U.S. Bancorp, the nation’s fifth-largest commercial lender by deposits, may be downgraded one level by Moody’s Investors Service as rivals recover and pose stronger competition.
“The rating review will consider U.S. 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,” Moody’s said Thursday in a statement.
The lender, led by Chief Executive Officer Richard Davis, 54, could be cut one level to A1 from Aa3, according to Moody’s. The Minneapolis-based bank faces “incremental volatility” from its expansion in mortgage banking, and that may be magnified because of a capital profile that, “while healthy, does not distinguish it from its peers,” Moody’s said.
U.S. Bancorp closed down 30 cents at $34.04 in New York and was little changed at 5:29 p.m. in extended trading. The shares have climbed 26 percent this year, outpacing the 22 percent gain for the 81-company Standard & Poor’s 500 Financials Index.
The warning from Moody’s came “a little out of the blue” as U.S. Bancorp generates “about the strongest numbers of any bank you could come up with,” Scott Siefers, an analyst at Sandler O’Neill & Partners LP, said in a phone interview. “Anyone would be hard-pressed to find a stronger or better- positioned name out there.”
Excluding the first quarter of this year, U.S. Bancorp has boosted profit every quarter since the last three months of 2009. Davis, who has run the lender since 2006, never posted a loss while at the helm and calls his banking strategy of taking deposits and making loans boring.
“Despite the review, U.S. Bancorp’s position near the top of our rated bank universe is not in question,” Allen Tischler, a Moody’s analyst, said in the statement.
U.S. Bancorp counts billionaire Warren Buffett’s Berkshire Hathaway Inc. as one of its biggest shareholders. The Omaha, Nebraska-based company held a stake of about 3.5 percent at midyear, data compiled by Bloomberg show.
The lender has the highest return on common equity, a measure of profitability, of the 24-company KBW Bank Index. U.S. Bancorp’s return of 16.5 percent beats Wells Fargo & Co.’s 12.4 percent, data compiled by Bloomberg show.
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