Deutsche Bank Cuts Estimates, Price Target On U.S. Bancorp (USB) On Loan Losses
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Deutsche Bank said the biggest issue U.S. banks will face in 2009 is loan losses. The firm expects commercial bank loan losses for the industry to increase from 1.5% (3Q08) to 3% by the end of 2010. They said U.S. Bancorp (NYSE: USB) will be one of the banks hit and lowered estimates on the stock today to reflect this view.
The firm lowered 2009 EPS estimates on U.S. Bancorp by 50 cents to $1.55 and lowered 2010 EPS estimates by 30 cents to $2.00, which mostly reflect higher loss rates and lower revenues than previously modeled. The firm also lowered its price target on U.S. Bancorp to $23.
Analyst Mike Mayo said, "Worsening economic trends should put additional pressure on U.S. Bancorp's loan portfolios (esp. cards, home equity, and residential and commercial mortgage) as well as the banking industry in general. Specifically, we expect commercial bank loan losses to increase from 1.5% (3Q08) to 3% by the end of 2010. Reasons include an increased percentage of loans with higher losses (construction, credit cards, home equity), greater consumer leverage, and sooner problem recognition by banks."
Mayo maintained his Sell rating on U.S. Bancorp.
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