U.S. Bank stays the course

A top executive of Minneapolis-based U.S. Bancorp said Tuesday that it has no plans for a major acquisition but likely will continue making smaller ones.

Vice Chairman Andrew Cecere, who also is the bank's chief financial officer, said acquisitions of banks in California and elsewhere have performed well, though consumer banking has slowed this year.

"We don't have a large acquisition in our strategic plan," Cecere said at Deutsche Bank's 2011 Global Financial Services Investor Conference, which was also webcast. "We don't need to do a large acquisition. If opportunities present themselves we'll look at them ... but nothing is on the horizon."

Cecere also said the bank plans to increase its dividend once new regulatory capital rules are in place. The bank is aiming for a "long-term" payout ratio of 30 to 40 percent, Cecere said.

"First and foremost is the dividend level," Cecere said. "That leaves us plenty of opportunity to invest back in the business."

U.S. Bancorp more than doubled its quarterly dividend to 12.5 cents in March, but that remains well below the pre-recession level. During the downturn, big banks cut dividends to conserve.

The U.S. Bancorp board has also approved the repurchase as many as 50 million shares, but won't begin buying until it has "more clarity" about regulatory capital rules.

Flush with cash and performing better than most of its peers, U.S. Bancorp has been pursuing small deals that add to its branch network in markets where it already operates. It ranks among the most active acquirers of failed banks in the nation.

In 2008, U.S. Bancorp picked up more than 200 branches, mostly in California, when it bought the failed Downey Savings & Loan Association and PFF Bank & Trust. It also snatched up nine banks and 150 branches from the failed FBOP Corp. of Oak Park, Ill., in late 2009.

All told, the bank has quietly bought banks and thrifts with combined assets of more than $37 billion since the financial crisis began.

At the same time, U.S. Bancorp CEO Richard Davis has insisted that mergers and acquisitions are not a core part of the bank's strategy, and the bank will not get into a price war.

Several analysts have upgraded their recommendations on U.S. Bancorp in the past few days as the stock price fell, including Christopher Mutascio of Stifel Nicolaus, who put a "buy" on the company Tuesday.

As the bank looks at possible acquisitions, Cecere said it also doesn't plan to get into investment banking or insurance. He said the bank is content with its current business focus, which includes commercial banking, real estate, mortgages, credit cards and retail banking.

"The set of businesses we have right now is the set of businesses we believe we should be in and are very good at," he said.

Earnings up, loans slow

In April, U.S. Bancorp reported that first-quarter 2011 earnings jumped 56 percent to $1 billion. But the bank also warned that loan growth and same-store consumer business had slowed by about half.

Cecere said those trends have continued -- loan growth at 0.7 percent and sales increases at about 3 percent.

Cecere said businesses continue to hold on to cash -- a pattern widely reported during the recession -- and that is affecting business investment and commercial loan growth.

"Companies have not been investing in their businesses -- they are sitting on a lot of cash, they are very efficient but they held off on decisions around capital expenditures, expansion, hiring, new offices, M&A," he added.

Only after businesses see less uncertainty and more clarity in the economic picture will there be more investment growth, he said. When that happens, the growth will occur in midsize and small businesses, he said.