — "disciplined risk culture," as he put it — has helped attract industry veterans to wholesale banking who are still scarred by the excesses and missteps of the 2000s. It also appeals to customers who want to work with a solid financial institution.

The bank is taking the lead on helping companies issue corporate bonds — again, a business that didn't exist 10 years ago — more often now. In 2009, it led one deal and ranked 25th in the nation. In 2016, the bank has led 51 deals and ranks 11th. Only Deutsche Bank, one of the European banks working to improve its capital position, stands between U.S. Bank and the top ten.

Still, the bank remains a minor player in the large corporate world. Its market share in the pool of fees for U.S. corporate loans and bonds is still less than 1 percent, as is its share of the total available foreign exchange business.

"We have lots of momentum, but we're barely scratching the surface," Kelligrew said. "Clearly there's a lot of upside."