US Bancorp on Acquisition Spree

As part of its strategic acquisitions, US Bancorp (USB - Analyst Report) has announced on Wednesday that its lead bank, U.S. Bank, has agreed to buy the bond trustee business of First Citizens Bank, a subsidiary of First Citizens BancShares Inc. (FCNCA).

Post acquisition, U.S. Bank’s corporate trust division will have $2.4 trillion in assets under administration, 725,000 bondholders and over 114,000 client issuances. The purchase will aid in growing its corporate banking and fixed income business in the southeast market. Also it complements the bank’s existing bond trustee business in North Carolina, South Carolina and Virginia. Currently, U.S. Bank has 46 corporate trust offices across the country and offers a complete line of trust services.

Earlier this week, US Bancorp also announced its acquisition of the mutual fund administration and accounting servicing division of Fiduciary Management, Inc. This division of Fiduciary has over $8 billion in assets under administration. While this acquisition will confer additional compliance, technology and accounting talent for U.S. Bancorp Fund Services, the company will also benefit from contact with Fiduciary Management’s key client base.

With $266 billion in assets, US Bancorp is the sixth largest commercial bank in the United States. The company’s second quarter earnings of 12 cents per share were a penny short of the Zacks Consensus Estimate, reflecting deteriorating credit quality. However, we have been encouraged by the company’s exit from the Treasury’s Capital Purchase program. The recent signs of economic recovery coupled with such strategic acquisitions bode well.

However, we think that the stressed residential real estate market and the issues with the company’s commercial and retail customers will continue to weigh on the shares of US Bancorp. We therefore continue with our Neutral recommendation.

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