USB - "Best Bank in US"

On July 14, U.S. Bancorp (USB - Analyst Report) announced that it has been awarded the "Best Bank in the U.S." by Euromoney magazine as part of its 2009 Awards for Excellence. U.S. Bancorp's healthy performance during the economic turbulence in 2008 was lauded by the publication. As a leading financial markets magazine, Euromoney has been picking out the top performers in finance since 1992.

In May of this year, the Federal Reserve concluded that U.S. Bancorp did not need any additional capital buffer. The decision came after estimating the adequacy of the company's capital base under a hypothetical two-year scenario that involved economic conditions more adverse than actually expected.

Besides U.S. Bancorp, the other banks not required by the Federal Reserve to raise capital included American Express (AXP - Analyst Report), Bank of New York Mellon (BK - Analyst Report), BB&T (BBT - Analyst Report) and Goldman Sachs (GS - Analyst Report). However, banks such as Fifth Third Bancorp (FITB - Analyst Report), KeyCorp (KEY - Analyst Report), Regions Financial (RF - Analyst Report), Citigroup (C - Analyst Report) and Wells Fargo (WFC - Analyst Report) were asked to raise capital.

U.S. Bancorp remains one of the more profitable large-cap banks in the industry, with a return on equity of 13.9% and a return on assets of 1.21% in 2008. With a wide range of product offerings, U.S. Bancorp remains well positioned for organic growth. Its strong retail banking franchise and leadership in payment processing should continue to create growth opportunities over time.

During May, U.S. Bancorp made a public offering of its common stock and senior notes. Last month, the company redeemed the $6.6 billion of preferred stock issued to the Treasury under the Capital Purchase Program of the Emergency Economic Stabilization Act of 2008. This will reduce government intervention while maintaining a strong capital base.

During the first quarter of fiscal 2009, U.S. Bancorp continued to experience a growth in loans and earnings assets, reflecting acquisitions. Going forward, we expect the company to benefit from strategic acquisitions and expense management. However, the stressed residential real estate markets and mortgage-related industries and the impact of the U.S. economic issues on commercial and retail customers will continue to overhang on U.S. Bancorp.

Prior to the scheduled release of second quarter financial results before market opens on Wednesday, July 22, 2009, we maintain our Hold recommendation on the shares.

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