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UPDATE: Moody's Places U.S. Bancorp (USB) Long-Term Ratings Under Review

September 20, 2012 3:59 PM EDT Send to a Friend
(Updated - September 20, 2012 4:16 PM EDT)

Moody's Investors Service placed the long-term ratings of US Bancorp (NYSE: USB) and its subsidiaries on review for possible downgrade. US Bancorp is rated Aa3 for senior debt and its lead operating bank, U.S. Bank National Association, has a standalone bank financial strength rating of B+, which maps to a baseline credit assessment of aa2. The bank's long-term deposit rating is Aa2. The short-term Prime-1 ratings of US Bancorp and its subsidiaries were affirmed and are not on review.

RATINGS RATIONALE

US Bancorp is a strong, diverse, and well-managed bank that generated positive earnings with comparatively limited volatility throughout the recent downturn. That performance resulted in a significant competitive advantage and allowed US Bancorp to invest in its business at a time when many other banks were internally focused.

Nonetheless, the rating review will consider US Bancorp's long-term ability to sustain its consistent, superior performance in light of increasing competition now that its peers have largely returned to health and are actively seeking growth.

In addition, although US Bancorp's recent investments have thus far supported its earnings growth, some of its expanded businesses, like mortgage banking, expose it to incremental volatility, and this will be considered during the review. In Moody's opinion, this increase in potential volatility is particularly pertinent for US Bancorp because its capital profile, while healthy, does not distinguish it from its peers. Moreover, US Bancorp actively manages its capital as reflected in management's high total targeted payout ratio of 60-80%.

"Despite the review, US Bancorp's position near the top of our rated bank universe is not in question", said Moody's Senior Vice President Allen Tischler. Indeed, the rating agency noted that if a downgrade results from this review, it is expected to be limited to one notch. This reflects US Bancorp's superior operating efficiency, revenue diversity, strong credit quality and limited concentration risk.




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